Power of Attorney and Cheque Case

(By S.A. Karim, Advocate, Thiruvananthapuram)

Powers of Attorney Act, 1882, hereafter refers the Act, enables one to act or perform anything on behalf of another. S. 1A of the Act speaks about the definition. It reads-

Power of attorney included any instrument empowering a specified person to act for and in the name of the person executing it.

This instrument is widely used in Civil Courts and before Government and semi Government authorities. Negotiable Instruments Act, 1881, is one of the central Acts of our country. By Act 66 of 1988, Ss. 138 to 142 have been added in the N.I. Act, with effect from 1st April, 1989. Till this date cheque cases were dealt with in civil Courts. Since then dishonoured cheque cases have been tried and disposed off either by the Metropolitan Magistrate or Judicial Magistrate of the first class. The punishment is either imprisonment or fine or both. In criminal Courts power of attorney has no role. In my knowledge, it has been first introduced in the N.I. Act by the Kerala High Court.

In Hamsa v. Ibrahim, reported in 1993 (2) KLT, page 698, Mr. Justice K.T. Thomas of Kerala High Court held that power of attorney holder of a payee or holder in due course can make a complaint under S. 142 of the N.I. Act.   This decision has been followed in Shaji v. Reghunandanan, reported in 1999 (3) KLT, page 82, short notes and in Pandalai v. Jacob C. Alexander, reported in 2000 (2) KLT, page 59. So, the application of power of attorney is a settled position of law in Kerala State.

In S.P. Sampathy v. Manju Gupta & Anr., reported in 2002 Criminal Law Journal, page 2621, Mr. Justice Bilal Nazki and Justice Gopal Krishna Tamada of Andhra Pradesh High Court has held that complainant cannot be filed by a powers of attorney holder on behalf of payee under S. 138 of N.I. Act. The complaint can only be filed in writing by the payee or the holder in due course. Power of attorney holder has no entity in terms of S. 142 of N.I. Act. One can understand a complaint having been made under S. 142 by a holder in due course of the cheque but a power of attorney holder would not be a holder in due course of the cheque. By this decision a batch of petitions have disposed off on the same point of law.

This is the charm of judicial interpretations. It is another classic example that two heads need not think alike. But the misery is to the people. The litigants of one State enjoy the benefit of a positive interpretation and the same is denied to another State. In the case in hand, the application of power of attorney under the N.I. Act is good law in Kerala State, but the same is bad in Andhra Pradesh. This difference can be remedied only by the Apex Court.

'Is Lokayukta 'Watch Dog' of Administration With only Recommendatory Jurisdiction'?

(By N. Dharmadan, Advocate, Ernakulam)

The Lokpal/Lokayukta is the Indian nomenclature of Swedish 'Ombudsman'. It had originally envolved and was intended to function like an 'Ombudsman', in accordance with the recommendations of Administrative Reforms Commission in 1966, for the redress of grievances of the people. In Western countries the 'Ombudsman' developed as one of the components in the system of accountability closely linked with Parliament, This institution, in our country, emerged as citizen's defender and a symbol of democratic Government. According to an eminent jurist it is a "watch dog designed to look into the entire working of the administration"1 and deal with effectively "mal-administration", which is the root cause of all corruption. Its object is to "eliminate corruption in public service" and among the public servant; not by adjudicating the rights of parties as in a civil court or other judicial forum; but by examining the various aspects of the complaints, entering its finding and conclusion and leaving it to the Government or competent authority to take necessary follow up action, in implementation of it in the interest of justice. The final decision generally rests with the Government and the Legislature under the scheme of the Act2 So the role of this institution is advisory and recommendatory to establish and promote the governance of rule of law and thereby develop a system of good governance. By sending reports and its recommendations on complaints from the citizen, it bridges the gap between the citizen and administration.

The broad function of this institution is to investigate written complaints from citizen, who claims to have sustained injustice in connection with mal-administration and acts relating to the administrative machinery, and report its recommendation to the Government, who shall report back about the action taken within a specified period. If the advice of the Lokayukta is not accepted by the Government it will forward again a 'special report' to the Governor for being placed before the Legislature for consideration. But in the actual practice these reports are not laid before the House nor are they discussed in the Legislature because the legislators are not actually interested in such reports. However the most significant part of it is that in forwarding the reports and recommendations the Lokayukta can effectively meet the problems of citizens in its findings and suggestions, for the redressal of grievances, for which citizens mainly approach the Lokayukta with fervent hope of getting reliefs at the hands of competent authority with lesser expense in a limited period.

The institution of Lokayukta was modeled on the Swedish Institution of 'Ombudsman' and "Parliamentary Commissioner" in England3 The powers of 'Ombudsman' in Sweeden4 as defined in the Constitution are (i) to supervise the Judges, Government officials and civil servants, observe the laws, and (ii) to prosecute those who have acted illegally or neglected their duties. The jurisdiction embrances all national and municipal offices. There the 'Ombudsman' can initiate suo motu action and it is independent of the Government, unlike in the case of U.K., where he is an ex-officio member of Council of Tribunals5. On the other hand the jurisdiction of the Newsland6 'Ombudsman' is much wider than that of its Sweedish counter-part in as such as the former can interfere not only in cases of mal-administration, but also in cases of wrong decisions, ultravires, unreasonable, oppressive or discriminatory acts, or decisions withoutreasons7 He is not an agent of executive. He is Parliament's man; but he is not subject to the superintendence of the House or any of its committees.

In India thorough efforts were made for the establishment of some institutions at the centre for the eradication of corruption so far it did not produce any favourable results. The existing machineries for combating corruption are found to be not sufficient to meet the alarming situation. The high level corruption is increasing day-by-day. The Supreme Court in a recent judgment8. observed that corruption in "a civilised society is discease like cancer which if not detected in time is sure to malign the polity of country leading to disastrous consequences". In our democratic set up and the changing Governments the role of Lokayukta is of vital importance. In fact the institution of the Lokayukta is gaining wide acceptance among the general public as a means for ventilating and redressing the grievances of the citizen against those who occupy position in Government for it is being considered as an effective means of guaranteeing civic rights and building up confidence in the administrative activities. But in India as stated above the Governmental efforts to weedout corruption and mal-administration and all attempts to build up confidence in service have miserably failed. Now corruption is rampant and nepotism has infiltrated from the ministerial level to the lower officers damaging the public image of administration and functions of Ministers who are, majority of them, considered as dishonest and inefficient.

Unless and until we provide a basically sound and healthy society no good result should be expected from the implementation of the proposal in the Lokpal Bill framed persuant to the report of the Administrative Committee, which was set up on 5th January 1966 under the Chairmanship of Sri. Morarji Desai. It is doubtful whether this Bill will produce any appreciable improvement in the administration under the present set up. However, the creation of Two tyre" machinary viz., Lokpal at the centre and Lokayukta at the State Level h ad been recommended. Having considered this the Government introduced the Lokpal and Lokayukta Bill 1968 in the Lok Sabha on 10th May 1968. It lapsed due to dissolution the Fourth Lok Sabha. The same was the fate of Lokpal Bill 1971,1977,1985,1989 and 19%. Now Lokpal Bill of 1998 is pending consideration with Parliamentary Committee.

But some States took upon themselves the task of establishing the institution of Lokayukta by enacting state statutes. Maharashtra is the first State which established Lokayukta in 1972. Office of Lokayukta now exist in Assam, Andhra Pradesh, Bihar, Gujarat, Maharashtra, Madhya Pradesh, Himachai Pradesh, Uttar Pradesh, Kerala, Karnataka, Punjab, Orissa and Delhi. The provisions in the State laws with regard to nomenclature, composition, powers and procedure vary from State to State. There is no uniformity. The variances in approach by the States will have some impact on the working of this institution. The changing role of the modem Government is to a certain extent responsible for these variances and the ineffectiveness of the Lokayukta.

The Kerala Lokayukta Act of 1999 was framed by the erstwhile L.D.F. Government, after repealing the then enactment which was in force viz. the Kerala Public Mens Corruption (Investigations and Enquiries) Act, 1987, Act 24 of 1988. This Act was repealed and reenacted with political motive. Without taking into account the very object and real purpose for the introduction of Lokayukta in the prevailing circumstances in Kerala. It is seen from experience that the State Government's interest stops after the enactment of the law in this behalf and giving wide publicity that the Government had taken effective steps to combact corruption and maintain purity of the administration. Thereafter there is no sincere and earnest efforts on the part of the Government to see that the Lokayukta works properly and efficiently. Prompt steps for the implementation of the recommendations of Lokayukta are lacking and there is no machinery for expiditing the same. The greatest draw back lies in the helplessness of Lokayukta when the Government or the concerned authority ignores or refuses to implement the recommendations in the reports of the Lokayukta.

It is under this back ground that the issue concerning the Lokayukta's jurisdiction, as to whether it is invested with all judicial power to express final and binding opinion on the legality or validity of any action or decision impugned before it, becomes relevant.

On a comparative assessment of the statutory provisions now prevailing in the various States it can be stated with certainty that Lokayukta is only an advisory authority without having the powers for adjudicating contesting issues as in the case of a court of law even though it is judicial in character. But it can enter into clear finding and arrive at final conclusion in respect of matters raised in the complaint for sending its recommendations and report to the concerned authority. They can also pass final orders on interlocutory matters in the interest of justice. The Bombay High Court9 while, considering the identical situation held "admittedly under the Act the Lokayukta has no jurisdiction to pass a binding order which will operate on its own force. However it is well established rule of construction that a power to do something essential for the proper and effectual performance of the work which the statute has in contemplation may be implied".

For investigating the complaints wide powers are conferred on this authority. They are also coupled with duty to investigate impartially and independently. It has been held by Bombay High Court in the same case that these powers are "wider than of a court of law". The Court held:

"The million doller question before our democracy is as to who will watch the watchman? This seems to be the object behind the present legislation. It is no doubt true that the Lokayukta is invested with the power of investigation and to make a recommendatory report. However, it is not an exercise in futility".

The Lokayukta, under the present Act, has trie powers to take evidence10 by summoning and enforcing attendance of persons and production of documents, issue commission and enforce other powers of civil Court11. It can decide its own procedure for investigation. The proceedings before it are deemed to be judicial proceedings within the meaning of S. 193 IPC. It has the power to initiate prosecution of a public servant12 who commits criminal offence, intentionally insults the Lokayukta13 interferes or interrupts with the investigation either by words or deeds. It is punishable with simple imprisonment for a term not less than six months or extending to one year and fine extending upto Rs. 5000/-. It is deemed to be a High Court for dealing with contempt coming within the purview of Contempt of Court Act, 197114. It can also initiate prosecution, when false complaints15 are filed with malicious intention, treating it as an offence punishable with imprisonment for a period upto six months and with fine of Rs.2000/- or maximum of Rs. 5000/-. In addition to all these powers the Rules, framed under S.22 of the Act, invest the Lokayukta with the powers of a civil court, while trying a suit under CPC 190816 , to grant injunction, pass interlocutory orders in the interest of justice, implead additional parties, legal representatives, review its decision, dismiss complaints for default, decide complaints ex parte set aside order of dismissal for default, pass ex parte orders etc. The provisions of S. 5 of the Limitation Act, 1963 would be applicable to the application filed before the Lokayukta. All these powers are invested with the object that the Lokayukta functions as an effective machinery for investigation of the complaints of the citizen for eradicating mal-administration and corruption. But since the power to take a binding decision is lacking the end product is unsatisfactory and the object is not achieved. However, it is considered that all findings and conclusions of Lokayukta have the status of the rulings of the High Court. The Government or the competent authority cannot reverse, overrule or set aside such findings and conclusions.

The Kerala Act makes a distinction between the terms of "allegation" S. 2(b) and "grievance" S. 2(h) in the matter of dealing with the complaints. The position is the same in Maharashtra Act and Karnataka Act.

The definitions of these terms are as follows:-

2(b). "allegation", in relation to a public servant, means any affirmation that such public servant,-

(i) has abused his position as such public servant to obtain any gain or favour to himself or to any other person or to cause undue harm or hardship to any other person;

(ii) was actuated in the discharge of his functions as such public servant by personal interest or improper or corrupt motives; or

(iii) is guilty of corruption, favouritism, nepotism or lack of integrity in his capacity as such public servant;

XXX                XXX             XXX

2(h) "grievance" means a claim by a person that he sustained injustice or undue hardship in consequence of mal-administration;

S. 12(1) of the Act deals with "grievance". If the Lokayukta, after investigation of a complaint involving "grievance", is satisfied that it is a genuine one, it will forward the report in the form of a recommendation to the competent authority concerned prescribing the ways and means for remedying or redressing the grievance, which the competent authority shall consider within one month and report back to the Lokayukta about the action taken by it on the report. Then the Lokayukta would close the matter, if it is satisfied that the action taken by the competent authority on the report is due implementation of the recommendation. But if the Lokayukta is not satisfied, it would send a "special report" to the Governor, who would place it before the Legislative Assembly.

S. 12(3) makes provision for investigation of complaints involving an "allegation". While investigating such a complaint if the Lokayukta is satisfied that the allegation is substantiated and the concerned public servant should not continue to hold the post, a declaration shall be made to that effect and forward the report to the competent authority as provided in S. 14(1), which shall be accepted by the competent authority concerned without any further verification or consideration. There is no option to reject or modify it. So there is nothing wrong in assuming that this recommendation of Lokayukta and the findings and conclusions thereof in connection with the "allegation" are binding even though the Lokayukta does not make an executive order or decision by itself apart from forwarding its report or recommendation. Sri. Partric Neill, QC in his book17 has stated after a critical study that "one day it may be necessary to consider enforcement powers on this authority. The hour has come. So it is now desirable to incorporate modifications and additions in the Act for providing more teeth for the enforcement of the findings and conclusions of the Lokayukta. Even though this institution has no power or jurisdiction like the court to pass binding orders, the establishment of this institution will undoubtedly be a big step forward for improving the machinary and mechanism for redressing public grievances.

The usefulness of this institution will depend not on its character, jurisdiction, power etc., but on improving the wider frame work and maintaining three following basic and unique characteristics18, viz:

(1) The Lokayukta is an independent and non-partisum officer, who supervises the administration fairly with utmost honesty.

(2) He deals with specific complaints from the public against administrative injustice and maladministration.

(3) He has the power to investigate, criticise and report back to the Legislature but not to reverse administrative actions.

The functioning of this institution clearly reflects that there is no political will on the part of the Kerala Government and the Legislature to maintain the Lokayukta as an efficient and effective institution for building up public confidence satisfying the above requirements. The successful functioning of this institution necessarily needs a clear understanding among the political parties to keep it above party politics and favouritism. The parmount consideration must be the proper and fair functioning of the institution. It should function effectively irrespective of any change of Governments or political manipulations. The appointment of honest and upright person having atmost honesty and integrity is a sina-qua-non to make this institution an incurreptible, fearless and independent investigative machinery in which the public can have full confidence. The solemn duty of impartial investigation of allegations and grievances by this institution is allowed to be carried out by inefficient persons, against whom personal allegations and cases are pending, the citizen would develop a feeling of frustration, more so if no action is taken when complaints are filed against political head weight or influential persons. It would defeat the very object and purpose for which the institution was established in our State.

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Foot Note:

1. Dr. S.S. Singh, Professor of Indian Institution of Public Administration, in his speech in Sixth All India Conference of Lokayukta and Upalokayukta 2001

2. Kerala Lok Ayukta Act, 1999.

3. Parliamentary Commissioner Act, 1967; the procedure is explained at page50of Vol. IHalsubury's Laws of England 4th Edn.

4. Page 43, Ombudsman, An Indian Perspective by Subhash Chandra Gupta.

5. Ibid Page43.

6. Parliamentary Commissioner (Ombudsman) Act, 1962.

7. Ibid Page 45.

9. Vishwas Rao v. Ayukta State of Maharashtra AIR 1985 Bom. 136.

10. Section 11 of of Kerala Lokayukta Act.

11.Sections 11 (f) and 23 (d).

12. Section 15 of Kerala Lokayukta Act.

13. Section 18 of Kerala Lokayukta Act.

14. Section 19 of Kerala Lokayukta Act.

15. Section 21 of Kerala Lokayukta Act.

16. Rule 3 of Kerala Lokayukta (Power of Civil Court) Rules, 1999.

17. Administrative Justice, Some Necessary Reforms by Sri. Patrick Neill QC Page 128,

18. Page 162 of Ombudsman, An Indian Perspective by Subash Chandra Gupta.

The Securitisation Ordinance - 2002

(By Devan Ramachandran, Advocate, Ernakulam)

Preface

If there is one prominent concern voiced by every Finance Minister tabling the successive Budgets before Parliament is the escalating amount of Bad Debts and its catastrophic impact on the economy of the Country.

The total amount of Bad debts in India is estimated to be anywhere between Rs. 1,00,000 and 1,20,000 crores. Rather disturbing piece of statistic, of course, for a developing economy. Various Committees set up by the Governments at various times have tried to address this problem. The Narasimham Committee reports and the Andhyarujina Committee report have made various recommendations to attempt and bring down the amounts tied up in such bad debts. The Financial Sector have also been lobbying hard for imperative changes in the system for immediate and expeditious recovery of these debts.

It was always thought that the delay in the legal system was one of the primary reasons that hampered speedy recovery of the debts. The Narasimham Committee reports therefore, recommended the setting up of Special Tribunals with special powers for adjudication of the cases and for speedy recovery of the bad debts. It was with this object that the "'Recovery of Debts Due to Banks and Financial Institutions Act, 1993" was enacted. The Act provided for much more simplified and uncomplicated methods for adjudication and recovery of the debts. To add to the momentum, the Government announced various Amnesty and "One Time Settlement" Schemes for repayment of the defaulted debts.

Though the above measures worked to a certain extend, it was still felt that in spite of these measures, the Banks and Financial Institutions were still reeling from lack of liquidity on account of the locking up of large amounts of money in bad debts. It was therefore, necessary to provide liquidity by somehow converting the bad debts into something more productive. This process is defined as "Asset Reconstruction" in the Ordinance. The Ordinance also seeks to arm the Banks and Financial Institutions with sufficient power to enforce their Security interest. Thus on the one side the Ordinance aims at providing Securitisation and Reconstruction of the Assets (bad debts) and on the other to provide for the effective enforcement of the Security interest by the secured creditor.

Securitisation and Asset Reconstruction

The Ordinance provides for this by setting up a Securitisation Company or a Reconstruction Company as per the provisions of Ss. 3 and 4 of the Ordinance. Such a company is required to obtain a registration certificate as per S. 3 of the Ordinance. Such a company may then acquire any right or interest of any Bank or Financial Institution in any financial assistance for the purpose of realisation of such financial assistance. This is called "Asset Reconstruction". Simply put the bad debts are thus acquired by a Securitisation Company or a Reconstruction Company for a consideration to be fixed mutually. The bank is thus able to convert the bad debt into valuable resources so as to enable it to use the same for more productive purposes. This is made possible by allowing the banks and other financial institutions to convert their assets into "Securities" in the form of Debentures or Bonds for valuable consideration, which may then be acquired by a Securitisation Company or Reconstruction Company (S. 5 of the Ordinance).

The Ordinance further provides that once the Securitisation Company or a Reconstruction Company acquires the assets as stated above, they would be deemed to be the lender and would be entitled to all the rights of the Bank. It is further provided that the acquisition of the asset by a Securitisation Company or a Reconstruction Company would not in any manner abate or discontinue any suit or other legal proceeding and that the same will be continued prosecuted and enforced by the acquiring company.

Methods for Asset Reconstruction

S. 9 of the Ordinance details the methods that could be adopted by the Securitisation Company or a Reconstruction Company for the purpose of asset reconstruction. These include the power:

(a) to ensure proper management of the business of the borrower by change in, or take-over of, the management of the business;

(b) the power to sell or lease the whole or part of the business of the borrower;

(c) the power to reschedule the payment of debts by the borrower;

(d) the power to settle the dues by the borrower and

(e) taking possession of the assets in accordance with the provisions of the Ordinance.

Enforcement of Security Interest

Chapter III, S. 13 of the Ordinance provide for far reaching powers to the secured creditor to enforce a security interest. The secured creditors have been empowered by the Ordinance to enforce any security interest created in their favour, without the intervention of the Courts or Tribunals in accordance with the provisions of the Ordinance.

i) Methods for enforcing security interest

The section provides that where a borrower, under a liability to a secured creditor under a security agreement, makes default of the payment of the debt and such debt is classified as a Non Performing Asset, such creditor may issue a notice to the borrower directing him to discharge the liability in full within a period of sixty days from the date of receipt of the notice. If the borrower fails to do so, the creditor has been empowered by the Ordinance to exercise any of the powers detailed in the section. These include:

(a) the power to take possession of the secured assets including the right to take possession of the assets of the borrower including to transfer by way of lease, assignment or sale;

(b) the power to take over management of the secured assets of the borrower including to transfer by way of lease, assignment or sale;

(c) the power to appoint any person as a Manager to manage the secured assets taken over by the secured creditor;

(d) the power to require at any time by notice in writing, a person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay to the secured creditor, so much money as is sufficient to pay off the secured debt.

(ii) Power of Secured Creditor to seek assistance of Chief Metropolitan or District Magistrate to take possession

S. 14 of the Ordinance provides that where the possession of the secured asset is required to be taken by the secured creditor or the same is required to be sold or transferred, the secured creditor may for this purpose request in writing the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction the asset or other documents is situated to take possession thereof. On receipt of such a request, the said Magistrate shall take possession of the said asset or documents and forward such asset to the secured creditor. The section also empowers for this purpose, the Chief Metropolitan Magistrate or the District Magistrate to take, or cause to be taken, such steps and also to use, and cause to used, such force, as may, in his opinion, be necessary. The Ordinance also make it clear that any act done by such Magistrate in pursuance of this section shall be called in question in any Court or before any authority.

iii) Manner and effect of take over of management:

S. 15 of the Ordinance provides that when the management of the business of the borrower is taken over by a secured creditor, the secured creditor may by publishing a notice in a newspaper appoint as many persons as it may think fit as Administrator to administer the business of the borrower and if the borrower is a company as defined under the Companies Act, 1956, as Directors of such company in accordance with the provisions of the Companies Act. On the publication of the above notice, all the Directors of the company, if the borrower is a company and all persons holding any office of superintendence, direction or control of the business of the borrower in other cases, shall immediately be deemed to have vacated their offices as such. The Directors and Administrators appointed as above shall take all steps necessary to take into their custody or into their control all the property, effects and actionable claims of the business of the borrower. The ordinance further provides that once the management is taken over as above, no proceeding for winding up of the company or appointment of receiver shall lie in any Court, except with the consent of the secured creditor. Finally when the debt is realised in full, the secured creditor shall restore the management of the business of the borrower to him.

iv) Appeals

S. 17 provides that any person including the borrower, who is aggrieved by the measures taken by the Secured Creditor to enforce his secured interest may prefer an appeal to the Debt Recovery Tribunal of relevant jurisdiction within fourty five days. However, the Tribunal can entertain the appeal only if the appellant deposits seventy five percent of the amount claimed in the notice. This amount may be waived or reduced by the Tribunal for reasons to be recorded in writing. A further appeal to the Appellate Tribunal is provided under S. 18 of the Ordinance within thirty days from the date of receipt of the order of the Tribunal.

Other salient provisions

i) Ordinance to override other laws:S. 35 of the Ordinance states that the provisions of the Ordinance shall have effect, notwithstanding anything inconsistent therewith contained in any other law in force.

ii) Application of other Laws not barred :S. 37 provides that the provisions of the Ordinance and Rules shall be in addition to, and not in derogation of, the Companies Act. The Securities Contracts (Regulation) Act. The Securities and Exchange Board of India Act, The Recovery of Debts Due to Banks and Financial Institutions Act and such other laws.

iii) Civil Courts to have no jurisdiction:S. 34 of the Ordinance provides that no Civil Court shall have the jurisdiction to entertain any suit or proceeding in respect to any of the matters which the DRT or the Appellate Tribunal is empowered to determine. It also provides that no injunction shall be granted by any Court or Authority in respect of any action taken or to be taken under the Ordinance.

iv) Register of Securitisation. Central Registry etc :S. 20 of the Ordinance provides for the establishment of a Central Registry to maintain a record of all transactions. Ss. 21 and 22 provides for the appointment of a Central Registrar and for the setting up of a Central Register under his control. Particulars of every transaction of securitisation, assets reconstruction or creation of security are to be filed with the Central Registrar within thirty days after the date of such transaction or creation of security. The particulars entered in the Register would be open for inspection by any person on the payment of a fee.

The impact and effect

The Ordinance is definitely a step in the right direction. The objectives are certainly laudable and right in earnest. The provisions for Securitisation of assets would inject the Financial Sector with immediate liquidity, since the Banks and other Financial Institutions would be able to convert their bad debts into securities which can be returned to the system without having to wait for years to realise the debts. The idea behind the Ordinance is to ensure that the Banks and Financial Institutions are given an impetus to lend money to worthy persons and causes without the fear of having to deal with the large amounts of "Non Performing assets". The Ordinance aims to specifically deal with the problem of "Non Performing Assets" and aims to convert the same into "Performing Assets" in the form of securities.

The Ordinance has addressed the problem of the Banks and Financial Institutions having to wait for years to exercise their right to sell the mortgaged property. S. 13 of the Ordinance, which permits the banks to enforce their security interest in the manner specified therein, expressly overrides the provisions of S. 69 the Transfer of Property Act, which restricts the rights of the mortgagee to sell the mortgaged property. The endeavour in the Ordinance is to instill hope and courage in the banks and financial institutions to lend.

There are however reasons for concern also. The provisions of the Ordinance would make it impossible for even for non willful defaulters to make a proper defense. The Ordinance does not deal with a situation where an account becomes non performing for no default of the borrower or where the borrower is facing actual financial precariousness. There is also the danger of the Banks or Financial Institutions turning sanguinary and exercising the powers under the Ordinance to enforce their security by selling the same in haste and without offering the borrower an opportunity to state his case. Added to this is the rigorous S. 17(2) of the Ordinance, which makes an appeal to the Debt Recovery Tribunal virtually impossible, since this section mandates that the Tribunal may not entertain the appeal unless the borrower deposits seventy five percent of the amount claimed by the Bank or the Financial Institution as the case may be. These concerns may perhaps have to be reconciled by the Hon'ble Court when the Ordinance is pressed into service in the days to come.

There cannot be any ambivalence for the need for implementation of a strong law for recovery of bad debts. The insalubrious escalation of non performing assets needed to be addressed urgently. In such focus, the Ordinance is on the right direction. Much would now depend on the manner in which it is put into use.

Pre-Cogntzance Investigation V. Post Cognizance Enquiry

(By Devan Ramachandran, Advocate, Ernakulam)

"Just as it is essential that every one accused of a crime should have free access to a Court of Justice,..........so it is of the utmost importance that the judiciary should not interfere with the police in matters which are within their province and into which the law imposes on them the duty of enquiry" (Privy Council in (1944) 71 Ind App 202)

Apropos the judgment of the Hon'ble High Court of Kerala in Joisy v. Sub Inspector of Police reported in 2002 (3) KLT 172:

The question of law which came up for consideration before the Hon'ble Court was whether a Magistrate who had taken cognizance of an offence has the power to then direct the Police to conduct further investigation into the allegations under S. 173(8) of the Code of Criminal Procedure. The Hon'ble High Court has answered this in the affirmative holding that"......... there is no reason for saying that after taking cognizance of the offence, a court cannot ask the investigating agency to exercise jurisdiction which has been conferred on that agency under S. 173(8) of the Code". The Hon'ble Court has relied on the judgment of the Hon'ble Supreme Court in Sri. B.S.S.V.V. Vishwandadha Maharaj v. State of A.P., reported in AIR 1999 SC 2332. I beg to submit that a contrary view, long settled by the Hon'ble Supreme Court in various cases, has perhaps escaped attention of the Hon'ble Court.

The issue whether the Magistrate has the power to order fresh investigation after taking cognizance of an offence has been dealt with by our High Court as well as the Hon'ble Supreme Court in various cases. The judicial opinion voiced in a number of cases no doubt goes to emphasise that a Magistrate can direct the police to conduct further investigation even after the Court had taken cognizance of the offence. However, the point of controversy is as to the scope and nature of investigation the Magistrate is empowered to direct and the provision of law under which such an investigation can be ordered.

The powers of the Police to investigate into the alleged commission of an offence or offences upon receipt of information are governed by Chapter XII of the Code of Criminal Procedure. The police officer's power to investigate a cognizable offence is as mandated in S. 156 of the Code. The power of the Court to order investigation under S. 156(3) of the Code has been summed up by the Hon'ble Supreme Court in Devarapalli Lakshminarayana Reddy v. Narayana Reddy (reported in AIR 1976 SC 1672). The Hon'ble Court opined:

"It may be noted that an order made under sub-s. 3 of S. 156 is in the nature of a peremptory reminder or intimation to the Police to exercise theirplenary powers of investigation under S. 156(3). Such an investigation embraces the entire continuous process which begins with the collection of evidence under S. 156 and ends with a report or chargesheet under S. 173".

The question then was whether a report under S. 173 would put an end to the power of the Police to conduct any further investigation into the matter. Some High Courts took the vie that it would cease since any further investigation by the Police would trench upon the magisterial cognizance of the offence. However, the Law Commission in its 41st report recognized the position and recommended that the right of the Police to conduct further investigation should be statutorily affirmed. The Law Commission said:

"A report under S. 173 is normally the end of the investigation. Sometimes, however, the police officer submitting the report under S. 173 comes upon evidence bearing on the guilt or innocence of the accused. We should have thought that the police officer can collect that evidence and send it to the Magistrate concerned. It appears, however, that the courts have sometimes taken the narrow view that once a final report under S. J 73 has been sent, the police cannot touch the case again and cannot reopen the investigation. This view places a hindrance in the way of the investigating agency, which can be very unfair to the prosecution and, for that matter, even to the accused. It should be made clear in S. J 73 that the competent police officer can examine such evidence and send a report to the Magistrate ".        (See AIR 1976 SC 1672)

It is thus that S. 173(8) of the Criminal Procedure Code was introduced by the Code of Criminal Procedure, 1973. This power of the Police now statutorily recognised under S. 173(8) to conduct fresh investigation as and when new and fresh facts come into light has however been circumscribed by the Hon'ble Supreme Court in the judgment in Ram Lai Narang v. State reported in AIR 1979 SC 1791. The Hon'ble Court stated:

" We should not, however, be understood to say that the Police Officer should ignore the pendency of a proceeding before a Court and investigate every fresh fact that comes into light as if no cognizance has been taken by the Court of any offence. We think that in the interests of the independence of the magistracy and the judiciary, in the interests of the purity of the administration of criminal justice and in the interests of the comity of the various agencies and institutions entrusted with different stages of such administration, it would be desirable that the police should inform the court and seek formal permission to make further investigation when fresh facts come into light". (See also 1993 (2) KIT 49 and 1999(1) KIT 184)

The law having been thus laid, the question remains as to whether a Magistrate can direct the Police to conduct fresh investigation under S. 156(2) or 173(8) of the Code of Criminal Procedure after the Court had taken cognizance of the offence.

In the judgment of Tula Ram v. Kishore Singh reported in AIR 1977 SC 2401, the Hon'ble Supreme Court laid down certain legal propositions as to the course of action a Magistrate could take once he took cognizance of an offence. The discretion of the Magistrate to order further investigation after taking cognizance of an offence was laid down by the Hon'ble Court as under:

"The Magistrate can order investigation under S. 156(3) only at the pre-cognizance stage, that is to say, before taking cognizance under Ss. 190, 200 and 204 and where a Magistrate decides to take cognizance under the provisions of Chapter XIV he is not entitled in law to order any investigation under S. 156(3) though in cases not falling within the proviso to S. 202, he can order an investigation by the police which would be in the nature of an enquiry as contemplated by S. 202 of the Code".

The power of the Magistrate to order further post cognizance investigation is therefore, beyond much doubt, but the question is under which provision and in what manner.

From the above discussion, it is beyond dispute that the Chapters XII and XV of the Code have been intended to deal with different scenarios. The former dealing with pre-cognizance action and the latter dealing with post-cognizance action (See AIR 1976 SC 1672). The Hon'ble Supreme Court had reiterated the position in the Devarapalli Lakshminarayana Reddy case (supra). The Hon'ble Court stated as follows:

"S. 156(3) occurs in Chapter XII under the caption "Information to the Police and their power to investigate". While 5.202 is in Chapter XV which bears the heading of "Of complaints to Magistrates". The power to order police investigation under S. 156(3) is different from the power to direct investigation conferred by S. 202(1). The two operate in distinct spheres at different stages. The first is exercisable at the pre-cognizance stage the second at the post-cognizance stage when the Magistrate is in the seisin of the case. That is to say in the case of a complaint regarding the commission of a cognizable offence, the power under S. 156(3) can be invoked by the Magistrate before he takes cognizance of the offence under S. 190(1 )(a). But if he once takes such cognizance and embarks upon the procedure embodied in Chapter XV. he is not competent to switch back to the pre-cognizance stage and avail of S. 156(3)".   (emphasis supplied)

It is true that the Supreme Court was dealing with the powers of investigation under S. 156(3) of the Code. However, since S. 173 is also included in Chapter XII of the Code, it is trite that the above proposition applies to S. 173(8) also. Moreover as stated earlier, the process of investigation under Chapter XII of the Code has been defined by the Hon'ble Supreme Court as the "continuous process which begins with the collection of evidence under S. 156 and ends with the report or chargesheet under S. 173". (see AIR 1976 SC 1672)

Thus once the Magistrate takes cognizance of an offence, the next stage, namely the post cognizance stage comes into being. This stage comes in at a stage when some evidence has already been collected by the Police or otherwise and the same is deemed insufficient to make a decision. In such situation the Magistrate is empowered under S. 202 to direct, within the powers circumscribed by the section, an investigation for the purpose of deciding whether or not there is sufficient ground for proceeding. Thus the object of investigation at this stage is not to initiate a fresh case but to assist the Magistrate in completing proceedings already instituted upon a complaint before him.

Hence 1 submit for consideration that once a Magistrate, who takes cognizance of an offence under Chapter XIV of the Code, cannot thereafter revert to the pre-cognizance stage and order an investigation under S. 156(3) or 173(8) of the Code. The only power by which he can direct investigation after taking cognizance is under Chapter XV of the Code and this investigation would only be in the nature of an enquiry as contemplated by S. 202 of the Code.

NDPS (Amendment) Act, 2001 - Some Reflections

(By T.D. Robin & K.S. Sabitha, Advocates, Ernakulam)

The Narcotic Drugs and Psychotropic Substances Act was enacted in 1985. The need felt was the inefficacy of effectively controlling the drug abuse. On its enactment it replaced three previous Acts viz. (3) The Opium Act, 1957 (Act No. 13 of 1957), The Opium Act, 1878 (Act No. 1 of 1878) and Dangerous Drugs Act, 1930 (Act No. 2 of 1930) vide repeal through S. 82 of the NDPS Act, 1985.

Stringent punishments like minimum sentence of0 years R J. and fine of Rs.'one lakh which could extend upto sentence of R. 1 for 20 years and fine of Rs. 2 lakhs as well as minimum sentence of 15 years; fine of Rs. 1.5 lakhs which could extend upto 30 years R.I. and 3 lakhs for previous offenders were some of the salient features.

The Act was amended in 1998 (Act 2 of 1999) which implemented harsher punishments like death penalties for certain offences, stringent bail conditions and ban on suspension, remission and commutation of sentences.

The recent Amendment Act, NDPS Amendment Act, 2001 (9 of 2001) came into force on 2.10.2001. In the statement of Objects and Reasons of the Act it has been mentioned that while the Act envisages severe punishment for drug traffickers, it envisages reformative approach towards addicts. It continues to say that therefore it is proposed to rationalise the sentence structure so as to ensure that while drug traffickers who traffic in significant quantities of drugs are punished with deterrent sentences, the addicts and those who commit less serious offences are sentenced to less severe punishments.

In fact, the Act has unbelievingly been lenient in the matter of punishments and stringency of bail conditions. The Amended Act (has to be read along with the Principal Act, 1988) gives great relief to the addicts most of whom are youngsters who have knowingly or unknowingly fell in the trap of real traffickers in narcotic and psychotropic substances.

The salient features of the Amended Act can, in a nut shell, be put as follows:

1. Quantities- The amended act has classified the quantum of the drugs into three quantities namely small quantity, commercial quantity and the intermediate quantity. The schedule attached to the Act prescribes the limits. Intermediate quantity is that which exceeds the small quantity and is lesser than the commercial quantity.

2. Burden of Proof and Punishment for Small Quantity:-Under S. 27 of the principal Act, the punishment for illegal possession in small quantity for personal consumption of any Narcotic Drug or Psychotropic Substance was imprisonment for 1 year or with fine, imprisonment with 6 months, or with fine or with both, depending upon the nature of the substance. By Notification dated 14.11.85, small quantity of 5 Narcotic Drugs were published and power was vested with the Chief Medical Authority of each District to prescribe, the small quantity of Psychotropic Substances which were not notified. Even though an elaborate schedule specifying the small quantity had been notified as early as in 1996, unfortunately, the notification had come to the notice of legal circle much later. Moreover, the notification was issued really for the purpose of invoking the benefits of S. 27 of the Principal Act. Even though in the case of general exceptions in the Indian Penal Code and other statutes, burden of proof was that of preponderance of probability, under the Principal Act, the burden of proof under S. 27 was not that of preponderance of probability, but one beyond the shadow of reasonable doubt. In otherwords, if one wanted to avail the benefit of S. 27 of the Principle Act, apart from rebutting the presumption under S. 54 one had to prove it beyond reasonable doubt. This particular position had the inherent danger of first admitting the possession and then proving that it was for self consumption. True, if the venture was successful one could escape with either 6 months or 1 year imprisonment or with fine or with both according to the nature of the substance. But if it failed, tine had no other remedy but to undergo a sentence of minimum R.I. for 10 years and pay minimum fine of Rs. 1 lakh which may extend to R.I. for 20 years and 2 lakhs fine. This was the juncture where the trial lawyer literally felt his nerves breaking in taking up a decision; whether to plead possession for self consumption or go for a trial of total denial.

The Amended Act has now bestowed the trial lawyer with great relief in the above aspect. According to the Amended Act, whatever be the substance, if it comes under small quantity, the maximum sentence that can be awarded is only 6 months or with fine or both. The accused need not prove at all that it was for his personal consumption.

Likewise, the punishment for intermediate quantity has been reduced to one of R.I. which may extend up to 10 years and with fine.

The sword of Democles now hangs only above the head of Ss. 19,24,27A and commercial quantity wherein the punishment is rigorous imprisonment for a term which shall not be less than 10 years, but which may extend to 20 years and shall also be punishable with fine which shall not be less than 1 lakh, but which may extend to 2 lakhs.

To put it simply, if an accused is booked for possessing 1 kg. of ganja (small quantity) he can be punished with R.I. for a term which may extend to 6 months or with fine or with both; if it is exceeds 1 kg. and is short of 20 kg. (which is the commercial quantity) with rigorous imprisonment which may extend upto 10 years and with fine and if it is 20 kg. or more, with R.I. for a term which shall not be less than 10 years, but which may extend to 20 years and shall also be liable for fine which shall not be less than one lakh but which may extend upto 2 lakhs rupees.

3. Substantial Change in the case of Bail:Before the amended Act, S. 37 of the Principal Act regulated the bail conditions. One of the insurmountable conditions for release on bail was that the Court should be satisfied that there were reasonable grounds to believe that the accused was not guilty of the offence alleged against him/her. Blatant violations of S. 50 or 42 of the Principal Act were the only loop holes.

Another peculiarity of the section was the prominence of the prosecutor over the Judge in exercising the discretion of granting bail. The wording of S. 37 'The Public Prosecutor should be given notice and if he opposes' manifestly meant that if the Prosecutor refrained from opposing grant of bail, the Judge had to grant bail. In case of opposition from the Public Prosecutor, the Court had no other option but to resort to the clause of belief that the accused was not guilty and that there was no likelihood of his repeating the offence if bail was to be granted.

The only other remedy was the right under the S. 167(2) of the CRPC, which vigilant prosecuting agencies almost always shut out by filing the charge sheets within the prescribed time limit.

The Amendment Act has deleted from S. 37, the words 'a term of imprisonment for 5 years or more' under the Principal Act and substituted the words, figures, and letters "offences under S. 19, or S. 24, or S. 27A and also for offences involving commercial quantity". The substitution categorically excludes Ss. 15, 16, 17, 18, 20, 21, 22 & 23 from the grip of the stringent conditions of S. 37 of the Act in as much as they don't come under the commercial quantity.

The offences punishable under Ss. 15,16,17,18,20,21,22 & 23 of the amended Act whether bailable or not.

The heading of S. 37 of the Principal Act 'offences to be cognizable and non bailable' which appears as such in the Amended Act has created some confusion.

To come to a conclusion regarding the confusion with respect to the head note 'non bailable' which appears in the principal Act and stand as such in the amended Act, recourse has to be taken to various Sections of the amended Act as well as interpretation of statutes.

Decisions are a plenty that head notes by themselves do not mean much in certain circumstances, where the wording of the sections covered by the head notes are clear and unambiguous. A systematic approach to various sections lying scattered in the amendment Act will be sufficient to clear the doubts in this regard.

S. 36A. (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973,

(a) All offences under this Act which are punishable with imprisonment for a term of more than three years shall be triable only by the Special Court constituted for the area in which the offence has been committed or where there are more special Courts than one for such area, by such one of them as may be specified in this behalf by the Government.

(b) So also S. 36A(5)of the amendment Act reads as follows:

Notwithstanding anything contained in the Code of Criminal Procedure. 1973. The offences punishable under this Act with imprisonment for a term of less than three years may be tried summarily:

(c) In the Notes on clauses, clause 15 reads as follows:

This clause provides for trial of offenders who are charged with offences punishable with sentence upto three years by the Court of Magistrate and for Summary trial of such offenders. This clause also provides for remand of accused charged with serious offences upto one year without filing challan/complaint.

Now that S. 37 has deleted the words "offences punishable with imprisonment of 5 years or more and has mentioned only Ss. 19, 24, 27A and commercial quantity, grant of bail for offences coming under Ss. 15,16,17,18,20,21,22,23,26& 27 will be controlled by the Code of Criminal Procedure (excluding commercial quantity). NDPS Act, being an other law than the Indian Penal Code, recource will have to be taken to the second Schedule of Cr. P.C. which deals with classification of offences against other laws. When viewed in that angle, offences mentioned above which are punishable with sentence less than 3 years should be construed as bailable and those which exceed as non bailable. It is needless to say that the provisions regarding grant of bail enumerated under the second Schedule of the Criminal Procedure Code, squarely applies to the above sections.

Applicability of the Act and an Anomaly

S. 41 of the Amendment Act describes the applicability of the Act. It reads as follows:-

Notwithstanding anything contained in sub-s. (2) of S. 1 all cases pending before the courts or under investigation at the commencement of this Act shall be disposed of in accordance with the provisions of the principal Act as amended by this Act and accordingly, any person found guilty of any offence punishable under the principal Act, as it stood immediately before such commencement, shall be liable for a punishment which is lesser than the punishment for which he is otherwise liable at the date of the commission of such offences:

Provided that nothing in this section shall apply to cases pending on appeal. There is no ambiguity in the wordings that from 2.10.2001 onwards the principal Act as amended by the amendment Act of 2002 will be applicable to all cases pending before the court or under investigation at the time of commencement of the Amendment Act.

The only anomaly seems to be the proviso to S. 41 which says that nothing in that section shall apply to cases pending on appeal. Even though the wording are clear and unambiguous and the intention of the Legislature seems to be beyond doubt, the proviso seems to be unconstitutional as far as it discriminates an accused (appellant) punished for possessing small quantity and undergoing sentence for a minimum period of 10 years and minimum fine of 1 lakh for failure to prove possession for personal consumption with an accused who possesses small quantity and escapes with maximum sentence of 6 months with or without fine;

The proviso is arbitrary, unreasonable and highly discriminatory. No reasonable classification can be spelt out from any of the sections either in the Principal Act or amended Act.

Procedure in cases triable for offences punishable with less than 3 years.

When S. 36A specifically states that all offences under this Act which are punishable with imprisonment for a term of more than 3 years shall be triable only by the special court constituted........... It can be safely assumed that all offences triable upto 3 years shall be tried by Magistrate Courts. Reading S. 36(5) along with 36(A) will clearly show that summary trial of such offences are also allowed.

The question then to be considered is how Cr. P.C. deals with the problem. S. 228 of the Cr. P.C. it seems, throws ample light on this aspect. S. 228 deals with cases where sessions Judge feals that the trial before him is not exclusively triable by court of Sessions. What is prescribed in such cases in that the court may frame a charge against the accused and may transfer the case to the Chief Judicial Magistrate and thereupon the Chief Judicial Magistrate Court shall try the offences in accordance with the procedure for trial of warrant cases instituted upon police report. For the time being, this seems to be the only procedure that can be adopted in cases involving small quantity.

This procedure when adopted in Kerala is sure to burden the C.J.M. Courts with cases of small quantity in that Session Division. Here it has to be noted that in Karnataka and Kolkatta amendment has been effected in S. 228 Cr. P.C. by amending the wording of the Section "to the Chief Judicial Magistrate Court or any other competent Court". It would therefore be much helpful if such an amendment is carried out in Kerala too. Let us hope that the appropriate authorities will take the necessary steps for amendment of this section at the earliest.

Suspension of sentence by trial courts and appellate courts

S. 32A of the Principal Act had imposed a complete ban on the suspension, remission and commutation of sentences in cases wherein accused were convicted under the NDPS Act (Excepting conviction under S. 27 of the Principal Act). The Hon'ble Supreme Court had in a recent decision (before the amendment) considered the constitutional validity and inter alia had declared that an accused convicted for other offences than S. 27 would be entitled to suspension of sentence if at the appellate stage, he could convince the court that the conditions prescribed in S. 37 of the principal Act still existed.

Now that S. 37 has left out Ss. 15,16,17,18,20,21,22 and 23 from its ambit, S.389 of the Criminal Procedure Code would have to be adhered to in the matter of suspension of sentence. The observation of the Hon'ble Supreme Court regarding the suspension of sentence also will have to be treated and no more applicable after the amendment. Therefore, it has to be assumed that the suspension of sentence regarding the above offences will be controlled by the provisions ofS.389 Cr. P.C.

Trial by which Court and committal if necessary

In the light of S. 36A, only special courts and designated courts can be deemed to be Courts of original jurisdiction for trial of NDPS cases for which punishment for more than three years are prescribed. Where it is only upto 3 years, the Chief Judicial Magistrate alone will be competent to try the offence ie., regarding pending cases and investigation. Where it exceeds 3 years, the FIR can be directly filed before the special court since it has original jurisdiction by virtue of S. 36(A). If by mistake or ignorance of the investigating agency, FIR and annexed documents and MO's of cases wherein only offences triable upto 3 years are filed before the special Court after the commencement of the Amendment Act they will have to be returned back to the Magistrate Court having jurisdiction to try the case and in the cases involving offences punishable with more than 3 years, if the documents are filed before the Magistrate Courts, these Courts will have to forward it to the special courts.

Apart from the proviso to S. 41 of the Amendment Act which denies the application of the benefit of S. 41 to cases pending on appeal, the whole amendment Act is a welcome change. In the light of the fact that there had not been any decrease in the commission of crimes of NDPS cases inspire of stringent punishments and bail conditions being imposed by the Principal Act, one is constrained to think that sincere effect on the part of the investigating agency in prevention of crimes by booking the realguns behind the drug business and whole-hearted effort from all sections of the society to create awareness regarding the dangers inherent in the use of drugs are the best possible ways of saving the society from this menace.