VALIDITY
OF statutory notice u/s 138 of NegotiaBle Instruments Act: PARAMETER
The legal
statutory notice u/s 138 of Negotiable Instruments Act is of paramount
importance, so far as instituting a criminal complaint u/s 138 of the said act
is concerned. It is so, as the receipt of legal demand notice and non-payment
of demanded sum i.e sums under the dishonoured cheques shall finally give rise
to cause of action for lodging a criminal complaint u/s 138 of Negotiable
Instruments Act. The requisites in this regard shall of course be (i) issuance of cheque, (ii) dishonour of cheque, (iii) cheques issued towards
consideration, (iv) issuance of
legal demand notice cum statutory demand notice and (v) non –payment of demanded amount i.e dishonoured cheque amount.
The bundle of cause of action culminates in not making of payment by the
prospective accused, even after expiry of Fifteen (15) days from the date of
receipt of the legal notice and despite receipt of legal notice as aforesaid.
It is worthwhile to state that if after Fifteen (15) days of receipt of legal
demand notice, the payment is not made, then, only finally cause of action
shall arise for filing complaint against the accused persons. That said, the
validity of notice shall have to be appreciated in the touchstone of law and if
legal notice is valid and despite receipt of it by the drawer of cheque, does
not make payment, the complaint shall be lodged. The important dimension
which has necessitated this write up, however, is what, if part payment is made
before issuance of demand legal notice and in the demand legal notice, no such
description is given. Whether, a demand legal notice or statutory notice u/s
138 of the Act shall be valid, if part payment made before issuance of cheque?
In other words, making it simpler, if a cheque amount is for a sum of Rs 100/-
for instance and Rs 10/- was paid by the drawer of cheque before issuance of
statutory notice. The cheque of Rs 100/- was, though presented and dishonoured
for insufficiency of funds, but the statutory notice cum demand legal notice
under section 138 of Negotiable Instruments Act calls upon the drawer of the
cheque to pay Rs 100/- within Fifteen (15) days of receipt of notice, without
factoring the part payment made. Whether such a legal demand notice u/s 138 of
Negotiable Instruments Act shall be valid or not?
We know that the legal position has remained thus
far is that demand notice should contain the amount of dishonoured cheque
and no more in order to be valid,
irrespective of part payment having been made before issuance of legal notice. Now,
however, it appears that in order to make a legal notice a valid one u/s 138 of
the NI Act, the amount paid before issuing legal notice is to be factored in
the legal notice, else the legal notice may not be construed as valid. Is it so? This position has emerged quite
recently and the endeavour herein is to find out as to what are the requisites
and how are that met.
It is important to reproduce the legal
position as enumerated in Section 118 (a) and Sec.139 of the N.I. Act here. Section 118(a) of the Act provides that until the
contrary is proved, it shall be presumed that “that every negotiable instrument
was made or drawn for consideration, and that every such instrument, when it
has been accepted, endorsed, negotiated or transferred, was accepted, endorsed,
negotiated or transferred for consideration. Further, Section
139 of the Act lays down that “it shall be
presumed, unless the contrary is proved, that the holder of a cheque received
the cheque of the nature referred to in section 138 for the discharge, in whole
or in part, of any debt or other liability.”
LAW
1.
That
in a matter captioned as M/s
Alliance Infrastructure Project Pvt. Ltd. and Ors. Vs. Vinay Mittal ILR (2010) III Delhi 459 the Hon’ble High Court has held that:
“ The question which comes up for
consideration is as to what the expression “amount of money‟ means in a case
where the admitted liability of the drawer of the cheque gets reduced, on
account of part payment made by him, after issuing but before presentation of
cheque in question.” In relation to the said question it was observed that “If
it is held that the expression "amount of money" would necessarily
mean the amount of cheque in every case, the drawer of the cheque would be required
to make arrangement for more than the admitted amount payable by him to the
payee of the cheque. In case he is not able to make arrangement for the whole
of the amount of the cheque, he would be guilty of the offence punishable under
Section 138 of Negotiable Instruments Act. Obviously, this could not have been
the intention of the legislature to make a person liable to punishment even if
he has made arrangements necessary for payment of the amount which is actually
payable by him. If the drawer of the cheque is made to pay more than the amount
actually payable by him, the inevitable result would be that he will have to
chase the payee of the cheque to recover the excess amount paid by him.
Therefore, I find it difficult to take the view that even if the admitted
liability of the drawer of the cheque has got reduced, on account of certain
payments made after issue of cheque, the payee would nevertheless be entitled
to present the cheque for the whole of the amount, to the banker of the drawer,
for encashment and in case such a cheque is dishonoured for wants of funds, he
will be guilty of offence punishable under Section 138 of Negotiable Instrument
Act. I am conscious of the implication that the drawer of a cheque may make
payment of a part of the amount of the cheque only with a view to circumvent
and get out of his liability under Section 138 of Negotiable Instrument Act.
But, this can easily be avoided, by payee of the cheque, either by taking the
cheque of the reduced amount from the drawer or by making an endorsement on the
cheque acknowledging the part payment received by him and then presenting the
cheque for encashment of only the balance amount due and payable to him’.
The
Hon’ble Delhi High Court has gone further in observing as under:
“In fact, Section 56 of Negotiable
Instrument Act specifically provides for an endorsement on a Negotiable
Instrument, in case of part-payment and the instrument can thereafter be
negotiated for the balance amount. It would, therefore, be open to the payee of
the cheque to present the cheque for payment of only that much amount which is
due to him after giving credit for the part-payment made after issuance of
cheque.” “ When the principal amount claimed in the notice of demand is more
than the principal amount actually payable to the payee of the cheque and the
notice also does not indicate the basis for demanding the excess amount, such a
notice cannot be said to be a legal and valid notice envisaged in Section
138(b) of Negotiable Instrument Act. In such a case, it is not open to the
complainant to take the plea that the drawer of the cheque could have escaped
liability by paying the actual amount due from him to the payee of the cheque.
In order to make the notice legal and valid, it must necessarily specify the
principal amount payable to the payee of the cheque and the principal amount
demanded from the drawer of the cheque should not be more than the actual
amount payable by him though addition of some other demands in the notice by
itself would not render such a notice illegal or invalid.”
2.
The
Hon’ble High Court of Gujarat in the case of Shree Corporation vs Anilbhai Puranbhai Bansal (2018)
2 GLH 105 has also
held on the aforesaid line.
3.
That
similarly, a Division bench of Kerala High Court has also earlier, held on
similar line in the judgment reported as Joseph
Sartho Vs Gopinatham (2008) 3 KLJ 784
This follows, therefore, that when the
complainant presents the cheque in question for an amount which was more than
what was actually due to him and had sent the legal demand notice for the
cheque amount, which was neither the actual amount of the legal liability so
due nor the amount towards part payment of the legal liability. The legal
demand notice in such a situation cannot be held to be valid. That being so,
the very first ingredient of the offence is not made out since the cheque
cannot be said to have been given in discharge of the whole or part amount of
the liability owed to the complainant. Further the legal demand notice by not
referring to the amount already paid by the accused and making a demand for an
amount more than actually due to the complainant, besides invalidating the
legal demand notice, also goes on to discredit the credibility of the
complainant. The legal demand notice which is one of the essential ingredient
of the offence under section 138 of N.I Act, being invalid, the accused cannot
be made liable for the said offence.
SUPREME COURT
4.
That more recently , the hon’ble
Supreme Court in a matter captioned as Dashrathbhai Trikambhai Patel Vs Hitesh
Mahendrabhai Patel & Anr Crl
Appeal No. 1497/2022 had to deal with the core issue i.e, the issue is whether
the offence under Section 138 of the Act would deem to be committed if the
cheque that is dishonoured does not represent the enforceable debt at the time
of encashment. In para no. 12 the Supreme Court has held as under:
“12. It must be noted that when
a part-payment is made after the issuance of a post-dated cheque, the legally
enforceable debt at the time of encashment is less than the sum represented in
the cheque. A part-payment or a full payment may have been made between the
date when the debt has accrued to the date when the cheque is sought to be
encashed. Thus, it is crucial that we refer to the law laid down by this Court
on the issuance of post-dated cheques and cheques issued for the purpose of
security. In Indus Airways Private Limited v. Magnum Aviation Private Limited (2014)
12 SCC 539 , the issue before a two-Judge Bench of this Court was whether
dishonour of post-dated cheques which were issued by the purchasers towards
‘advance payment’ would be covered by Section 138 of the Act if the purchase
order was cancelled subsequently. It was held that Section 138 would only be
applicable where there is a legally enforceable debt subsisting on the date
when the cheque is drawn. In Sampelly
Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited (2016)
10 SCC 458, the respondent advanced
a loan for setting up a power project and post-dated cheques were given for
security….”
The Supreme Court has concluded
in Dashrathbhai
Trikambhai Patel (Supra) in para no. 30 as under:
30.
In view of the discussion above, we summarise our findings below:
(i)
For the commission of an offence
under Section 138, the cheque that is dishonoured must represent a legally
enforceable debt on the date of maturity or presentation;
(ii)
If the drawer of the cheque pays a part or whole of the sum between the period
when the cheque is drawn and when it is encashed upon maturity, then the
legally enforceable debt on the date of maturity would not be the sum
represented on the cheque;
(iii)
When a part or whole of the sum represented on the cheque is paid by the drawer
of the cheque, it must be endorsed on the cheque as prescribed in Section 56 of
the Act. The cheque endorsed with the payment made may be used to negotiate the
balance, if any. If the cheque that is endorsed is dishonoured when it is
sought to be encashed upon maturity, then the offence under Section 138 will
stand attracted;
(iv)
If part-payments made after the debt was incurred and before the cheque was
encashed upon maturity. The cheque shall not be ‘legally enforceable debt’ on
the date of maturity and no offence can be deemed to have been committed under
Section 138 of the Act when the cheque was dishonoured for insufficient funds.
CONCLUSION
From
the aforesaid discussions based on the judgments of hon’ble Supreme Court and several
High Courts, there remains no doubt that in order to attract the liability of
drawer qua dishonoured cheques, the part payment made, towards cheque issued
earlier, shall have to be factored in the legal demand notice issued u/s 138 of
Negotiable Instruments Act and that is to be endorsed as per the mandate of section
56 of Negotiable Instruments Act. The offence u/s 138 of Negotiable Instruments
Act shall culminate only upon non-payment of cheque amount, despite expiry of
fifteen (15) days from the date of receipt of legal notice. The cheque amount
shall only be treated as Negotiable Instrument
if the part payment made, after the issuance of cheque and the same is factored
in the legal notice and when the cheque is presented for encashment endorsement
is made as per the trap of section 56 of Negotiable Instruments Act. If the
same is not done and part payment is not endorsed as per above, the legal
demand notice itself shall be rendered invalid and offence u/s 138 of the
Negotiable Instruments Act shall not be attracted.
------
Anil
K Khaware
Founder
& Senior Associate
Societylawandjustice.com
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