ISSUANCE OF NOTICE UNDER SEC.138 OF NEGOTIABLE INSTRUMENT ACT WOULD NOT BY ITSELF GIVE RISE TO A CAUSE OF ACTION

[Mr. M. GOVINDARAJAN]

Sec. 138 of Negotiable Instruments Act provides that where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.

Provided that nothing contained in this section shall apply unless-

a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

b) the payee or the holder in the due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.

The proviso appended to the section imposes certain conditions before a complaint can be entertained. In 'Harman Electronics (P) Ltd., V. National Panasonic India Ltd., (2008) 16 SCALE 317, the Court opined that the offence under Section 138 of the Act can be completed only with the concatenation of a number of acts, namely:

§         drawing of the cheque;

§         presentation of the cheque to the bank;

§         returning the cheque unpaid by the drawee bank;

§         giving notice in writing to the drawer of the cheque demanding payment of the cheque amount;

§         failure of the drawer to make payment within 15 days of the receipt of the notice.

It was further opined that if five different acts were done in five different localities, any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under section 138 of the Act and the complainant would be at liberty to file a complaint petition at any of those places. On the part of the payee he has to make a demand by 'giving a notice' in writing. If that was the only requirement to complete the offence on the failure of the drawer to pay the cheque amount within 15 days from the date of such 'giving', the travails of the prosecution would have been very much lessened. But the Legislature says that the failure on the part of the drawer to pay the amount should be within 15 days 'of the receipt' of the said notice. It is, therefore, clear that 'giving notice' in the context is not the same as receipt of notice. Giving is a process of which receipt is the accomplishment. There cannot be any doubt that receipt of a notice would ultimately give rise to the cause of action for filing a complaint. It is at his own peril the accused on receipt of notice to refuse to pay the amount. Issuance of notice would not by itself give rise to a cause of action but communication of the notice would.

In 'Shivakumar V. Natarajan' - (2009) 27 CLA -BL Supp 62 (SC) the appellant borrowed a sum of Rs.1 lakh for the purpose of his business as loan from the complainant-respondent. The said amount was to be repaid within a period of three months. The appellant handed over a cheque dated 27.11.2003 for the said amount in favor of the respondent which was presented. It was dishonored with remarks 'insufficient funds' on 2nd December, 2003.  Information thereabout was received by the respondent on 3rd December, 2003.

On 02.01.2004 the respondent issued a legal notice to the appellant calling upon him to pay the amount within 15 days as required under Sec. 138 of the Negotiable Instruments Act. The appellant neither sent a reply to the said notice nor paid the amount due. The respondent filed a complaint against the appellant before the Judicial Magistrate, No. III, Trichy. The Judicial Magistrate convicted the appellant and sentenced him to undergo one year's rigorous imprisonment and a fine of Rs.5000/- and in default thereof to undergo further six months of simple imprisonment. He was also directed to pay a sum of Rs.1,00,000/- as compensation to the respondent under Section 357(1) of the Code of Criminal Procedure, 1973.

The Principal Sessions Judge and the High Court dismissed the appeals filed by the appellant. After that a settlement was arrived between the appellant and the respondent. According to the settlement the appellant is to pay to the respondent a sum of Rs.30,000/- and the respondent shall not take any action against the judgment and there shall be no interest over the issue before or after the settlement.

The issue taken by the Supreme Court in this case is as to whether notice dated 02.01.2004 was issued within the stipulated period of thirty days from the date of receipt of intimation of the dishonor of cheque. The Supreme Court analyzed the provisions of Sec. 138 of the Negotiable Instruments Act. It noticed that the clauses of the proviso employed 'within a period'. Whereas clause (a) refers to presentation of the cheque to the bank within a period of six months from the date on which it is drawn, clause (b) provides for issuance of notice 'to the drawer of the cheque within thirty days of receipt of information'. The words 'within thirty days of the receipt of information' are significant. In this case the intimation was received by the respondent from the bank on 3rd December, 2003. The Parliament advisedly did not use the words 'from the date of receipt of information' in section 138 of the Act. It is also of some significance to notice that in terms of section 9 of the General Clauses Act, 1897, whereupon reliance has been placed by the High Court, the statute is required to use the word 'from' and for the purpose of including the last in a series of days or any other period of time, to use the word 'to'.  

The notice was issued on the 31st day and not within a period of thirty days from the date of receipt of intimation from the bank. If section 9 of the General Clauses Act is not applicable, clause (b) of the proviso appended to Section 138 of the Act was required to be complied with by the respondent for the purpose of maintaining a complaint against the appellant.