NOTICE UNDER SECTION 138 Of NEGOTIABLE INSTRUMENT ACT

INTRODUCTION:

Section 138 of the Negotiable Instrument Act is a remedy in a case where a cheque is dishonoured or bounced, on presenting the same before the bank, for the reason that the balance is insufficient in the account of the drawer. However, before availing the said remedy a demand notice under section 138 of Negotiable Instrument Act needs to be served to the drawer of the cheque. Proof of service also needs to be attached along with the complaint moreover, this blog also includes the content of the demand notice.

SECTION 138 of NI ACT:

Section 138 of NI Act was added with amendment of the year 1988 the relevant clause to apprehend present blog is clause (b) and (c) of section 138 of the Act.

Section 138……

(b) the payee or the holder in 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.

DEMAND NOTICE UNDER SECTION 138 of NEGOTIABLE INSTRUMENT ACT:

A cheque is presented before bank for the encashment within the period 6 months and the same is bounced or dishonoured due to insufficient amount or cheque amount exceeds the amount agreed to be paid from that account. The offence under section 138 of NI Act is penal in nature. As envisaged in section 138 (b) a demand notice has to be served upon the drawer of the cheque by the payee or the holder of the cheque within 30 days from the date of receiving memo from the bank regarding returning of cheque as unpaid.

A demand notice is served in order to apprise the drawer of the cheque about the non-payment of the amount and also giving him an opportunity to reattempt and pay the debt or liability. A service of notice is necessary for maintainability of case under section 138 of the Act.

Whether the demand notice is it mandatory?

Yes, the demand notice is mandatory under section 138 of the NI Act; in Shakti Travel & Tours v. State of Bihar, (2002) 9 SCC 415 court observed that it is mandatory to serve the notice for maintainability of case of cheque bounce. In a case where a cheque bounced and notice is not served and a complaint is filed under section 138 or in a case where a notice is served however, a complaint has been filed before the completion of 15 days provided in section 138 (c) will result in non-compliance of the procedure provided under the law.

Reading section 138(c) in conjunction with section 142 (1) it could be construed that a complaint should be filed after completion of 15 days from the date of service of demand notice but within 30 days from the date of completion of 15 days. In fact, a magistrate is precluded to take cognizance on a complaint which is filed without serving a demand notice or without completion of 15 days after serving of demand notice.

Whether 15 days mentioned in clause (c) read with section 142 (1) of NI Act is mandatory whether complaint can be filed before completion of 15 days?

As aforesaid 15 days demand notice under clause (b) and (c) is mandatory to comply and no complaint can be filed without serving the said notice to the drawer of the cheque. In Yogendra Pratap Singh v. Savitri Pandey, (2014) 10 SCC 713 three judges bench observed that any complaint file prior to the completion of 15 days after serving of demand notice under clause (b) is not maintainable. Moreover, a magistrate cannot take cognizance of a complaint under section 142 of the Act.

Whether magistrate can take cognizance on a complaint which is filed without serving demand notice?

The term cognizance means to be aware or conscious of the facts of the case, court will look into the complaint and ascertain whether a prima facie case exist or not. In a case where demand notice has not been sent at all or sent but complaint is filed prior to the time specified under the law it will preclude the magistrate from taking cognizance of the complaint otherwise same will lead to abuse of the process of the law.

A Cause of action does not arise without serving a notice to the drawer of the cheque, in fact the cause of action arises on the 16^th day when the notice is duly served and not responded by the drawer. The objective behind serving the concerned notice is to give an opportunity to the drawer of the cheque to repay the defaulted amount. In Kusum Ingots & Alloys Limited Vs. Pennar Peterson Securities Ltd. (2000) 2 SCC 745 apex court set forth the essentials of section 138. In another case MSR Leathers Vs. S. Palaniappan and Another (2013) 1 SCC 177 apex court enumerated offence under section 138 of the Act is committed only when there is existence of clause (a), (b), & (c) of section 138 of the NI Act.

Dalmia Cement (Bharat) Ltd. v. M/s. Galaxy Traders AIR 2001 SC 676 in the said case supreme court enunciated that cause of action under section 138(c) do not accrues on serving a notice but on receipt thereof by the drawer of the notice.

Thus, it could be comprehended that the complaint under section 142 can be filed only when there is accrual of cause of action as aforesaid.

CONTENT OF NOTICE TO THE DRAWER:

Name and address of the drawer;
Name and address of the payee;
Details of cheque presented before the bank;
Date when cheque was presented;
Date when cheque was returned;
Reason for dishonor or bouncing of the cheque mentioned in the return memo from the bank;
Details of the debt for which cheque was issued;

PROOF OF SERVICE of DEMAND NOTICE:

It is necessary to file a service receipt as proof that demand notice as per clause (b) has been served upon the drawer of the cheque for reattempting the payment of the default amount. A three judges’ bench in C.C. Alavi Haji vs Palapetty Muhammed & Anr (2007) 6 SCC 555 observed that there is a legal presumption of service of the legal demand notice on the drawer, under section 27 of General Clause Act and section 114 of Indian Evidence Act when notice is correctly served to the address of the accused.