CHAPTER- FOUR

PROCEDURE FOR INSTITUTING

COMPLAINT IN CASE OF DISHONOUR OF

NEGOTIABLE INSTRUMENTS

I. DISHONOUR OF NEGOTIABLE INSTRUMENT

A promissory note, bill of exchange or cheque is said to be dishonoured by

non-payment when the maker of the note, acceptor of the bill or drawee of the cheque

makes default in payment upon being duly required to pay the same. As against

section 91, section 92 applies to all the three types of instruments, namely, promissory

notes, bills of exchange and cheques. When the maker of a note, or an acceptor of a

bill of exchange, or a drawee in case of need, or an acceptor of a bill (supra) protest or

a banker to whom a cheque is drawn fails and neglects to pay the amount against the

instrument according to the apparent tenor thereof when presented to him on the due

date, the dishonour is complete.1

II. OBJECT OF NOTICE OF DISHONOUR

The object of notice of dishonour to endorser is not to demand payment but

clearly to indicate to the party notified that the contract arising on the negotiable

instrument has been broken by the principal debtor and that the former being a surety,

will now be liable for the payment. This is the principle embodied in section 93 of the

Negotiable Instruments Act.2 The object of giving notice of dishonour is not to

demand payment for the party giving notice but to warn the party of his liability and

in the case of drawer, to enable him to protect him as against the drawee or acceptor

who was dishonoured the draft. Generally, where the drawer has no funds belonging

1 Kanneganti Venkatasubbayya v. PR Rao Tobacco Co. AIR 1972 AP 72. 2 Kanhaya Lal v. Ram Kumar, AIR 1956 Raj 129: 1958 Raj LW 317: (1956) 6 Raj 612 (DB).

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to himself in the drawee’s hands neither the presentment of cheque for payment nor

notice of dishonour is necessary to charge the drawer.

III. NECESSITY FOR NOTICE

In Halsbury’s laws of England, it has been stated that as in the case of

dishonour by non-acceptance, so also in that of dishonour by non-payment, notice of

dishonour must be given to the drawer and each endorser; otherwise the drawer of any

to endorser to whom such notice it not given is discharged. But where a bill has been

dishonoured by non-acceptance, and due notice of dishonour has been given it is

unnecessary to give notice of a subsequent dishonour by non-payment unless the bill

has in the meantime been accepted. The rules for giving due notice of dishonour are

the same whether the dishonour has been by non-acceptance or non-payment.3

The rules relating to the notice of dishonour to be given can be summarized as

follows:-

(A) Notice must be given by or on behalf of the holder, or by on behalf, of an

endorser who, at the time of giving the notice, is himself liable on the bill.

Thus the holder, on dishonour, may give notice of it to any previous

endorser or endorsers who, in their turn may serve notice to those, whom

they would like to hold responsible. Notice may be given by the agent

either in his own name, or in the name of any party entitled to give notice.

(B) Where the notice is given by or on behalf of the holder, it ensures for the

benefit of all subsequent holders and all prior endorsers, who have a right

of recourse against all parties to whom it is given. Thus A, B, C, D and E

are endorsers. F is the holder; if F give a notice to A of the dishonour, it

ensures for the benefit of B,C,D and E as they have themselves a right of

recourse against A.

3 Halsbury’s Laws of England, 4th Edn. Vol. 4(1), Para 422.

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(C) When notice is given by or on behalf of the endorser, it ensures for the

benefit of the holder and all endorsers subsequent to the party to whom

notice is given.

Notice may be given to the party himself or his agent in that behalf. If the

drawer of endorser is dead, and the party giving notice knows it, it must be given to

his legal representative if he could be reasonably found. If the drawer or endorser is a

bankrupt, notice may be given to him or his official assignee. If there are two or

drawers or endorsers who are not partners notice must be given to each of them,

unless one of them has authority to receive such notice for the others.

IV PARTICULARS TO BE STATED IN NOTICE

The plaintiff is a suit based on a negotiable instrument where he is the

endorsee must state clearly in his plaint that a notice of dishonour was sent to the

endorser and must give the particulars thereof or where he considers that he is exempt

from giving this notice, he should allege the facts which exempt him from giving such

notice. The notice may be oral or written but it is necessary that it must have been

given within a reasonable time. The notice must also clearly estimate that payment

was demanded from the drawee but refused and that the holder holds the person

notified liable on the instruments. The importance of this requirement lies in the

consideration that the giving of a notice of dishonour is a part of plaintiff’s cause of

action and is a condition precedent for making the endorsee liable and in the absence

of such a notice, his liability to the endorsee must stand extinguished.4 Where the

endorsee of a pronote seeks to make the endorser liable, the fact of presentment and

issue of notice of dishonour should be made clear in the plaint itself, as notice of

dishonour has been held to be a material part of the cause of action where there is no

4 Kanhaya Lal v. Ram Kumar, AIR 1956 Raj 129: 1958 Raj LW 317: (1956)6 Raj 612.

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such allegation in the plaint, nor is there any proof of the same, the endorsee of a

simple on demand pronote will not be entitled to a decree against an endorser.5

Wherein a suit on a promissory note payable at a specified place, the plaint

contains no allegation or presentment, plaintiff cannot be given an opportunity of

proving presentment.6

V. NECESSITY OF NOTICE OF DISHONOUR

If notice of dishonour was necessary in every case where any type of bill of

exchange had been dishonoured, it was not necessary at all to enact sections 91 to 93.

Section 30 itself had provided for a notice of dishonour and it would have been quite

enough for the aforesaid purpose. After a good deal of consideration of the various

aspects, the following conclusions arise:-

(A) that a bill of exchange payable after sight is required by law to be

presented for acceptance and if it is dishonoured on being presented, the

provisions of section 91 and 93 are attracted and a notice of dishonour

becomes essential;

(B) that a bill of exchange payable on a fixed date is not required by law to be

presented for acceptance, but may at the option of the holder be presented

for acceptance at any time earlier than the date fixed for its payment. If it

is presented for acceptance and it is dishonoured, a notice of dishonour

becomes essential;

(C) that a bill of exchange payable at sight is not required by law to be

presented for acceptance only but when presented for payment, it must be

deemed to have been presented both for acceptance and payment. On its

being dishonoured the provisions of sections 91 to 93 of the Act would

become applicable and a notice of dishonour under the said provisions

will become essential; and

5 Kothan V. K. v. Kannan, AIR 1951 Mad 632 (1949)2. 6 Sher Mohd. Khan Zamanuddin Khan v. Mian Haji Ahmad Gul Abdul Aziz, AIR 1935 Pesh 132 (DB)

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(D) that section 30 of the act is not a complete code in itself in regard to bills

of exchange of every type. It only deals with the liability of the drawer

and the words “as hereinafter provided” in the said section must be

interpreted to mean as provided by section 92 and 93 of the Act.7

Section 94 of the Negotiable Instruments Act speaks of the modes in which

notice has to be given and notice by post is a perfectly legal method by which notice

can be given.8 Proviso (b) to section 138 of the Act insists that the said notice should

be in writing; and the liability under section 138 of the act would arise only if the

accused defaulted payment within 15 days of the “receipt” of notice. This has got

special significance; only if the person accused of the offence knows as to the

dishonour can he pay the amount within the stipulated time.

VI PROCEDURE OF NOTICE

Section 138 of the Amended Act is the section which may be terms as the king

pin and provides both for punishment of imprisonment and fine both alternatively

with imprisonment or fine as the case may be, yet, the working of the section is

governed by the three provisos to the Section which may be termed as the regulating

and controlling factors. In case any of the basic requirement is not fulfilled and in case

any particular case is hit by non-compliance to the condition specified therein, a

person cannot be prosecuted under Section 138 of the Act. These provisos have been

in brief as under:

Clause (b) of the proviso of Section 138 states that the payee or the holder in

due course of the cheque makes a demand by giving a notice within 15 days of the

receipt of information by him regarding the dishonour of the cheque. Now the period

of 15 days has been increased to that of 30 days by the Amendment Bill No. 55 of

2002. In this way this proviso stipulates –

a) The payee is the holder in due course.

7 P. Nanak Chand Ram Kishan Das v. Lal Chand Ganeshi Lal, AIR 1958 Punj 1178 (DB). 8 Ravi v. Kuttappan, (2007) 3KLT31: IV (2007) BC 162 (Ker).

133

b) A demand in made by giving a notice by the payee to the drawer.

c) The notice is given within a period of 15 days (now 30 days as per new

provisions) from the date of receipt of the information about dishonour.

The provision of a notice in the proviso (b) to Section 138 of the Act has been

enacted so as to give an opportunity to the person who has drawn the cheque to make

the payment. In case there is no mala fide on his part. What is contemplated by the

section is a ‘notice in writing’.

A. Written Form -

The Clause (b) of proviso to Section 138 of the Negotiable Instruments Act,

1881 contemplates ‘notice in writing’. It does not say that is should be sent by

Registered Post or that is should be served by post. The Section 27 of the General

Clauses Act cannot be transposed into Section 138 of the Negotiable Instruments Act,

where the ‘service by post’ is not contemplated and what is contemplated is ‘notice in

writing.’9

B. Proper Address –

Where the notice, which was sent to the accused, returned with endorsement

‘not found’ and the complainant immediately went to the business place of the

accused to deliver notice, which was refused, it was held that notice sent at proper

address amounts to constructive notice. This is a notice which was sent by the

complainant by the Registered Post for the purpose of Section 138 of the Negotiable

Instruments Act and which was returned with the endorsement ‘unclaimed’. This shall

be sufficient service for the purpose of the Act and shall amount to a culpable default

or deliberate evasion of the accused. This would constitute ‘receipt of notice’.10

The Delhi High Court has held that the receipt of notice by even a partner

habitually working for the business of the Firm operates as a notice to the firm.11

9 V.P.Ravathi v. Asha Bagree, 1 (1992) BC 467: (1992) 1 Crimes 743: 1992 Vol. 75 Comp. Cas. 372 10 Prasanna v. R. Vijay Lakshmi, 1 (1992) BC 671: 11(1993) Crimes 679 11 Renu Vohra v. Shreyans Papers Mills Ltd., II (1993) CCR 1471

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In case a notice is issued to a firm then there is no question of issuing a notice

to all the partners.12

Whereas the Allahabad High Court has held that if there is no

notice, there is no offence and thus the notice is must.13

In the case the notice is refused, the cause of action is the date of refusal and

file the complaint within 15 days of the refusal of the notice.14

The Calcutta High Court has held that in case of offence by the Company, no

separate notice under clause (b) of proviso to section 138 is required to the Director of

the Company.15

C. Obligations under Section 138 of Negotiable Instruments Act, 1881 –

To constitute an offence under Section 138 of the Negotiable Instruments Act,

1881, the Complainant is obliged to prove its ingredients which include the ‘receipt of

notice’ by accused under clause (b). It is to be kept in mind that it not the ‘giving of

notice’ which makes the offence, but is the ‘receipt’ of the notice by the drawer which

gives cause of action to complainant to file the complaint within the statutory

period.16

It is settled law that without taking peremptory action in exercise of his right

under clause (b) of Section 138 of the Negotiable Instruments Act, 1881, the payee

cannot go on presenting the cheque so as to enable him to exercise his right at any

point of time during the validity of the cheque. But once he gives a notice under

clause (b) of the proviso to Section 138 of the Act, he forfeits the right of presenting

the cheque all over again, for, in the case of failure of drawer to pay the money within

the stipulated time, the drawer would be liable for the offence and the cause of action

for filing the complaint will arise with the period of one month for filing the

complaint being required to be reckoned from the day immediately following the day

12 Oswal Ispat Udyog v. Salem Steel Suppliers, 78(1993) Comp. Cas. 512 13 Rajiv Kumar v. State of U.P., 1991 Cri. LJ. 3010: 78(1993) Comp. Cas. 507 14 Ghanshyam M.Swamy v. M/s. Classic Steel Products, (1992) 75 Comp. Cas. 695: 1 (1992) BC 240. 15 Dalip Kumar Jaiswal v. Debapriya Bannerjee, 1 (1992) BC 403 (DB): 1992(1) Crimes Cal. 1233:

(1992)73 Comp. Cas 434: 1992 Bank J. 417 16 Dalmia Cement ( Bharat) Ltd. v. Galaxy Traders and Agencies Ltd. and others, (2001) 5 Comp.LJ 26

(SC)

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on which the period of fifteen days from the date of the notice by the drawer

expires.17

Statutory notice of demand must be a written notice and not an oral notice.

When the complainant brought fact of dishonour of Cheque to notice of accused

orally but on request by accused, complainant allowed three months time. On second

presentation, cheque was again dishonoured. Statutory Notice after second dishonour

by complainant was well within validity period then complaint filed after second

dishonour within validity period was proper.18

D. Whether Service of Notice could be Constructive –

It has been held that sub- Section (c) of Section 138 does not at all

contemplate any constructive notice19

. If constructive notice has been contemplated

under the said sub-Section by the Legislature, sufficient phraseology would have been

utilised for such a purpose. The language used therein, namely, ‘receipt of the said

notice’, unambiguously points out actual receipt of the notice.

In the case on hand notice issued has not been actually served but it has been

returned with a postal endorsement as ‘not found’. Such being the case, it cannot at all

be stated that the provisions of sub-Section (c) of the said Section had been duly

complied with and the non-compliance of the said provision is sufficient enough for

the prosecution to be thrown back, stock and barrel.

Assuming for arguments that the provisions of sub-Section (c) of the said

Section contemplates constructive notice, even then it cannot be stated that in the case

on hand, there is a plausibility to come to the conclusion of the existence of such a

constructive notice. It is not as if the notice has been returned as “refused to receive”

and in such an eventuality, one can attribute knowledge on the part of the person

responsible for the refusal of such a notice. In the case of a postal acknowledgement

17 Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 4 Comp. LJ 228(SC): (1998) 94 Comp. Cas

812 (SC) : AIR 1998 SC 3043. 18 H.N.Haria v. A.J. Mavla (2002) 1 Comp. LJ 143 ( Karn) 19 R.M. Sundaram v. C.M. Ramraj, 283 Mad.

136

as ‘not found’, which is exactly the situation in the case on hand, it cannot be stated

that there could have been any sort of wilful evasion of such a notice, in as much as

issuance of such a notice could not be put to the knowledge of the person to whom it

was intended.

Held therefore that it cannot be stated that the complaint had complied with

the provisions of sub Section (c) of Section 138 of the Act and consequently, he has to

face the music of dismal failure of his complaint being thrown out.

Refusal and even failure to claim in circumstances as here will be tantamount

to service of notice. The appellant was not case at all that it had not been proper

addressed to him that, therefore, it was returned. The evidence in this case showed

that it was properly addressed to him, that he refused/failed to claim and that there

was, therefore, proper service of notice upon him, whose grievance in this behalf was

unfounded.20

If a notice is not given within the stipulated period as mentioned in

clause (b) of the proviso attached to Section 138 of the Act, the said section would not

apply. As the provision in terms states that nothing contained in this section shall

apply unless clause, a, b or c are complied.21

i) Service of Notice

Madras High Court held that where the notice was returned by the post office

with the remark that the addressee was not found, it was held to be not a notice for the

purposes of a complaint. The court noted the language used in Section 138 (c)

“receipt of the said notice” and said that this unambiguously pointed to the actual

notice to the other party. The return of the notice must show at least wilful evasion.22

The court followed its own earlier decision to the effect that Section 138 (c) did not

contemplate constructive notice. Hence, a written demand notice returned with the

postal endorsement “not found” could not be said to have complied with the

20 Kunjan Panicker v. Christudas, 1997(4) Crimes 477 at pp. 479,480 21 Jitinder Kumar Chopra v. Harish Kumar, II (1997) CCR 626 at p. 627 22 L.Mani v. Kandan Finance,(1996) 86 Comp. Cas. 205 Mad.

137

requirements of the Act23

. The court said that if constructive notice had been

contemplated, the legislature would have used apt phraseology for the purpose. The

matters would have been different if the notice had been returned under refusal

because in that case presumption of notice would be there.

Whereas the Allahabad High Court has held that the omission to mention the

date of service in the complaint did not affect the maintainability of the complaint.24

Madras High Court held that wherein the allegations in the complaint were

that the notice was deliberately avoided, complaint was not quashed.25

In another case

it was held that the deliberate avoidance of notice amount to constructive notice26

and

refusal notice is also constructive service.27

Whereas the Kerala High Court has held that the miscarriage of notice in post

does not affect the validity of notice.28

Bombay High Court has held that the Provisions requiring notice to be given

are generally construed liberally. In the context in which notice to the drawer is

contemplated in clause (b) of the proviso of Section 138, a liberal interpretation is

needed in favour of the person who is under the statutory obligation of giving notice

since he is the loser in the transaction and it is for safeguarding his interest that the

new provisions have been made. The giving of notice and receipt of notice are two

different things but even so the court held that in the present context if the payee has

despatched notice to the correct address of the drawer reasonably ahead of the expiry

of 15 days, it would be sufficient to show that the notice has been received by the

opposite party.29

23 R.M.Sundaram v. C.M. Ramraj, (1993) 3 Crimes 175 Mad. 24 S.K.Trading Co. v. Beerbal Dass Zindal, (1995) 84 Comp. Cas. 587 All. 25 S.P.Damodaran v. Ramaswamy Naidu, (1995) 83 Comp. Cas 123 Mad. 26 S.Parsanna v. R. Vijyalakshmi,(1993) 76 Comp. Cas. 522 Mad. 27 A.B.Steels v. Coromandel Steel Products, (1992) 74 Comp. Cas. 762 28 Mahadevan Sunil Kumar v. Bhadran, (1992) 74 Comp. Cas. 805 Ker. 29 K.Madhu v. Omega Pipes Ltd.(1996) 87 Comp. Cas. 118 Bom.

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Kerala High Court has held that the questions whether the notice was

despatched in time, whether the drawer evaded service can be decided at the trial.30

Whereas on the other hand the Bombay High Court has held return of

acknowledgement receipt is a good evidence of constructive notice.

The date of service can also be examined at the trial even if not mentioned in

the complaint.

ii) Mode of communication –

Section 94 of the Negotiable Instruments Act provides that the notice of

dishonour may be given to a duly authorised agent of the person to whom it is

required to be given, or, where he has died, to his legal representative, or where he has

been declared an insolvent, his assignee; may be oral or written; may, if written, be

sent by post; and may be in any form; but it must inform the party to whom it given

either in express terms or by reasonable intendment, that the instrument has been

dishonoured, and in what way, and that he will be liable thereon; and it must be given

within a reasonable time after dishonour, at the place of business or ( in case such

party has no place of business) at the residence of the party for whom it is intended.

If the notice is duly directed and sent by post and miscarried, such miscarriage

does not render the notice invalid.

Madras High Court has upheld its earlier view31

that it is not necessary that the

notice of dishonour (notice in writing) which is required under Section 138(b) should

be sent by registered post. It may be sent by an ordinary letter or even by a telegram.32

The same High Court held that notice within stipulated time requiring payment of

cheques as well as other dues is valid.33

30 Syed Hamid Bafaky v. Moideen, (1996) 85 Comp. Cas 267 Ker. 31 V.P.Revathi v. Asha Bagree, (1992) 75 Comp. Cas. 372 Mad 1991) LW (Cri) 468 32 M.V. Muthuramalingam v. D.Narayanaswamy,(1995) 83 Comp. Cas.77 Mad. 33 H.M.Brothers P.Ltd. v. R. Monsing & Sons P.Ltd., (1995) 83 Comp. Cas 626 Mad.

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VII CAUSE OF ACTION

Allahabad High Court held that the cause of action under the proviso (b) and

(c) of Section 138 of the Negotiable Instruments Act, filing complaint cannot be said

to arise merely on the cheque being dishonoured but will arise only after the giving of

notice of demand of a the amount of the cheque by payee or holder in due course of

the cheque to the drawer of the cheque and coupled with the failure of the drawer of

the cheque to pay the amount within 15 days of the date of service or receipt of the

notice on or by him.34

Whereas the Madras High Court held that the mere presentation

and dishonour do not create the cause of action. It is the notice, which gives the cause.

There is no restriction on the number of times for presenting the cheque for payment.

Accordingly, any one of those presentments, within the time limit of six months, may

be chosen for given notice and launching prosecution.35

In this case it followed its

earlier decision. 36

In another case it held that the date of the issue of the cheque could

be enquired at the trial.37

Similar views were expressed by the Delhi High Court38

and Andhra Pradesh

High Court39

in their decisions in the cases presented before them.

Before filing a complaint with regard to the dishonour of cheque issued on

behalf of the firm particularly when the appellant did not serve a notice within the

period prescribed under Section 138 of the Act then no interference in respect thereof

is called for.40

A cheque can be presented by the payee or its holder in due course on

different occasions but within the prescribed period of six months or the period of

validity of the cheque whichever is earlier, further a clear stipulation that upon the

34 V.D.Agarwal v. 1st Addl Munsif Magistrate, (1993) 11 LCD 1108 All. 35 K.Annakldi Ammal v. K. Ethiraj, (1994) 80 Comp. Cas. 870 Mad. 36 K.V. Iyer v. Chitra & Co. (1990) 2 MWN ( Cri) 47. 37 L.Sashikala v. Integrated Finance Co. Ltd. (1994) 80 Comp. Cas, 875 Mad. 38 Madan Mohan v. K.M. Menon,(1994) 79 Comp. Cas. 710 Delhi. 39 Syed Rasool v. Alidas & Co. (1993) 78 Comp. Cas. 738 AP 40 Tomy Jacob Katikkaran v. Dr. Thomas Manjaly, 1997(3) Crimes 153 at. p.154: AIR 1998 SC 368 :

1998 Cri LJ 661 (SC)

140

dishonouring of the cheque for the first time, the payee has not taken any action as

postulated in terms of provision (b) and (c) of provision to Section 138 of the Act.41

Failure to file prosecution on the dishonour of a cheque on the first occasion is

not a bar for initiation of a prosecution subsequently, and successive dishonour of

cheque on different occasions, of course, presented within its period of validity, will

have to be construed as constituting separate cause of action for the initiation of a

prosecution.

According to Sections 138 and 142(b) cause of action to file complaint arises

on the expiry of notice demanding payment and not earlier.

VIII PROCEDURE FOR FILING OF COMPLAINT –

The Act does not define complaint anywhere in the act itself but only states

that after dishonouring of a cheque a notice within 15 days of information received

from the banker complaint be instituted before the Magistrate 1st Class having

jurisdiction to try the case. However, the term ‘complaint’ has been defined in Section

2(d) of Code of Criminal Procedure, 1973 as under:

“Complaint, means any allegation made orally or in writing to a

Magistrate with a view to his taking action under this Code, that

some person, whether known of unknown, has committed an

offence, but does not include a police report.

Explanation- A report made by a police officer in a case which

discloses, after investigation, the commission of a non cognizable

offence shall be deemed to be a complaint; and the police officer

by whom such report is made shall be deemed to be the

complainant.”

41 Harshivinder Singh v. M/s Bhagat Trading Co. (1998 Cri LJ 345 at 350,351

141

It is crystal clear that the complaint filed before the Magistrate should sets out

the allegation, which prima facie constitute an offence under the Act stated therein,

and also there is a prayed therein to take cognizance of the said offence and to compel

the accused by legal process to stand his trial under the law. For the refraction or

violation of the provisions of Section 138 of the Negotiable Instruments Act, the

Court is empowered to take cognizance of such offence only if the complaint is

preferred by the payee or the holder in due course of the cheque. In case of Company

or Firm it will be filed by its representative.

A. Private Complaint –

Clause (a) of Section 142 contemplates of filing of a private complaint only.

This section does not give any indication to refer such a private complaint filed by the

payee or the holder in due course to the police for investigation under Section 156(3)

of the Code of Criminal Procedure by the magistrate before whom such a complaint is

filed.42

Andhra Pradesh High Court held that the cognizance of a complaint by a

magistrate on police complaint not to be valid.43

In another case the same High Court

has held that the Magistrate has no power to refer to the matter to the police.44

B. Reference to Police –

Karnataka High Court held that there is much force in the contention that for

an offence punishable under Section 138 of the Act, the procedure as contemplated

under Section 142 of the Act is an answer and making reference to police under

Section 156(3) Cr. P.C. is not warranted. This contention supported by its earlier

decision.45

42 K.Mahadevan v. Y.Venkatesh ,(1992) 3 ALT 634 43 Y.Venkateshwar Rao v. Mahee Handlooms P. Ltd.(1994) 79 Comp. Cas. 206 AP 44 Jagarlamudi Durga Prasad v. State of A.P., (1993) 76 Comp. Cas 339 AP 45 H.Mohan v. State of Karnataka, 1991(2) Crimes 93 (Kar).

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IX BAR OF LIMITATION

The object of putting bar of limitation on prosecution is to prevent abuse of the

process of the Court by filing vexatious and belated prosecutions long after the date of

accrual of case of action. The object which such provisions seeks to sub-serve is

clearly in consonance with the concept of fairness of trial as enshrined in Article 21 of

the Constitution of India. It is, therefore, of the utmost importance that every

prosecution must abide by the letter of law or take the risk of the prosecution falling

on the ground of limitation.

Clause (c) of Section 138 of the Negotiable Instruments Act, 1881 provides

that the cause of action arises on the failure of the drawer “to make 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 15 days of the receipt of the said notice” given under Clause (b)

thereof, and not before that. No such complaint can, therefore, legally be filed before

the aforesaid period. That being so, the material and relevant date for accrual of cause

of action for such-like complaint is the date of receipt of the notice by the drawer.

Knowledge of the sender about the date of receipt of the notice by the drawer is,

therefore, very much material as regards accrual of the cause of action for making

such-like complaint.

In cases where notice is sent by registered post A/D, the knowledge of the

sender (complainant) about the date of receipt of such notice would invariably be

dependent upon other agencies, namely, the Postal Department which is obliged to

return back the A/D card to the sender of the registered notice. More often than not

A/D card is hardly returned back to the sender in time or never reaches back the

sender, necessitating correspondence with the Postal Department as to the

delivery/service of the registered notice or the date of delivery/service of such notice,

which may often involve a time consuming process. In such cases, such like

complaint is likely to fail for no fault of the complaint, but for the failure/latches on

the part of the Postal Department.

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The knowledge of the sender of the notice about the date of receipt of the

same being an essential requirement of fair play and natural justice, the expression

“within 15 days of the receipt of the said notice”, used in the aforesaid provision,

should clearly mean the date when the sender acquires the knowledge about the date

of the receipt of the notice given by him under Clause (b) of the relevant provision. If

a person is given a right to resort to a remedy within a prescribed time, limitation

should not be computed from a date earlier than that on which the party aggrieved

actually knew about the date of accrual of cause of action for making a complaint

before the competent court for seeking redress thereof, or else, it might be an absurd

and unreasonable application of law.

On a fair and reasonable construction, cause of action for such complaint, so

far as the complainant is concerned, would thus accrue on the failure of the drawer to

make payment within 15 days from the date of knowledge of the complainant about

the receipt of the notice by the former (Drawer).46

A. When the period of limitation expires on holiday

It has been held by the Madras High Court that the complaint to be filed

within 45 days from the date of service of notice of dishonour on the drawer and

where the period of 45 days expired on a holiday, presentation of complaint on next

working day as the same is not barred by time.47

B. Successive dishonour –

It has been held by the Andhra High Court that the complainant can file a

complaint for offences under Section 138 read with 142 of the Negotiable Instruments

Act after the dishonouring of the cheque for the first time or he may choose to present

the cheque at the request of the drawer with the said period of six months from the

date of the cheque any number of times but the action to be taken by filing complaint

is only once and the period of limitation has to be counted from the date of last

46 Santa Priya Engineers Pvt. Ltd. and others. v. Uday Sanker Dass and others. (1996) 296 (Cal) 47 M.Y.Maharishi v. M/s Tagore Financiers, (1992) Mad. 306

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dishonouring of the cheque. That means the limitation period cannot be taken into

consideration from the first date of dishonouring and the last date of dishonouring

alone has to be taken into consideration.48

C. Fresh Representation Does Not Increase Limitation –

It has been held by the Punjab and Haryana High Court that once a cause of

action had arisen, the limitation will begin to run and it could not stopped by

presenting the cheque again so as to have a fresh cause of action and fresh limitation.

The criminal prosecution (under Section 138 of the Negotiable Instruments Act) had

to be launched within one month of the expiry of fifteen days period from the receipt

of notice by the drawer as provide by Section 142(b) of the Act.49

Section 138 of the Amended Act is the section which may be terms as the king

pin and provides both for punishment of imprisonment and fine both alternatively

with imprisonment or fine as the case may be, yet, the working of the section is

governed by the three provisos to the Section which may be termed as the regulating

and controlling factors. In case any of the basic requirement is not fulfilled and in case

any particular case is hit by non-compliance to the condition specified therein, a

person cannot be prosecuted under Section 138 of the Act. Clause (b) of the proviso

of Section 138 states that the payee or the holder in due course of the cheque makes a

demand by giving a notice within 15 days of the receipt of information by him

regarding the dishonour of the cheque. Now the period of 15 days has been increased

to that of 30 days by the Amendment Bill No. 55 of 2002.

X BAR UNDER OTHER STATUES/PROVISIONS

Various special statues meant for protecting the interests of the creditors

incorporate provisions to protect the assets in the hands of the debtor so that the same

are not misapplied and may be available only for rateable distribution and not

48 M/s Syed Rasool and Sons and Others v. (M/s) Alida and Co. and others (1996) 14 (A.P.) 49 M/s K.D. Sales Corporation v. Marinda Co-operative Sugar Mills Ltd. (1994) 233 (P & H) & (M/s)

Chahal Engineering and Construction Ltd. and another v. (M/s) Verma Plywood Co. (1994) 275

(P & H)

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otherwise. These statutes generally bar or provide for stay of suits and other

proceedings, so that no charge is created by these proceedings on the assets of the

debtor, it has been held in various decisions that the proceedings under section 138 of

the Act are not barred even by the exclusionary clauses contained in these statutes.

Section 446 of the Companies Act 1956 which relates to liquidation of a

company and provides for the stay of suits and other proceedings has been held, not to

apply to proceedings under section 138 since the proceedings therein do not relate to

the assets of the company.50

It has been held that a company court in winding up proceedings would not

have jurisdiction to stay criminal prosecution nor is its permission required to

prosecute company for offences. The expression ‘legal proceedings’ must be read

ejusdem generis with ‘suit’ and can only mean civil proceedings, which have a

bearing so far as winding up is concerned.51

Even where the complaint against

company is suspended due to the winding up ordered by company court, the

prosecution of the directors can continue since the prosecution of company is not sine

qua non for the prosecution of the directors.52

Section 22 of the Sick Industrial Companies (Special Provisions) Act 1985

makes provision for the ‘suspension of legal proceedings’ and provides that no ‘suit’

for recovery of money or enforcement of any security shall be without the permission

of the Board for Industrial and Financial Reconstruction. It has been held that the said

section does not exclude criminal prosecution under Section 138 since the prosecution

is neither for the recovery of money nor for the enforcement of any security but for

bringing the offender to penal liability.53

It has further been held that where the

offence is complete before the company is declared sick by Board for Industrial and

Financial Reconstruction, the proceedings under section 138 are not barred.54

50 Pankaj Mahra v. State of Maharashtra (2000) 100 Comp. Cas 417 SC, (2000)1 Crimes 282 SC. 51 Ion Exchange Finance Ltd. v. Firth India Steel Co. Ltd. (2001) 103 Comp. Cas 666 (1999)2 BC 191. 52 Anil Hada v. Indian Acrylic Ltd. (2000)1 Crimes 210, (2000) 99 Comp. Cas 36 SC. 53 Avon Industries Ltd. v. Integrated Finance Co. Ltd. (2002)1 BC 88. 54 BSI Ltd. v. Gift Holidays Pvt. Ltd. (2000) 100 Comp. Cas 436 (2000)1 Crimes 261 SC.

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However, where the company is declared sick and directions under section 22A of the

Sick Industrial Companies (Special Provisions) Act 1985 are issued to the company or

its directors restraining them from disposing off the assets, except with the permission

of the court before the cheque is presented for payment or before the expiry of the

statutory period of 15 days of notice, then the offence under section 138 is not

completed.55

Earlier in B. Mohan Krishan v. Union of India,56

the Andhra Pradesh High

Court had held that prior permission of the Board for Industrial and Financial

Reconstruction was not necessary to prosecute a company or its official under this,

where the company had been declared sick under Section 15(1) of the Sick Industrial

Companies (Special Provision) Act 1985 and Board for Industrial and Financial

Reconstruction had drawn up a scheme for the companies reconstruction.

It has also been held that the criminal proceedings under section 138 are not

barred by Section 29 of the Provincial Insolvency Act 1920, which provides for, stay

of ‘Suit or other proceedings’ since the same applies to civil proceedings and not to

criminal prosecution. Almost similar wordings in section 28 of the Presidency Town

Insolvency Act 1909 have also been construed to the effect that it prohibits filing of

suits and other proceedings against the insolvent’s property and not criminal cases and

that offence under section 138 is a statutory offence and totally different.57

In Bharat N. Mehtha v. Mansi Finance (Chennai) Ltd.58

it has been held

that the words ‘any suit or other proceedings’ in the insolvency Act do not refer to

personal act committed by the accused committing offence and thus, proceedings

under section 138 are not barred.

In Prudential Capital Market Ltd. v. State of Bihar59

, the Supreme Court

held that there was no provision under the Reserve Bank of India Act 1934 which

55 Kusum Ignot & Alloys Ltd. v. Pennar Peterson Securities Ltd. (2000) 100 Comp. Cas 755 SC. 56 (1996) 86 Comp. Cas. 487 57 Sri Srinivasa Trading Co. v. Sate of AP (1999) 96 Comp. Cas 915. 58 (2000)1 Crimes 490. 59 (2000)102 Comp. Cas 442 SC.

147

prohibited any criminal proceedings under other Acts to continue against Non-

Banking Finance Companies. The Provision of Section 58E bars taking cognizance of

offences commissioned under the said Act namely the Reserve Bank of India Act

1934. The power of company law Board under section 45QA of the Act does not in

any way take away the power of criminal court to continue with criminal proceedings.

In M/s S.R. Nagraj and Co. v. M/s Shri Ganesh Oil Mills60

, the provisions

of Karnataka Agricultural Produce Marketing (Regulation) Act 1966 provided that

suit or other proceedings for recovery of amount due shall not be filed, without

obtaining sanction from the Market Committee. It was held that sanction was only

required for disputes of Civil Nature and did not apply to criminal prosecution and

thus, proceedings initiated under section 138 for the Act for dishonour of cheque were

maintainable, without the requirement of any sanction.

XI WHEN NOTICE OF DISHONOUR IS UNNECESSARY – NO NOTICE

OF DISHONOUR IS NECESSARY – (SECTION 98)

(A) When it is dispensed with by the party entitled thereto; Notice of

dishonour is dispensed with altogether where despite the exercise of

reasonable diligence it cannot be given to or does not reach the drawer or

endorser whom it is sought to charge.61

In the case of Promissory note

which is not negotiable, notice is not necessary.

(B) In order to charge the drawer, when he has countermanded payment. It is

not necessary that the actual words “Countermanding payment”, should

be used; it is sufficient if the words used clearly show that the drawer

does not want payment to be made in accordance with the tenor of the

hundi. The question of countermanding payment is a question of fact.62

60 (2000)1 BC 437 61 Halsbury's Laws of England. 4th Edn. Vol. 4(1) Para 433. 62 V.R. M.V. Muthaya Chettiar v. S.S. Rm. S. Firm AIR 1936 Mad 506.

148

(C) When the party charged could not suffer damage for want of notice; when

from the conduct of a company, it is apparent that they were aware of the

liability, the case is covered by section 98(C) which provides that no

notice of dishonour is necessary when the party charged could not suffer

damage for want of notice.63

(D) When the party entitled to notice cannot after due search be found; or the

party bound to give notice is, for any other reason, unable without any

fault of his own to give it; Notice of dishonour to the minors is not

necessary.64

(E) To charge the drawers, when the acceptor is also a drawer; Section 98(e),

N.I. Act makes it quite clear that no notice of dishonour is necessary to

charge drawees when acceptor is also a drawer. The use of singular

“drawee” followed by plural “drawees” in section 98 shows that if a

acceptor is one of the drawers, both the drawers would be liable even

though no notice of dishonour has been given.65

(F) In the case of a promissory note which is not negotiable; where the payee

has endorsed pronote to another person after it barred by limitation and

with fabricated endorsement of payment, there is no necessity to give

notice of dishonour to the endorser.66

(G) When the party entitled to notice, knowing the facts, promises

unconditionally to pay the amount due on the instrument under section

98(g) of the Negotiable Instruments Act, when a party entitled to notice,

knowing the facts, promises unconditionally to pay the amount, due on

the instrument, the notice of dishonour is not necessary. The promise to

pay contemplated by section 98(g) may be either express or implied. If a

63 Sunmick Exports Pvt.Ltd. v. Deutsche Bank AG, 1(2000) BC Bom 184: (1999) 3 Bom CR 808. 64 Punjab National Bank Ltd. Delhi v. Vinod Kumar AIR 1957 Punj. 257. 65 Kundan Lal v. Sahu Bhikhari Das, Ishwar Das, AIR 1920 All. 254: 51 All 530 (DB). 66 Kanujnakkal Thayikkandiyil Moosan Kunhi Kalandan v. Kaniyarakkal Thayikkandiyil Kattyali AIR

1940 - Mad 85.

149

person unequivocally acknowledges that a debt is due from him, he

should be taken impliedly to promise to pay it. He may couple his

acknowledgement with some expression which shows that he was not

promising to pay; but if there is no such qualification, the

acknowledgement of the debt involves an implied promise to pay.67

(H) As regard the drawer the notice of dishonour is dispensed within the

following cases:- (i) when the drawer and the drawee are the same person;

(ii) when the drawee is a fictitious person, or non-existing person; (iii)

When the drawee is a person not having capacity to contract, (iv) where

the drawer is the very person to whom the bill is presented for payment

(v) where the drawee or acceptor is, as between himself and the drawer,

under no obligation to accept or pay the bill; (vi) where the drawer has

countermanded payment.

As regards the endorser, the notice of dishonour is dispensed within the

following cases:-

(a) Where the drawee is a fictitious person or a person not having capacity to

contract, and the endorser was aware of the fact at time he endorsed the bill; (b) where

the endorser is the person to whom the bill is presented for payment; (c) where the bill

was accepted or made for his accommodation.

XII CONCLUDING REMARKS

Notice may be given to the party himself or his agent in that behalf. If the

drawer of endorser is dead, and the party giving notice knows it, it must be given to

his legal representative if he could be reasonably found. If the drawer or endorser is a

bankrupt, notice may be given to him or his official assignee. If there are two or

drawers or endorsers who are not partners notice must be given to each of them,

unless one of them has authority to receive such notice for the others. It is necessary

67 Belgaun Bank Ltd. v. Bando Raghunath AIR 1945 Bom 359.

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that it must have been given within a reasonable time. The notice must also clearly

estimate that payment was demanded from the drawee but refused and that the holder

holds the person notified liable on the instruments. For filing complaint cannot be said

to arise merely on the cheque being dishonoured but will arise only after the giving of

notice of demand of a the amount of the cheque by payee or holder in due course of

the cheque to the drawer of the cheque and coupled with the failure of the drawer of

the cheque to pay the amount within 15 days of the date of service or receipt of the

notice on or by him.