THE DEMAND IN THE LEGAL NOTICE CANNOT BE DIFFERENT THAN THE CHEQUE AMOUNT

Cheque dishonour

Section 138 of the Negotiable Instruments Act, (‘Act’ for short) provides punishment imprisonment which may be extended to 2 years for dishonour of cheque for insufficiency of fund in the account or with a penalty which may extend to twice the amount of the cheque or with both. The condition precedent to file a complaint under this Section is that 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 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid and 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.

Aspects that lead to filing a criminal complaint

The Supreme Court in KR. Indira Versus Dr. G. Adinarayana - 2003 (10) TMI 385 - Supreme Court, enlisted the components, aspects and the acts as detailed below the concatenation of which would make the offence under Section 138 of the Act, to be complete-

• drawing of the cheque by a person on an account maintained by him with a banker, for payment to another person from out of that account for discharge in whole/in part of any debt or liability;
• presentation of the cheque by the payee or the holder in due course to the bank;
• returning the cheque unpaid by the drawee bank for want of sufficient funds to the credit of the drawer or any arrangement with the banker to pay the sum covered by the cheque;
• giving notice in writing to the drawer of the cheque within 15 days of the receipt of information by the payee from the bank regarding the return of the cheque as unpaid demanding payment of the cheque amount; and
• failure of the drawer to make payment to the payee or the holder in due course of the cheque, of the amount covered by the cheque within 15 days of the receipt of the notice.

In absence of specific demand for the cheque amounts, the notice was held to be invalid.

Notice

Once the cheque is dishonoured a notice shall be issued in writing to the drawer of the cheque within 15 days of the receipt of information by the payee bank return of the cheque as unpaid demanding payment of the cheque amount. In a notice, under clause (b) to the proviso of Section 138 of the Act, demand has to be made for the cheque amount. If no such demand is made the notice no doubt would fall short of its legal requirement.

If in a notice while giving the break-up of the claim the cheque amount, interest, damages etc. are separately specified, other such claims for interest, cost etc., would be superfluous and these additional claims would be severable and will not invalidate the notice as held by Supreme Court in SUMAN SETHI Versus AJAY K. CHURIWAL - 2000 (2) TMI 822 - Supreme Court.

The purpose of the notice is to give a chance to the drawer of the cheque to rectify his omission. Once the defaulter makes payment of the amount covered by the cheque as mentioned in the notice within stipulated 15 days, he would stand absolved from his liability.

Typographical error

The High Court of Madhya Pradesh in Gokuldas Versus Atal Bihari & Anr. - 2017 (4) TMI 1664 - MADHYA PRADESH HIGH COURT observed that offence under Section 138 of the Act is a technical offence therefore every technical formality as required under the Section must be complied with strictly. In that case, the complaint was filed on the ground that cheque of Rs.4,30,000/- was issued in lieu of repayment of loan of Rs.4,30,000/-. A notice under Proviso (b) to Section 138 of the Act was sent on the ground that cheque of Rs.43,000/- was given. It was held that the notice was not for ‘said amount of money’ to render it invalid.

Before the High Court of Punjab and Haryana, in Chhabra Fabrics Private Limited Versus Bhagwan Dass, Proprietor of Dhingra Handicrafts - 2014 (8) TMI 1265 - PUNJAB AND HARYANA HIGH COURT, it was a case where there was a discrepancy in mentioning the number of the cheque which was claimed to be a typographical error. The High Court observed that even if it was true that there was a typographical error in the legal notice while typing out the cheque number, such typographical error, if any, does not meet the compliance of the mandatory provisions of Section 138 of the Act.

In Kaveri Plastics Versus Mahdoom Bawa Bahrudeen Noorul - 2025 (9) TMI 1264 - Supreme Court, Nafto Gaz India Private Limited entered into a Memorandum of Understanding with the appellant on 30.04.2012 relating to the sale of land. The accused sent a cheque to the complainant on 12.05.2012 for Rs.1 lakh in favour of the appellant. The said cheque was returned with remarks ‘Fund Insufficient’. The appellant issued a demand notice for Rs.2 lakhs within 15 days from the date of receipt of the notice. Another demand notice dated on 14.09.2012 for the demand of Rs.2 lakhs. The said notice was also issued to the Directors of the company and the authorised signatory of the company. In the said notice it was alleged that the cheque submitted by the accused was dishonoured with remarks ‘funds insufficient’ from the bank.

The respondent accused filed an application seeking discharge contending that the notice of demand is not in consonance with the provisions of Section 138(2) of the Act and therefore, the complaint was liable to be set aside. The Metropolitan Magistrate dismissed the said application on 06.10.2021. Against this order the appellant filed a writ petition before the High Court challenging the dismissal order of the Metropolitan Magistrate.

The High Court held that as the demand notice under Proviso (b) of Section 138 of the Act was at variance with the cheque amount, the same was invalid rendering the complaint liable to be quashed. The accused filed its reply in which it was contended that the notice dated 08.05,2012 is perfect and if contents of the entire notice be read as whole the said demands, the ‘aforesaid cheque’ and the aforesaid cheque has been clearly described in para 4 of the notice, however, due to typographical inadvertent mistake Rs.2,00,00,000/- has been mention after the word ‘aforesaid cheque’. The contents of entire notice clearly speak real facts and all the contents of the notice must be read in totality.

The High Court quashed the Criminal Complaint No. 523804 of 2016 filed by the respondent herein under Sections 138, 141 and 142 of the Act, on the ground that amount mentioned in the notice was not the same as per the cheque, which rendered the notice invalid.

Against the order of High Court, the appellant filed the present appeal before the Supreme Court. The appellant submitted the following before the High Court-

• A too technical ground weighed with the High Court in quashing the complaint, as it viewed that since amount mentioned in the notice was Rs.2,00,00,000/-while the cheque issued was for Rs.1,00,00,000/-, the notice was invalid.
• There was a clear typographical error on the part of the complainant in mentioning in the notice the different amount.
• the court ought to have looked at the substance of the matter rather than becoming technical.
• The offence under Section 138 of the Act is essentially a civil wrong in the attire of criminal offence.
• The technicality should not be allowed to prevail.
• The purpose of Section 138 of the Act is to facilitate smooth business transactions.
• If the findings of the High Court is allowed, then there is a would give a premium to the drawer of the cheque whose cheque is dishonoured and has remained unpaid.

The Supreme Court considered the submissions of the parties to the appeal. The Supreme Court observed that the notice demanding the payment of the amount covered by the dishonoured cheque is one of the main ingredients of the offence under Section 138 of the Act. In the event of the main ingredient not being satisfied on account of discrepancy in the amount of cheque and one mentioned in the notice, all proceedings under Section 138 of the Act would fall flat as bad in law. The notice to be issued under Proviso (b) to Section 138 of the Act, must mention the same amount for which the cheque was issued. It is mandatory that the demand in the statutory notice has to be the very amount of the cheque. A failure in above regard, namely when the cheque amount is not mentioned in the Proviso (b) notice or the amount different than the actual cheque amount is mentioned, in the notice, such notice would stand invalid in eye of law. The principle of reading of notice as a whole is inapplicable and irrelevant. The error even if typographical, would be fatal to the legality of notice, given the need for strict mandatory compliance.

The present case, the explanation that mentioning of wrong amount in the cheque was in the nature of typographical or inadvertent error could hardly be accepted, for, the so-called mistake occurred and recurred in both the notices dated 08.06.2012 and 14.09.2012. The cheque which was drawn by the respondent was for Rs.1,00,000/- whereas in the notice issued under Proviso (b) to Section 138 of the Act against the respondent, appellant mentions the amount of Rs.2,00,000/-. The Supreme Court held that this defence would not hold good that the different amount mentioned in the notice was out of inadvertence.

The Supreme Court found not grounds to interfere with the impugned order. The Supreme Court dismissed the appeal.