Cheque dishonour liability is not novated by a mere settlement letter, and limitation starts only after the fifteen-day notice period.

A settlement letter that merely sought time for payment did not novate the cheque liability or extinguish the original debt, so prosecution under section 138 of the Negotiable Instruments Act was not barred. The Madras HC also held that a drawer's denial of liability in the reply notice does not advance the cause of action, because the statutory trigger is failure to pay within fifteen days of receipt of notice under the proviso to section 138. The complaint period under section 142(b) runs from that expiry date, and the specific statutory scheme prevails over section 469(a) of the Code of Criminal Procedure. The quash petition was rejected and the complaint was allowed to proceed.

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Issues: (i) Whether the settlement letter relied on by the accused novated the cheque liability so as to bar prosecution under section 138 of the Negotiable Instruments Act, 1881; (ii) Whether the cause of action for filing the complaint arose on the date of the accused's denial of liability or only after expiry of the statutory period under section 138(c) of the Negotiable Instruments Act, 1881.

Issue (i): Whether the settlement letter relied on by the accused novated the cheque liability so as to bar prosecution under section 138 of the Negotiable Instruments Act, 1881.

Analysis: The settlement letter was treated only as an arrangement by which time was sought for payment. It did not substitute the cheque debt with a new agreement or extinguish the original liability. The complainant merely waited for the promised payment and thereafter re-presented the cheque. On these facts, there was no novation that would confine the complainant to a civil remedy.

Conclusion: The contention of novation failed and prosecution under section 138 was not barred.

Issue (ii): Whether the cause of action for filing the complaint arose on the date of the accused's denial of liability or only after expiry of the statutory period under section 138(c) of the Negotiable Instruments Act, 1881.

Analysis: Clause (c) of the proviso to section 138 makes the failure to pay within fifteen days of receipt of notice the operative event, and section 142(b) requires the complaint to be filed within one month from the date on which that cause of action arises. A denial in the reply notice does not accelerate the cause of action, because the drawer may still pay within the statutory period and avoid prosecution. Section 469(a) of the Code of Criminal Procedure, 1973 could not displace this specific scheme.

Conclusion: The cause of action arose only after expiry of fifteen days from receipt of notice, not on the date of denial.

Final Conclusion: The petition for quashing was rejected, and the criminal complaint was allowed to proceed.

Ratio Decidendi: In proceedings under section 138 of the Negotiable Instruments Act, 1881, a cause of action arises only on the drawer's failure to pay within fifteen days of receipt of notice, and a mere denial of liability within that period does not start limitation or defeat the complaint.

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