2023 (5) TMI 594 - HC - Indian Laws

Failure to Serve Demand Notice Renders Complaint Unmaintainable

The Court held that the complaint under Section 138 of the NI Act was not maintainable as the mandatory demand notice was not served on the company. ... Dishonour of Cheque - no demand notice was served to the company M/s HG Retail Solutions Pvt. Ltd and only to the directors of the erstwhile company - complaint is time barred and beyond limitation as prescribed u/s 138 of NI Act or not - HELD THAT:- A meticulous examination of the statutory framework elucidated under sections 138 and 141 of NI Act reflects the intricate interplay of essential elements required to establish an offense thereunder. In essence, the realization of a penal offense under section 138 of the NI Act necessitates the confluence of certain indispensable prerequisites. Firstly, a cheque has to be drawn by the drawer on an account maintained by him in lieu of his discharge of liability towards payment either in whole or part. Secondly, such cheque has to be presented to the bank within a period of six months from the date it was drawn or within the period of its validity, whichever is earlier. Thirdly, such cheque when presented to the bank is returned by the bank unpaid. Fourthly, issuance of a written demand notice by the payee to the drawer of the cheque demanding payment within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding the return of the cheque as unpaid. Fifthly, failure of the drawer to make such payment within a period of 15 days from the date of the receipt of the demand notice. It is noteworthy that noncompliance with any of the aforementioned imperative steps shall vitiate the very substratum of a prosecutorial ‘cause of action’, rendering it not maintainable and bad in law. Thus, compliance of the necessary ingredients is mandatory, in order to constitute an offence under section 138 NI Act. In Himanshu v. B. Shivamurthy [2019 (3) TMI 294 - SUPREME COURT], the Supreme Court while quashing the complaint and order of the High Court held that in the absence of the company being arraigned as an accused, a complaint against the appellant who was a Director of the said company was not maintainable. In the said case, the appellant had signed the cheque as a director of the company and for and on its behalf. It was held that section 141 postulates that if a person committing an offence u/s 138 is a company, then every person who at the time when the offence was committed was in charge of or was responsible to the company for the conduct of the business of the company as well as the company will be deemed guilty of the offence - It was held that in the absence of a notice of demand being served on the company and without compliance with the proviso to section 138, the High Court was in error in holding that the company could now be arraigned as an Accused. In the present case, admittedly no demand notice was ever sent to the company i.e. the principal accused. There cannot be a prosecution without prosecuting the principal accused. The demand notice was only sent to the directors of the company. The company was made a party in the complaint u/s 138 NI Act, however the ingredient of section 138 NI Act which postulates that a demand notice be sent to the drawer of the cheque, stands unfulfilled - Even though the company was arrayed as an accused in the complaint under 138, however, without demand notice being served to the company the complaint itself fails and cannot be maintainable in terms of the provisions contained in section 138 NI Act. It is only when the company is prosecuted and proceeded against in compliance of section 138 NI Act, that vicarious liability in terms of section 141 NI Act will extend to its directors or others responsible for the commission of the offence. Given the absence of a demand notice served upon the company HG Retail, which constitutes the drawer of the cheque as the principal accused, the mandatory steps outlined in Section 138 of the NI Act have not been duly adhered to. Consequently, the complaint under section 138 NI Act is not maintainable and is bad in law. Since the complaint itself is held to be bad in law in absence of service of demand notice on the company is liable to fail. Therefore, this Court has not gone into the two remaining questions of limitation and specific averment against Kusum Tanwar. Petition allowed. Issues Involved:1. Legal Notice not served upon the Company2. The Complaint is time-barred3. No specific averment or role attributed to petitioner Smt. Kusum Tanwar in the ComplaintSummary:I. Legal Notice not served upon the CompanyThe petitioners contended that the complaint under Section 138 of the NI Act is not maintainable as no demand notice was served upon the company, M/s HG Retail Solutions Pvt. Ltd., which is a mandatory prerequisite. They relied on the judgment in Himanshu v. B. Shivamurthy AIR 2019 SC 3052, where the Supreme Court held that in the absence of a notice of demand being served on the company, the complaint could not proceed. The respondent argued that the notice was served on the directors at the company's address, which should suffice. The Court held that the statutory requirement of serving a demand notice on the drawer of the cheque, i.e., the company, was not fulfilled, rendering the complaint non-maintainable.II. The Complaint is time-barredThe petitioners argued that the complaint was filed beyond the prescribed period of limitation, asserting that the notice should be deemed served on 04.10.2014 when it was refused, not on 07.10.2014 as claimed by the respondent. They cited C.C. Alavi Haji Vs. Palapetty Muhammed and Ors. (2007) 6 SCC 555, which held that refusal of a notice constitutes deemed service. The respondent maintained that the notice was delivered on 07.10.2014, making the complaint filed on 21.11.2014 within the limitation period. The Court did not delve into this issue due to the primary finding on the non-service of the demand notice to the company.III. No specific averment or role attributed to petitioner Smt. Kusum Tanwar in the ComplaintThe petitioners contended that no specific role was attributed to Smt. Kusum Tanwar in the complaint, merely reproducing statutory language without detailing her involvement. They relied on Sunita Palita & Ors. v. M/s Panchami Stone Quarry (AIR 2022 SC 3548), where proceedings against a non-executive director were quashed in the absence of specific allegations. The respondent argued that the complaint included specific averments about the directors' responsibilities. The Court did not address this issue due to the primary finding on the non-service of the demand notice to the company.Findings & AnalysisThe Court emphasized the mandatory nature of serving a demand notice to the drawer of the cheque, i.e., the company, as per Section 138 of the NI Act. It cited Himanshu v. B. Shivamurthy and Pawan Kumar Goel vs. State of UP & Anr., 2022 SCC Online SC 1598, reiterating that without serving a demand notice to the company, the complaint is not maintainable. Consequently, the complaint under Section 138 NI Act was deemed non-maintainable due to the absence of a demand notice served on the company. The entire proceedings, including the summoning order dated 23.02.2015 and the order of the Ld. ASJ-5, South East, Saket Courts, New Delhi dated 01.04.2021, were set aside, and the petitions were allowed.