2025 (7) TMI 1898 - HC - Indian Laws

Dismissed: clear legal demand notice required under Section 138 NI Act; alleged part payment and factual disputes reserved for trial

A.H. Fashion Karma Pvt. Ltd. And Another Versus State Of Punjab And Others

HC dismissed the petition, holding that service of a legal demand notice is a sine qua non for prosecuting under Section 138 NI Act and such notice must ... Dishonour of cheque - discharge of legal liability - issuance of legal demand notice or not - demand omnibus in nature or not - HELD THAT:- It is trite law that serving a demand notice is a sine qua non for instituting a complaint under Section 138 of the NI Act. The intention behind the said requirement is to give the accused an opportunity to settle the debt before criminal proceedings are initiated against him. As such, it becomes all the more important to ensure that such a notice contains all necessary details pertain to the cause of action, in unmistakeable terms. While Section 138(b) NI Act does not specify the ingredients of a valid notice, it is essential for a legal demand notice to clearly indicate the existence and extent of the liability. As far as the alleged part payment of Rs. 12,36,000/- and relevance thereof is concerned, the same will be ascertained at the time of trial, subject to the evidence adduced by the parties. This Court cannot assume the role of the trial Court and suffocate the proceedings, taking advantage of Section 482 of the Cr.P.C. by appreciating the probable defence of the petitioners at this stage. A two Judge bench of the Hon’ble Supreme Court in HMT Watches Limited vs. M.A. Abida [2015 (5) TMI 280 - SUPREME COURT] has held that inherent powers under Section 482 of the Cr.P.C. cannot be extended to determine disputed question of facts as it is only for the trial Court to decide the same, after examining the evidence on record. As such, interference by this Court with regards to factual questions is impermissible in law. The present petition is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the legal demand notice served pursuant to the dishonour of a cheque satisfies the statutory requirement under Section 138 of the Negotiable Instruments Act when the complainant has also claimed other amounts - i.e., whether the notice is omnibus or specifically demands the cheque amount. 2. Whether alleged prior part payment by the drawer of the cheque renders the demand notice and consequent complaint under Section 138 unsustainable at the pre-trial/quashing stage. 3. Whether the High Court, exercising inherent/quashing jurisdiction (under Section 528 BNSS read with inherent powers analogous to Section 482 Cr.P.C.), may decide disputed questions of fact (such as genuineness of part payment or ledger adjustments) when considering a petition to quash a complaint under Section 138. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of the demand notice: statutory requirement and specificity Legal framework: A demand notice is a statutory precondition for maintaining a complaint under Section 138 of the Negotiable Instruments Act; the proviso to Section 138(b) requires a notice to be served within the prescribed period and the notice must enable the drawer to know the nature and extent of the demand, particularly the amount covered by the dishonoured cheque. Precedent treatment: The Court relied on and followed established Supreme Court authorities holding that a notice which fails to make a specific demand for the cheque amount or is entirely omnibus may be defective (e.g., Rahul Builders; Suman Sethi; K.R. Indira). Those authorities permit inclusion of ancillary claims (interest, costs) so long as the cheque amount is separately identifiable; an omnibus demand without specification may invalidate the notice. Interpretation and reasoning: Applying the precedents, the Court examined the contents of the impugned notice and found that it specifically demanded Rs. 6,18,912/-, the amount corresponding to the dishonoured cheque. The Court held that where the notice specifically identifies and demands the cheque amount, the notice cannot be characterized as omnibus merely because other sums may be referred to; the crucial requirement is that the demand for the amount covered by the cheque is unmistakable. Ratio vs. Obiter: Ratio - a legal notice is valid for Section 138 purposes where it specifically demands the amount covered by the dishonoured cheque even if other amounts are also claimed, provided the cheque amount is clearly indicated and separable. Obiter - general observations on permissibility of claiming ancillary sums when the cheque amount is indicated. Conclusion: The impugned notice met the statutory requirement because it specifically demanded the cheque amount; the notice was not rendered defective on the ground of being omnibus. Issue 2 - Effect of alleged part payment on maintainability of complaint Legal framework: A complaint under Section 138 requires that an enforceable liability exists when the complainant issues the notice and files the complaint; alleged payments which extinguish or reduce liability are factual matters to be established by evidence at trial. The proviso and statutory scheme contemplate that the drawer should have opportunity to discharge the liability upon receipt of notice. Precedent treatment: The Court referenced authorities which establish that the existence or non-existence of liability and the effect of payments are matters to be examined at trial (HMT Watches; Sampelly Satyanarayana Rao), and that quashing petitions should ordinarily not decide disputed factual issues which are triable by the trial court (Rathish Babu Unnikrishnan). Interpretation and reasoning: The Court observed that the contention of part payment (Rs. 12,36,000/-) is a factual dispute susceptible of proof through evidence such as bank records and ledger entries, and that the High Court ought not to assume the role of the trial court to evaluate such evidence at the quashing stage. The Court declined to accede to the argument that nondisclosure of part payment in the demand notice necessarily rendered the notice invalid, noting that factual determination of whether liability remained is for the trial court after evidence is adduced. Ratio vs. Obiter: Ratio - allegations of prior/part payment and adjustments affecting liability cannot ordinarily be adjudicated in quashing jurisdiction; they are disputed factual questions for trial. Obiter - comments on the relevance of ledger entries and statutory purpose of notice to allow settlement. Conclusion: The mere assertion of part payment does not, without adjudication on evidence, render the complaint unsustainable at the preliminary stage; the issue must be decided by the trial court in the course of trial. Issue 3 - Scope of High Court's quashing/inherent jurisdiction to pre-empt trial on disputed facts Legal framework: Courts exercising inherent/quashing powers must proceed cautiously; penal provisions are construed strictly but quashing is inappropriate where quashing would preclude the trial court from weighing material evidence. The settled principle is that quashing courts ordinarily proceed on the averments in the complaint and do not try disputed questions of fact. Precedent treatment: The Court invoked Supreme Court rulings (HMT Watches; Rathish Babu Unnikrishnan; Sampelly Satyanarayana Rao) holding that inherent/quashing powers cannot be used to decide factual controversies and to scuttle criminal process at a preliminary stage; the trial court is the proper forum to examine evidence and determine factual disputes. Interpretation and reasoning: Applying the principles, the Court found that the petition sought quashing based largely on disputed facts (existence/extent of part payment, ledger adjustments) and that such contentions could not be resolved on the record before the High Court without transgressing the limits of quashing jurisdiction. The Court declined to entertain a pre-trial appreciation of the probable defence and emphasized that interference would inappropriately deprive the trial court of its function. Ratio vs. Obiter: Ratio - quashing jurisdiction cannot be exercised to decide disputed factual issues that require evidence; interference is not warranted when the complaint on its face and the notice satisfy statutory requirements subject to contest at trial. Obiter - cautionary remarks on preserving trial court's role and on the balance of convenience in cheque-bounce cases. Conclusion: The High Court will not, in exercise of inherent/quashing jurisdiction, adjudicate contested facts or appreciate evidence to the detriment of the trial process; the petition for quashing is therefore not maintainable on the factual grounds urged and is to be dismissed, leaving the parties to adduce evidence before the trial court. Final disposition and directions (as to trial) Conclusion: The petition to quash the complaint was dismissed. Nothing in the dismissal was to be construed as an expression of opinion on the merits; the trial court was directed to proceed with the trial strictly in accordance with law and on its own merits.