2026 (1) TMI 207 - HC - Indian Laws

Delayed cheque dishonour notice u/s138(b) and late filing u/s142(b) led to complaint rejection

A complaint under s.138 NI Act was challenged as non-maintainable due to an unduly delayed statutory notice and limitation. The HC held that issuance of ... Dishonour of Cheque - Seeking the quashing of the Complaint Case under Section 138 of the Negotiable Instruments Act, 1881 - maintainability of complaint when the Legal Notice was issued nearly 7 months after the dishonor of the cheque contrary to the 30-day mandate under Section 138(b) NI Act - time limitation - Complaint was filed in Patiala House Courts which lack territorial jurisdiction - raising of presumption under Sections 118 and 139 of the NI Act in favor of the holder - existence of debt or not. Whether the Complaint has been filed in accordance with S.138 NI Act? - HELD THAT:- The Complaint merely states the cheque was presented on 30.04.2021 and returned on 03.05.2021. It is rightly stated by the petitioner that a Legal Notice issued on 30.12.2021 for dishonor of Cheque in May, 2021 makes it invalid - Without a valid statutory Notice within the prescribed 30-day of dishonor of the Cheque, the cause of action under Section 138 NI Act, did not crystallize. The Complaint is therefore, liable to be rejected as it does not meet the requirements of S.138 NI Act - considering that there was Covid -19 prevailing during the entire 2021, the delay in giving the Legal Notice is condonable, it may further be examined whether the Complaint is maintainable on other grounds. Whether the Cheque was given as Security? - HELD THAT:- There is no cogent basis disclosed by the petitioner, to assert that it was a security cheque given to secure the Loan amount. Pertinently, the precise case is that since there was no security available, out of the total loan of Rs. Rs. 5,00,000/- along with interest, only an amount of Rs. 2,60,000/-, was disbursed. As per the Petitioner, the loan amount was paid between August, 2017 till February, 2019 and there was a misunderstanding about the small balance amount of Rs. 50,000/- and also that initial Security Cheque was misplaced. If only a small amount remained to be paid at the time of issuance of Cheque on, there was no question of giving the Cheque for the entire loan amount. There is no basis to claim it was a security Cheque and not given towards existing Legal Liability - Moreover, even if it is accepted that the cheque was given as security for a loan, it crystallizes into a legally enforceable debt on a subsequent date; the cheque, even if originally a “security” one, assumes the character of a cheque issued in discharge of that debt for the purpose of Section 138. The Security Cheques are only given to be utilised if subsequently, during the business transactions, certain liabilities arise which are not fulfilled by the Petitioners - The petitioner has asserted that the entire Loan except a small amount of Rs.50,000/- remains to be paid. This contention that there is outstanding loan amount or that it stood paid, is a disputed facts to be proved by evidence, which cannot be a ground to challenge the maintainability of the Complaint itself. This contention of Petitioner is, therefore, not tenable. Whether Complaint was Filed within Limitation? - HELD THAT:- Proviso to Section 142(b) NI Act allows the court to take cognizance of a Complaint after the prescribed period, if the complainant satisfies the court that he had “sufficient cause” for not filing the Complaint within the prescribed period. A perusal of the TCR reveals that the Complainant did not file any Application for condonation of delay along with the Complaint. The Complaint erroneously claims that the limitation was extended up to “28.03.2022” and claims the Complaint is within time - It is settled law that cognizance of a time-barred Complaint, without an Application for condonation of delay and an order condoning the delay, is bad in law - The Complaint under S.138 NI Act is liable for rejection as being barred by limitation. Whether Complaint was filed in the Court having Territorial Jurisdiction? - HELD THAT:- When the cheque is delivered for collection through an account, the Complaint is to be filed before the Court where the payee or the holder in due course maintains his bank - The Complaint states the “Home Branch” of the Complainant’s Bank is situated at R.K. Puram, which falls within the New Delhi District. Therefore, this contention does not hold any merit. Thus, it is established that the Complaint has not been filed within the timeline prescribed under S.138 NI Act and is barred by limitation - petition allowed. Issues: (i) Whether the complaint under Section 138 of the Negotiable Instruments Act, 1881 was filed in accordance with statutory requirements (including validity of the statutory notice and whether the cheque was a security); (ii) Whether the complaint was barred by limitation; (iii) Whether the complaint was filed in a court having territorial jurisdiction under Section 142(2)(a) of the Negotiable Instruments Act, 1881.Issue (i): Whether the complaint complied with Section 138 NI Act in respect of issuance of statutory notice and the character of the cheque (security or discharge of debt).Analysis: The return memo dated 03.05.2021 and the legal notice dated 30.12.2021 were examined with regard to the 30-day notice requirement. The factual dispute about whether the cheque was originally a security cheque or issued towards an existing liability was assessed as a matter of evidence. The legal position on security cheques was considered, including the principle that a cheque given as security may assume the character of a cheque in discharge of debt if liabilities crystallize subsequently. The statutory presumptions under Sections 118 and 139 were noted.Conclusion: The notice issued after the return memo did not meet the 30-day requirement on its face, but the delay on service of notice is capable of being condoned; the contention that the cheque was merely a security raises triable disputed questions of fact and does not render the complaint unsustainable at the threshold.Issue (ii): Whether the complaint was barred by limitation.Analysis: The timeline beginning from service of the legal notice was considered and the effect of the Supreme Court’s extension of limitation (In Re: Cognizance for Extension of Limitation) was applied to compute the extended limitation period as 90 days from 01.03.2022, expiring on 29.05.2022. The filing date recorded by the registry was 24.06.2022. The proviso to Section 142(b) allowing condonation of delay requires an application and recording of satisfaction; no application for condonation of delay was filed nor was any satisfaction recorded by the trial court when taking cognizance.Conclusion: The complaint was filed beyond the extended limitation period and, in the absence of an application and order condoning the delay, is barred by limitation.Issue (iii): Whether the complaint was filed in a court having territorial jurisdiction under Section 142(2)(a) NI Act.Analysis: The location of the payee's account (home branch) as stated in the complaint was examined against the territorial test in Section 142(2)(a) for complaints where the cheque is delivered for collection through an account.Conclusion: The allegation on territorial challenge was not substantiated on the record and does not invalidate the filing; territorial jurisdiction was properly invoked as per the pleaded home-branch location.Final Conclusion: The complaint is liable to be quashed on the ground of being time-barred because it was filed after the extended limitation period and without any application for condonation of delay; other challenges (notice timing and character of cheque) involve triable factual disputes not warranting dismissal on merits at the quashing stage.Ratio Decidendi: A complaint under Section 138 NI Act filed after the applicable limitation period (including authorized extensions) and without an application and order condoning delay is time-barred and liable to be quashed, while factual disputes about whether a cheque was issued as security are matters for trial and do not preclude quashing solely on that ground.