2007 (11) TMI 399 - SC - Companies Law

Failure on the part of the appellant to serve a proper notice strictly in terms of proviso appended to section 138 of the Negotiable Instruments Act whether would lead to quashing of a criminal proceedings initiated by II Additional Sessions Judge Held that - Appeal dismissed. As no demand was made for payment of the cheque amount, the opinion that the impugned judgment cannot be faulted.

Summary

Issues:
Failure to serve a proper notice under section 138 of the Negotiable Instruments Act leading to quashing of criminal proceedings.

Analysis:
The case involved a partnership firm (appellant) and another party (respondent) entering into a contract for construction work. The respondent issued a cheque for Rs. 1,00,000, which was dishonored. The appellant sent a notice demanding payment of pending bills within 10 days, threatening legal action. When the respondent did not pay, the appellant filed a complaint. The respondent argued that the notice was invalid, leading to a series of legal proceedings.

The High Court quashed the criminal proceedings, citing reasons: the notice did not comply with section 138 requirements as a 15 days' notice was not served, and the demand amount in the notice exceeded the cheque amount. The appellant contended that section 138 does not mandate a 15 days' notice and that demanding the total outstanding amount was valid.

The Supreme Court analyzed the notice issued by the appellant, emphasizing that a valid notice is crucial for a complaint under section 138. The court highlighted that the notice must demand payment of the cheque amount within 30 days of receiving information about the dishonored cheque. The notice in this case demanded the total outstanding amount, not just the cheque amount, making it invalid.

Referring to legal precedents, the court reiterated that a notice must specifically demand payment of the cheque amount to be valid under section 138. As the notice in this case did not make such a demand, the court upheld the High Court's decision to quash the criminal proceedings. Consequently, the appeal was dismissed based on the failure to comply with the statutory notice requirements under the Negotiable Instruments Act.