1999 (10) TMI 718 - SC - Companies Law

Whether there were valid notices as required under Clause (b) of the proviso to Section 138 of the Act? Held that - In the notices it was stated that on re-presentation of the cheques if returned unpaid the appellant-bank would report the matter to the police for initiating appropriate criminal action against the respondents. Under Section 142 of the Act court can take cognizance of an offence punishable under Section 138 only on a complaint in writing made by the payee. Therefore the police could not have started investigation under Section 138 of the Act. But if a cheque is dishonoured drawer may expose himself to prosecution under various Sections of the Indian Penal Code which are cognizable and police could take up investigation. What was indicated in the notice was that in addition to the legal action by the appellant-bank under the Act option was kept open for taking action against the respondents under the provisions of Indian Penal Code by informing the police. Therefore the contention of learned counsel for the respondents has no force. For the reasons stated above we hold that notices were valid and proper and therefore the High Court erred in holding that there was no proper notice for payment as required under Section 138 of the Act.

Summary

Issues:
Validity of notices under Section 138 of the Negotiable Instruments Act.

Analysis:
The case involved two appeals by the complainants against a judgment quashing criminal proceedings pending before the Judicial Magistrate, First Class, Gwalior. The High Court had quashed the proceedings on the ground of improper notice under Section 138 of the Negotiable Instruments Act, 1881. The main issue to be decided was whether there were valid notices as required under Clause (b) of the proviso to Section 138 of the Act.

The relevant portion of the notices clearly stated the intention to represent the cheques and report the matter to the police for initiating criminal action if the cheques were returned unpaid. The notices were sent within fifteen days of receipt of information from the bank regarding the unpaid cheques, meeting the statutory requirement. The demand for payment was explicitly made in the notices, as required under Clause (b) of Section 138.

The High Court had misinterpreted the intention behind the notice, overlooking the clear demand for payment. The appellant-bank had the legal right to re-present the cheques to the bank within the validity period, and the respondents were obligated to arrange payment upon re-presentation. The contention that the intention was to start a police investigation rather than filing a complaint under Section 138 was dismissed, as police investigation under Section 138 is not permissible, but the drawer may face prosecution under other sections of the Indian Penal Code.

The Supreme Court held that the notices were valid and proper, contrary to the High Court's ruling, and directed the court below to proceed with the trial in both complaint petitions. The appeals were allowed by quashing the impugned judgment and order of the High Court, emphasizing the importance of fulfilling the statutory requirements for notices under Section 138 of the Act.