2021 (8) TMI 438 - HC - Indian Laws

Dishonor of Cheque - insufficiency of funds - validity of legal notice issued by the appellant to the respondent-Company - Section 138(b) of the N.I. Act? - HELD THAT - A perusal of provisions particularly, clause (b) makes it clear that, the payee or the holder in due course of the cheque, as the case may be, makes a demand for payment of the said amount of money by giving a notice in writing to the drawer of the cheque within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid, he is entitled to invoke Section 138 N.I. Act. It is pertinent to mention here that the phrase contained in clause (b) of Section 138 N.I. Act, i.e. demand for the payment of the said amount would only mean and refer to dishonoured cheque amount - In the present case, in the legal notice issued by the appellant, dated 15.03.2013, the total cheque amount referred in Serial Nos. 3, 5 and 6, would be around a sum of ₹ 16,40,340/-, but, nowhere, in the notice, does the appellant raise a demand for payment of ₹ 16,40,340/- towards the dishonoured cheques referred in Serial Nos. 3, 5 and 6. A perusal of the judgment in K.R. Indira's case 2003 (10) TMI 385 - SUPREME COURT it is clear that, if the demand for an amount covered by dishonoured cheque is conspicuously absent in the notice issued, then, the notice in question is imperfect. In the present case also, the exact amount, which the appellant claimed for towards the dishonoured cheques was not mentioned in the legal notice, and the appellant has mentioned only the serial numbers, viz., Serial Nos. 3, 5, and 6 in respect of the dishonoured cheques. Therefore, this Court is of the view that the legal notice issued by the appellant does not satisfy the ingredients contemplated under Section 138(b) of the N.I. Act. and the Court below having considered all these aspects in a proper perspective, rightly refused to entertain the complaint by holding that the legal notice issued by the appellant is not in accordance with the provision of Section 138(b) of the N.I. Act and accordingly, dismissed the complaint. Appeal dismissed.

Summary

Issues Involved:

1. Whether the legal notice issued by the appellant to the respondent company dated 15.03.2013 is in accordance with Section 138(b) of the N.I. Act?
2. Whether the judgment of the lower court is correct and sustainable?

Detailed Analysis:

(i) Whether the legal notice issued by the appellant to the respondent company dated 15.03.2013 is in accordance with Section 138(b) of the N.I. Act?

The appellant, a manufacturer of Quality Aluminum Alloy Ingots, sold materials to the respondent company, which issued several cheques in payment. However, some cheques were dishonoured due to insufficient funds. The appellant issued a legal notice on 15.03.2013, demanding payment. The lower court dismissed the appellant's complaint under Section 138 of the Negotiable Instruments Act (N.I. Act) on the grounds that the legal notice did not meet the requirements of Section 138(b). Specifically, the court found that the notice did not clearly demand the payment of the dishonoured cheque amounts but instead made an omnibus demand for a total amount, including time-barred cheques and interest, which created ambiguity.

Section 138(b) of the N.I. Act stipulates that the payee must make a demand for the payment of the dishonoured cheque amount through a notice in writing within thirty days of being informed by the bank about the cheque's dishonour. The court emphasized that the demand in the notice should be clear and specific to the dishonoured cheque amount. The appellant's notice, however, demanded a total amount of ?22,16,643, which included amounts from both dishonoured and time-barred cheques, along with interest. This was deemed an omnibus demand, failing to meet the legal requirement of a specific demand for the dishonoured cheque amount.

The court cited the Supreme Court's judgment in Suman Sethi vs. Ajay K. Churwal & Anr., which held that a notice making an omnibus demand without specifying the amount due under the dishonoured cheque is invalid. The legal notice in question was found to be ambiguous and not in compliance with Section 138(b) of the N.I. Act.

(ii) Whether the judgment of the lower court is correct and sustainable?

The lower court's judgment was found to be correct and sustainable. The court noted that the appellant's legal notice did not clearly specify the amount due under the dishonoured cheques but instead made an omnibus demand, which included amounts from time-barred cheques and interest. Such a notice does not meet the requirements of Section 138(b) of the N.I. Act, which mandates a clear and unambiguous demand for the dishonoured cheque amount.

The court referred to multiple judgments, including K.R. Indira vs. Dr. G. Adinarayana and Rahul Builders vs. Arihant Fertilizers & Chemicals & Anr., which reinforced the principle that a legal notice under Section 138(b) must specifically demand the payment of the dishonoured cheque amount. An omnibus demand that includes other amounts or lacks specificity renders the notice invalid.

The appellant's legal notice was found to be defective as it did not clearly demand the payment of the dishonoured cheque amounts. The lower court's decision to dismiss the complaint was based on this defect, and the High Court upheld this decision, finding no reason to interfere with the well-reasoned judgment of the lower court.

In conclusion, the High Court dismissed the criminal appeal, affirming that the legal notice issued by the appellant did not satisfy the requirements of Section 138(b) of the N.I. Act, and the lower court's judgment was correct and sustainable.