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Monday, Nov 19, 2007
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Apex court ruling on cheque bouncing

Legal Correspondent

New Delhi: The serving of notice by ‘hand delivery’ to the defaulter in cheque bouncing cases will not meet the requirements of Section 138 of the Negotiable Instruments Act and cannot be construed valid, the Supreme Court has held.

Where a cheque is dishonoured for insufficiency of funds in the account, the notice is only required to be dispatched by post or through courier. Mere information that the cheque had bounced is not enough, said a Bench of Justice S.B. Sinha and Justice H.S. Bedi in a recent judgment.

The Bench said, “Section 138 of the NI Act contains a penal provision. It is a special statute. It creates a vicarious liability. Even the burden of proof to some extent is on the accused. Having regard to the fact that the said provision provides for a strict penalty, it warrants a strict construction.”

The Bench said: “Serving of notice is one of the statutory requirements for initiation of a criminal proceeding. Such notice is required to be given within 30 days of the receipt of information by the complainant from the bank regarding the cheque as unpaid. Communication about the fact of dishonouring of the cheque and calling upon him to pay the amount within 15 days is imperative in character.”

It said thrust in Section 138 “is the need to make a demand. It is only the mode for making such demand, which the Legislature has prescribed. A payee can send the notice for doing his part for giving the notice. Once it is dispatched this part is over, the next depends on what the sendee does.”

In the instant case, the appellant Sarav Investment and Financial Consultants Pvt. Ltd. issued nine cheques in favour of the respondent, Lloyds Register of Shipping Indian Office Staff Provident Fund, Mumbai in March 2000.

When the cheques were dishonoured, officials of a law firm, representing the respondent presented the legal notice through ‘hand delivery.’ Since the amount was not paid within the stipulated period a complaint was preferred before a magistrate court in Mumbai, who issued summons to the appellant.

The appellant challenged the summons stating that the requirements of Section 138 of NI Act were not complied with. The magistrate rejected the plea but the sessions judge, Mumbai allowed a revision petition.

On appeal by the respondent, the Bombay High Court held that serving of notice by ‘hand delivery’ would be sufficient for issuance of process. The present appeal by Sarav Investment is directed against this judgment. The apex court Bench allowed the appeal and set aside the impugned judgment.

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