Section 138 Of NI Act Warrants Strict Construction, Compliance With Proviso Clauses Is A Precondition Before Prosecution: J&K High Court

Quashing multiple complaints filed under Section 138 of the Negotiable Instruments Act, 1881 citing failure to adhere to mandatory conditions laid down in the Act the Jammu and Kashmir and Ladakh High Court has ruled that Section 138 of the Act being penal in nature, indisputably, warrants strict construction, hence making compliance with its proviso clauses (a), (b), and (c) essential before initiating prosecution.Citing Sivakumar vs. Natrajan reported in (2009) Justice Javed Iqbal Wani observed, “… nothing contained in the main provision would apply unless the conditions specified in clauses in (a), (b) and (c) thereof are complied with, suggesting thus, the said clauses (a), (b) and (c) of the proviso therefore, lay down conditions precedent for applicability of the main provision of Section 138 of the Act and further that the provisions of section 138 of the Act being penal in nature, indisputably, warrants strict construction”.Pertinently clause (a) of the Proviso provides that the cheque must be presented within six months of issuance, clause (b) specifies that the payee must issue a demand notice within 30 days of receiving dishonor information and clause c) states that the drawer must fail to make payment within 15 days of receiving the notice.The complaints were filed by respondent Bishambar Ram after five cheques issued by the petitioner were dishonored due to the closure of the petitioner's bank account. The respondent alleged that the cheques were issued in repayment of a loan advanced to the petitioner. However, when the cheques were returned unpaid on April 7, 2021, with the remark “account closed.”Subsequently, the respondent issued a demand notice on May 22, 2021, which was sent via registered post on May 24, 2021. Upon the petitioner's failure to make payment within the statutory 15-day period, the respondent initiated criminal complaints before the trial court on August 27, 2021.The petitioner, represented by Advocate Rakesh Chargotra, sought quashing of the complaints on the ground that the demand notice was sent beyond the 30-day period prescribed under Section 138(b) of the Act, rendering the complaints legally unsustainable.It was further submitted that the complaints failed to specify when the alleged loan was taken, and the petitioner contended that no financial transaction had occurred between the parties.The petitioner also claimed the cheques were stolen and misused by the respondent, as his bank account had been closed since 2013.Opposing the petition, Advocate Gagan Oswal, representing the complainant, contended that the issue of delay in notice issuance was a matter of trial and could not be determined at the pre-trial stage. He asserted that the petitioner's claims lacked merit and were merely an attempt to evade liability.After considering the rival contentions Justice Wani meticulously examined Section 138 of the Act and its proviso clauses, emphasizing that the three conditions (a), (b), and (c) in the proviso to Section 138 are prerequisites for prosecution. Since clause (b) mandates that the payee must issue a demand notice within 30 days of receiving information about cheque dishonor failure to adhere to this timeline bars the complainant from invoking Section 138, the court underscored. While maintaining that compliance with these conditions is mandatory the Court also referred to M/s. Harman Electronics (P) Ltd. v. National Panasonic India Ltd., (2008) 16 SCALE 317, which clarified that issuance of notice would not by itself give rise to a cause of action but communication of the notice would.Applying these precedents, the Court concluded that since the demand notice was issued after more than 30 days from the dishonor memo date (April 7, 2021), the complaints were legally untenable.In view of this finding the court ruled that the trial court had committed a grave error in entertaining and proceeding with the complaints despite the clear violation of statutory mandates. Accordingly, the complaints and all related proceedings were quashed.Case Title: Kulbhushan Gupta Vs Bishambar Ram Citation: 2025 LiveLaw (JKL) 12Click Here To Read/Download Judgment

Section 138 Of NI Act Warrants Strict Construction, Compliance With Proviso Clauses Is A Precondition Before Prosecution: J&K High Court

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