Section 138 NI Act - Demand Notice Need Not Disclose Nature Of Transaction Leading To Issuance Of Cheque : Kerala High Court

The Bench, comprising  Justices K Vinod Chandran and MR Anitha ruled that the Negotiable Instruments Act (the Act) did not mandate a format for a demand notice.

The Court stated in the case K Basheer v C Usman Koya as follows :,

"The court cannot legislate by prescribing a particular form and cannot require that the nature of the transaction, leading to the issuance of cheque, be disclosed in the notice when the statute does not provide for it."

The question was referred to the Division Bench for consideration after a Single Bench hearing an appeal against an Additional Sessions Court's Order found divergence in the Kerala High Court's treatment of such cases. The Single Judge was hearing an appeal from the order of an Additional Sessions Judge acquitting the respondent (accused) who was alleged to have dishonoured a cheque.

In Kerala High Court decision Divakaran v. State of Kerala, a Single Judge of Justice K Abraham Mathew had held that the nature and date of transaction, and the date of issuance of cheque were material facts. If these were not disclosed in the statutory demand notice, the doors of the Court would be closed for such 'fortune seekers', it had been stated.

The Single Judge in the case had held that a person accused in a complaint under Section 142 of the Act is entitled to know the material particulars of the accusation levelled before he was tried. A suppression of these particulars would entail acquittal, without anything more, it was stated.

Another Single Bench of the High Court took a divergent stance in Surendra Das v. State of Kerala, wherein the Judge opined that an error or an omission to state the nature of debt or liability in a demand notice does not render it invalid.

The Court had pointed out that the Act did not prescribe a form in which a demand notice was to be issued under Section 138(b).

Drawing from the legislative scheme and intent, the Division Bench stated that a complaint under Section 138 required the following factual allegations,

1. that the cheque was drawn in a valid account by the holder,
2. that its presentation was within six months or validity period; whichever is earlier,
3. that the cheque was dishonoured,
4. that the demand was made by the payee or holder in due course within 30 days of dishonour.

The Court surmised that the only additional fact that had to be proved was the fact that the drawer did not pay the sum demanded within 15 days from the date of receipt of the demand.

Concluding that the statute did not prescribe a form for a demand notice, the Court quoted Central Bank of India & Anr. v. M/s. Saxons Farms & Ors., wherein it had been categorically held that no form of notice is prescribed under Clause (b) of the proviso to Section 138 of the Act.

Holding that the Act only required a payee or holder in due course to notify the drawer of the cheque of its dishonour, the Bench held that the legislation created a presumption in favour of the payee once the ingredients of the dishonour were disclosed. This presumption could not be rendered otiose, the Court emphasized.

The Bench summarised the law on dishonour of cheques in this way,

"The legislative intention is to overcome the cumbersome procedure of filing police report or complaint and subsequent enquiry or investigation etc., in matters of cheque dishonour. It also seeks to avoid the filing of a civil suit and a further execution for realisation of the decretal amount. This is the reason why Proviso (b) to Sec.138 provides that once the cheque is returned on presentation for reason of insufficiency of funds or for exceeding the arrangement, the payee or the holder in due course may make a demand for payment of money by giving a notice in writing to the drawer of the cheque, but within 30 days of the receipt of information of dishonour from the Bank. Time frame prescribed under the proviso further is an indication to ensure the bonafides of the drawee."

Therefore, the Court declared,

"It is also to be noted in this context that the offence u/s.138 of the Act is an offence which would be attracted on the ingredients above referred being satisfied. The statute also provides a presumption in favour of the holder which cannot be rendered otiose. We are, with utmost respect, unable to agree with the requirement mandated by Divakaran that the nature of the transaction should be disclosed in the notice; as that does not appear to be the correct position of law."

On facts, the Court found that there was no business transaction between the accused and the complainant as alleged by the latter.

Additionally, when the complainant averred that the accused had failed to respond to his demand notice, the Court stated that a failure to send reply cannot be a circumstance to prove the case of the complainant or demolish the case of the defence.

On these terms, the appeal was dismissed.