Kerala High Court: No Need to Disclose Nature of Transaction for Issuance of Cheque in Demand Notice u/s 138 NI Act

Kerala High Court: No Need to Disclose Nature of Transaction for Issuance of Cheque in Demand Notice u/s 138 NI Act

The Kerala High Court (HC) on 17 March 2021, in the case titled K Basheer (Appellant) v. C Usman Koya & Ors. (Respondents) held that a demand notice under Section 138 of the Negotiable Instruments Act (NI Act) need not disclose the nature of the transaction leading to the issuance of the cheque.

The HC division bench consisting of Justices K Vinod Chandran and MR Anitha held that the NI Act did not mandate a format for a demand notice. It clarified while answering the reference whether a demand notice without full disclosure of the details of the transaction would be rendered invalid.

It ruled, "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."

In this case, the question was referred to the HC bench for consideration after a single judge of the HC heard an appeal against an order of the Additional Sessions Court that found a divergence in the HC's treatment of such cases. The Single Judge had heard an appeal wherein the Additional Sessions acquitted the respondent (accused). The respondent was charged for a cheque bouncing case.

The Single Judge had ruled that a person accused in a complaint under Section 142 of the NI Act is entitled to know the material particulars of the accusation leveled before he was tried. It was further stated that a suppression of these particulars would entail acquittal, without anything more.

In the case titled Surendra Das v. State of Kerala, a Single Judge of the HC opined differently and stated that an error or an omission to state the nature of debt or liability in a demand notice does not render it invalid. He further stated that the Act did not prescribe a form in which a demand notice was to be issued under Section 138(b).

The division bench in the instant matter stated that while drawing inference from the legislative scheme and intent, a complaint under Section 138 required certain factual allegations that included that the cheque was drawn in a valid account by the holder, that its presentation was within six months or validity period; whichever is earlier, that the cheque was dishonoured, that the demand was made by the payee or holder in due course within 30 days of dishonour.

It further clarified 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.

The bench summarized the statutory provision by stating that "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 realization of the decretal amount."

It added, "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."

The bench remarked 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."

The HC concluded that the NI Act did not prescribe a form for a demand notice and it referred to the judgment of the case Central Bank of India & Anr. v. M/s. Saxons Farms & Ors., wherein it was held that no form of notice is prescribed under Clause (b) of the proviso to Section 138 of the Act.

The bench held that the NI Act only required a payee or holder in due course to notify the drawer of the cheque of its dishonor. It stated 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 HC while dismissing the appeal concluded that there was no business transaction between the accused and the complainant as alleged. It further said that a failure to send a reply to a demand notice cannot be used to demolish the case of the defense.