Section 138 NI Act- Jharkhand High Court Explains Bouncing Of Non-MICR Cheques, Notice Under Certificate of Posting

The Jharkhand High Court last week made some pertinent observations regarding the essentials required for prosecution under Section 138 of the Negotiable Instruments Act, 1881 (Act) for the bouncing of non-MICR (Magnetic Ink Character Recognition) cheques.

The Court also issued directions on what would constitute a valid mode of service for the dispatch of a demand notice. 

Justice Anubha Rawat Choudhary was adjudicating upon a criminal revision petition against the impugned order of the Sessions Court wherein the conviction of the petitioner under Section 138 of the Act was upheld and he was sentenced to undergo rigorous imprisonment for one year coupled with the payment of compensation amounting to Rs. 80,000.

In the instant case, the cheques of the petitioner were presented for collection before the bank but on June 15, 2007 the cheques had bounced due to insufficiency of fund. Further on July 10, 2007 the complainant had again submitted the cheques for encashment on the advice of the petitioner, but the cheques were returned by the bank on the ground that the cheques were non-MICR and thus could not be accepted by the bank. Consequently a legal notice dated July 24, 2007 was sent to the petitioner by the complainant under certificate of posting and not under registered cover. Further, the petitioner also contended that there exists no evidence rather no averment in connection with the service of legal notice dated July 24, 2007.

Observations:

Issue 1: Whether bouncing of cheques on the ground that the same were not-acceptable to the bank on account of them being non-MICR, could call for prosecution under Section 138 of Negotiable Instruments Act, 1881?

The Court at the onset observed that the Trial Court has committed an error in convicting the petitioner under Section 138 of the Act by ignoring the fact that the second bouncing of cheques occurred on account of them being non-MICR cheques. The Bank memo dated July 10, 2007 clearly indicated that the second bouncing of cheques occurred not because of insufficiency of funds but because of the fact that the cheques themselves had lost their validity/acceptability by the bank.

"The petitioner had no role to play in return of cheques upon second presentation, but the same were not acceptable by the bank itself on account of technical reasons. As per proviso (a) of section 138 of the Negotiable Instrument Act, 1881, the cheque has to be presented within six months from the date it is drawn or within the period of its validity, whichever is earlier. This Court is of the considered view that bouncing of cheques upon second presentation on account of them being not acceptable by the bank (on account of being non-MICR cheque) was not on account of any act or omission of the petitioner", the Court opined.

Thus it was held that the bouncing of cheques on second presentation under Section 138 of the Act could not be a ground for prosecution under Section 138 of the Act as one of the conditions precedent for prosecution i.e the cheque itself should be valid on the date of its presentation was not satisfied since the cheques were returned on account of them being non-MICR cheques.

Issue 2: Whether the dispatch of demand notice under certificate of posting can be said to be a valid mode of service under the provisions of Section 138 of Negotiable Instruments Act, 1881?

The Court observed that under Section 138 of the Act, no specific mode of dispatch of demand notice regarding bouncing of cheque has been prescribed. The provision only stipulates that the demand notice must be in writing and should be sent within 30 days of the receipt of information regarding return of the cheque. Reliance was also placed on the Supreme Court judgement in Mohd. Asif Naseer v. West Watch Company  wherein notice dispatched under certificate of posting was accepted as a valid mode of dispatch of notice in the absence of any statutory prescribed mode of service.

Accordingly, the Court ruled,

"This court is of the considered view that dispatch of demand notice under Section 138 of Negotiable Instruments Act, 1881 under "certificate of posting" is permissible in law"

Issue 3: When can the demand notice dispatched under certificate of posting be said to have been served upon the addressee in absence of any proof of its service, either documentary or circumstantial?

The Court further observed that the mere receipt of notice sent under certificate of posting may not in itself be sufficient proof of service. If the same is coupled with other facts and circumstances which prove that the party had notice, the same could be held to be sufficient service on the party. However, the Court opined that in the instant case there exists no service report regarding service of demand notice upon the petitioner and what is on record is merely the dispatch proof under certificate of posting.

"In the instant case, apart from receipt of notice having been sent under certificate of posting, there is no other material or other facts and circumstances to show that the petitioner was served with the demand notice much less any particular date of service of demand notice", the Court opined.

Enumerating further the Court held that the Trial Court had failed to consider that there was no evidence regarding service of demand notice to the petitioner sent under certificate of posting. As a result, no presumption as to the service of demand notice under Section 138 of the Act can be drawn. Thus, the condition precedent for filing of case under Section 138 of the Act i.e. service of demand notice having not been satisfied, the conviction of the petitioner cannot be sustained in the eyes of law, the Court opined.

Accordingly, the Court disposed of the petition by setting aside the conviction of the petitioner by observing,

"The impugned judgements of conviction of the petitioner under Section 138 of Negotiable Instruments Act, 1881 suffer from patent illegality and ignoring the mandatory provisions of Section 138 of Negotiable Instruments Act, 1881 with regards to the cause of action as fully discussed above, which calls for interference under revisional jurisdiction of this court"

Case Title: Md. Nasim Ansari v. State of Jharkhand

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