Section 138 NI Act| 'Notice Not Invalid If Other Amount Is Separately Indicated Therein Along With Cheque Amount': Allahabad High Court

The Allahabad High Court has held that if in a demand notice, other amounts are mentioned along with the cheque amount in a separate portion in detail, the said notice can not be faulted in a legal term of Section 138 (b) of the Act, 1881.

For context, as per Section 138 (b) of the 1881 Act, the payee or the holder in due course of the cheque, on the dishonour of the cheque, has to make a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid.

Now, in the instant case, the applicant (Prashant Chandra) received a cheque of Rs. 50 Lakhs from the opposite parties. When the same was presented before the bank, it was dishonoured because of "Insufficient Funds".

Now, as per Section 138 (b) of the NI Act, the applicant issued a demand notice to the opposite parties calling them to make the payment. Thereafter, when the payment was not made within the stipulated time of 15 days, the applicant moved the Court.

However, the trial court dismissed his complaint under section 203 Cr.P.C. with a finding that the demand notice served to the accused persons was bad as in the demand notice dated August 4, 2022, there is the break-up of the cheque amount of Rs. 50 lacs, and another amount of Rs. 50 lacs has been mentioned.

It was further recorded by the Trial Court that a demand only for the cheque amount could have been made and not of a further Rs. 50 lacs and interest with quarterly rests; and as such the notice issued on behalf of the complainant was not compliant with the provisions of section 138 (b) of the Negotiable Instrument Act.

However, it was the contention of the applicant that by virtue of the provisions contained in Section 138 of the Act 1881, the applicant sought payment of the cheque amount (50 Lakhs) along with 21 per cent interest with quarterly interests w.e.f. 05.10.2022, and hence, it was contended that the said demand notice cannot be termed as bad in the eye of the law.

Challenging the Trial Court's order dated April 25, 2023, the applicant moved the High Court seeking further direction to the court concerned to treat the demand notice as a valid notice of cheque amount of Rs. 50 lacs and summon the accused persons in accordance with the law and conclude the trial at the earliest.

Court's observations 

At the outset, the bench of Justice Suresh Kumar Gupta said that as per the settled principle of the law, the demand notice should be read as a whole, and not consider only part of the notice and on the demand notice, the holder or payee can demand to pay out for the said amount, i.e. cheque amount, however, the Court added, when the holder demands other types of other amounts with the cheque amount, he has to specify that amount with details in the notice and if done so, it does not affect of validation of such demand notice.

"Thus, to make a valid demand notice as per the proviso of section 138 (b) of the Act, 1881, the notice should be mentioned in a separate portion of the due amount of bounced cheque, and other amounts which are additionally claimed i.e interest of loss, cost, etc."

In this regard, the Court referred to the To Court's ruling in the case of Suman Sethi vs. Ajay K. Churiwal and another (2000) 2 Supreme Court Case 380, wherein the Apex Court had held that as per the proviso clause (b) to the section 138 of the Act, 1881, demand has to be made for the cheque amount, however, it cannot be faulted if, in addition to “cheque amount” any other sum by way of interest, cost, etc. is separately indicated

In view of this, the Court held that if in the demand notice, other amounts are mentioned with the cheque amount in a separate portion in detail, the said notice can not be faulted with. With these observations/directions, the application is allowed and the aforesaid impugned order 25.4.2023 was set aside.

The Court also remanded the matter back to the trial court to pass a fresh order after hearing the party.

Case title - Prashant Chandra vs. State Of U.P. Thru. Prin. Secy. Home, Lko. And Others [APPLICATION U/S 482 No. - 4587 of 2023]

Case Citation: 2023 LiveLaw (AB) 148

Click Here To Read/Download Order