A

CENTRAL BANK OF INDIA AND ANR.

v.

SAXONS FARMS AND ORS.

OCTOBER 7, 1999

B

[G.T. NANAVATI AND S.N. PHUKAN, JJ.]

Criminal Law :

Negotiable lnstrnments Act, 1881 : Section 138 proviso, clause (b ).

c ' Notice-Object of-Last line of notice stated : "Kindly arrange to make

the payment .... ''-Held : Object of notice is to give a chance to the drawer of

the cheque to rectify his omission and also to protect an honest drawer-There

fore, in the notice a demand for payment of the amount of cheque has to be

made-Last line of the notice is clear demand for payment-Hence, High

D Court e"ed in overlooking this demand for payment and in quashing the

complaint under S.482 Cr.P.C.--Criminal Procedure Code, 1973, S.482.

Notice-Requirements of-Held: (i) Should be in writin~ (ii) Should

be given within fifteen days of return of cheque as unpaid and (iii) A demand

E for payment of the amount of cheque has to be made.

Notice-Demanding payment-Service of-Held : Is a condition prece­

dent for filing complaint under S.138.

Section 138 proviso, clause (a)--chequ~resentation of-Number of

F times-Held : Drawee has the right to present a cheque any number of times

within its period of validity.

Respondent No. 1. partnership firm took a loan of over a crore of

rupees from the appellant-Bank and towards part-repayment of the above

G loan issued three cheques. These cheques were presented for collection but

were received back with the remarks

"Funds insufficient". Thereafter, the

appellant sent

two notices to respondent No. 1 stating that it would re­

present these cheques again and if the same

were returned unpaid, the

matter would

be reported to the police. The notices further reserved the

right to

file a criminal case against respondent No. 1 if it did not arrange to

H make the payment. Admittedly, Respondent No. 1 received the notices.

534

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CENTRAL BANK OF INDIA v. SAXONS FARMS 535

All the cheques were re-presented to the bank but were returned with A

the same remarks "funds insufficient". Thereupon, the appellant-bank

filed complaints under Section

138 of the Negotiable Instruments Act, 1881 · in the court of the Judicial Magistrate First Class who took cognizance of

the complaints. But High Court quashed the complaint under Section 482

of the Criminal Procedure Code, 1973 on the ground that there was no B

proper notice as required under Section 138 of the Act and held that there

was no demand of payment. Hence this appeal.

Allowing the appeals, this Court

HELD: 1.1. Though, no form of notice is prescribed in Clause (b) · C

of the proviso to Section 138 of the Negotiable Instruments Act, 1881 the

requirement is that notice shall

be given in writing within fifteen days of

receipt of information from the bank regarding return of the cheque as

unpaid and in the notice a demand for payment of the amount of the

cheque has to

be made. [537-H; 538-A] D

1.2. The object of the notice is to give a chance to the drawer of the

cheque to rectify his omission and also to protect honest drawer. Service of

notice of demand in

Clause (b) of the proviso to Section 138 is a condition

precedent for filing a complaint under Section

138 of the Act.[538-B]

2.1. Regarding demand for payment, the High

Court was of the

opinion that "the intention in the notice was that the cheque was being

presented again and the applicant/petitioner should arrange the payment

on re-presentation of the cheque". [538-E]

E

F

2.2. However, a cheque can be presented any number of times to the

bank within the period of its validity. Therefore, the appellant-bank had a

legal right to re-present the cheques to the bank

as indicated in the notices

and, therefore, respondents could have arranged payment either through

bank

or directly to the appellant-bank. By not doing so the provision of

Section

138 is clearly attracted. [538-F; G] G

3. In the present case, the last line of the notice reads :

"Kindly

arrange to make the payment to avoid the unpleasant action of my client".

This is a clear demand as required under Section 138(b) proviso. The High

Court erred in overlooking this last line in the notice and in holing that H

536 SUPREME COURT REPORTS [1999] SUPP. 3 S.C.R.

A there was no demand of payment. [538-D; E]

CRIMINAL APPELLATE JURISDICTION Criminal Appeal

•· Nos. 1056-57 of 1999.

From the Judgment and Order dated 7.8.97 of the Madhya Pradesh

B High Court in Cr!. M.A. No. 636-37 of 1997.

Altaf Ahmed, Additional Solicitor General, (O.C. Mathur, Ms.

Meera Mathur), for J.B.D.

&

Co. for the Appellants.

R.F. Nariman, Ms. Kamakshi

S. Mehlwal,

Uma Nath Singh, Amit

C Dharpan and Rajiv Mehta for the Respondents.

The Judgment of the Court was delivered by

PHUKAN, J. Leave granted.

D These two appeals are by the complainants against the judgment and

order of the learned Single Judge of the High Court of Madhya Pradesh,

Gwalior Bench passed in Misc. Cr!. Case Nos. 636 and 637 of 1997. By the

impugned judgment and order the High Court allowed the petitions filed

under Section

482

Crl.P.C. and quashed the criminal proceedings namely

E case Nos. 172 and 1156 of 1995 pending before the Judicial Magistrate,

First Class, Gwalior.

Respondent

No. 1, a partnership firm, took a loan of over a crore of

rupees from the appellant-bank and towards part re-payment of the above

F loan, issued three cheques dated 29 .3.94, for Rs. 1 lakh, Rs. 2 lakhs and

Rs.

39,50,000. All three cheques were presented to the bank for collection

but receiv~ back by the appellant unpaid on 25.4.94 and 19.6.94 with the

remarks "funds insufficient". The appellant bank sent two registered

notices dated

2.5.94 and 27.6.94 through the advocate and there was no

dispute that the notices were received. All the cheques were again

G presented to the bank but returned with the same remarks namely

"funds

insufficient". Thereafter, the appellant-bank approached the Judicial

Magistrate First Class by filing two complaints under Section 138 of the

Negotiable Instruments Act,

1881 (for short the Act). The Magistrate took

cognizance in respect to both the complaints but the High

Court quashed

H the criminal proceedings only on the ground that there was no proper

•

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CENTRAL BANK OF INDIA v. SAXONS FARMS [PHUKAN, J.] 537

notice as required under Section 138 of the Act. A

We have heard the learned counsel for the parties and the short

question to be decided

is whether there were valid notices as required

under Clause (b) of the proviso to

Section 138 of the Act.

We extract below the relevant portion of the notices which

is same B

in both the notices : "The bouncing of the two cheques is a most serious matter. The

said act of issuance of cheques knowing

fully well that the same

shall not be paid statutes an offence under

Section 138 of the

Negotiable Instruments Act.

As per the provisions of this act my

client through this notice informs you that my client shall represent

the two cheques again and if the same are returned unpaid,

my

client shall report the matter to the Police for initiating ap­

propriate criminal action against you

all. My client further reserves

c

the right to file criminal case against all of you for the non-payment D

of the cheques in question and details given above. Kindly arrange

to make the payment of the cheques if

you intend to avoid the

unpleasant action of

my

client."

. Section 138 of the Act, inter alia, provides that where any cheque

drawn

by a person on an account maintained by him with a banker for

payment of any amount of money to another person

is returned by the bank

unpaid, either because of the amount of money standing to the credit of

that account

is insufficient to honour the cheque or that it exceeds the

amount arranged to be paid from that account, such person shall be

deemed to have committed an offence under the above

Section. According

to the proviso to the said Section unless the three clauses mentioned

therein are fulfilled the provisions of the Section shall not apply. In these

appeals

we are concerned with Clause (b) which is quoted below :

E

F

"(b) the payee or the holder in due course of the cheque, as the G

case may be, makes a demand for the payment of the said amount

of money

by giving a notice in writing, to the drawer of the cheque,

within fifteen days of the receipt of information

by him from the

bank regarding the return of the cheque

as unpaid;

and"

Though, no form of notice is prescribed in the above Clause (b) the H

538 SUPREME COURT REPORTS [1999] SUPP. 3 S.C.R.

A requirement is that notice shall be given in writing within fifteen days of

receipt of information from the bank regarding return of the cheque

as

unpaid and in the notice a demand for payment of the amount of the

cheque has to be made.

The object of notice

is to give a chance to the drawer of the cheque

B to rectify his omission and also to protect honest drawer. Service of notice

of demand in Clause (b) of the proviso to Section

138 is a condition

precedent for filing a complaint under Section

138 of the Act. In the

present appeals there

is no dispute that notices were in writing and these

were sent within fifteen days of receipt of information by the

C appellant-bank regarding return of cheques as unpaid. Therefore, only

question to be examined whether in the notice there

was a demand for

payment.

The last line to the portion of notice extracted above reads as

D under:

"Kindly arrange to make the payment to avoid the unpleasant

action of

my

client." In our opinion it is a clear demand as required

under Clause (b) of Section

138.

E Regarding demand for payment, the High Court was of the opinion

that

"the intention in the notice was that cheque was being presented again

and the applicant/petitioner should arrange the payment on

re-presentation of the cheque". The High Court over looked the last line

of notice

as indicated above and, therefore, erred in holding that there was

F no demand of payment.

A cheque can be presented

any number of times to the bank within

the period of its validity. In view of the above, appellant-bank had a legal

right to re-present the cheques to the bank

as indicated in the notices and,

therefore, respondents could have arranged payment either through bank

G or directly to the appellant bank. By not doing so the provision of

Section

138 is clearly attracted.

In the notices it

was stated that on re-presentation of the cheques

if­

returned unpaid, the appellant-bank would report the matter to the police

H for initiating appropriate criminal action against the respondents. Drawing

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CENTRAL BANK OF INDIA v. SAXONS FARMS (PHUKAN,'J.] 539

our attention to the above statement in the notices it is urged on behalf of A

the respondents that the intention of the appellant "bank was to start police

investigation and not to

file complaint under

Section 138 of the Act.

Under Section 142 of the Act, court can take cognizance of an

offence punishable under Section 138 only on a complaint in writing made

by the payee. Therefore, the police could not have started investigation

under Section 138 of the Act. But if a cheque is dishonoured drawer may

expose himself to prosecution under various Sections of the Indian Penal

Code which are cognizable and police could take up investigation. What

was indicated in the notice

was that in addition to the legal action by the

appellant-bank under the Act, option

was kept open for taking action

against the respondents under the provisions of Indian Penal Code

by

informing the police. Therefore, the contention of learned counsel for the

respondents has no force.

B

c

For the reasons stated above we hold that notices were valid and

proper and, therefore, the High Court erred in holding that there

was no D

proper notice for payment as required under

Section 138 _oLthe Act.

In the result, both the appeals are allowed

by quashing the impugned

judgment and order of the High Court and court below

is directed to

proceed with the trial in both the complaint petitions.

v.s.s. Appeals allowed.