Is a Complaint on the basis of a second or successive Statutory Notice u/s 138 NI Act, issued after Re-Presentation of a dishonoured cheque, maintainable?

A primary/jurisdictional objection in numerous cheque bounce cases is always raised in the Courts, as a preliminary issue, that a complaint on the basis of a second or successive statutory notice u/s 138 NI Act, issued after representation of a dishonoured cheque, is not maintainable. It is pleaded on behalf of the accused that since the complaint has been filed on the same cause of action as the first statutory notice, hence it is not maintainable.

It would be trite to refer to Sadanandan Bhadran vs Madhavan Sunil Kumar 1998 (6) SCC 514, wherein the Apex Court held that that a cheque can be presented any number of times during the period of its validity. The Court held thus:

So far as the first condition is concerned clause (a) of the proviso to Section 138 does not put any embargo upon the payee to successively present a dishonoured cheque during the period of its validity. This apart, in course of business transactions it is not uncommon for a cheque being returned due to insufficient funds or similar such reasons and being presented again by the payee after sometime, on his own volition or at the request of the drawer, in expectation that it would be encashed. Needless to say, the primary interest of the payee is to get his money and not prosecution of the drawer, recourse to which normally, it taken out of compulsion and not choice. For the above reasons it must be held that a cheque can be presented any number of times during the period of its validity.

The Court answering the question whether dishonour of the cheque on each occasion of its presentation would give rise to a fresh cause of action within the meaning of Section 142(b) of the Act answered in the negative and held thus:

....The combined reading of the above two sections of the Act leaves no room for doubt that cause of action within the meaning of Section 142 (b) arises - and can arise - only once.

Besides the language of Sections 138 and 142 which clearly postulates only one cause of action there are other formidable impediments which negates the concept of successive causes of action. One of them is that for dishonour of one cheque there can be only one offence and such offence is committed by the drawer immediately in his failure to make the payment within fifteen days of the receipt of the notice served in accordance with clause (b) of the proviso to Section 138. That necessarily means that for similar failure after service of fresh notice on subsequent dishonour the drawer cannot be liable for any offence nor can the first offence be treated as non est so as to give the payee a right to file a complaint treating the second offence as the first one. At that stage it will not be a question of waiver of the right of the payee to prosecute the drawer but of absolution of the drawer of an offence, which stands already committed by him and which cannot be committed by him again.

Coming to the other question whether successive causes of action will make the period of limitation under clause (b) of Section 142 otiose, the Court observed thus:

The other impediment to the acceptance of the concept of successive causes of action is that it will make the period of limitation under clause (b) of Section 142 otiose, for, a payee who failed to file his complaint within one month and thereby forfeited his right to prosecute the drawer, can circumvent the above limitative clause by filing a complaint on the basis of a fresh presentation of the cheque and its dishonour. Since in the interpretation of statutes the Court always presumes that the legislature inserted every part thereof for a purpose and the legislative intention is that the very part should have effect the above conclusion cannot be drawn for, that will make the provision for limiting the period of making the complaint nugatory.

Now, the question is how the apparently conflicting provisions of the Act, one enabling the payee to repeatedly present the cheque and the other giving him only one opportunity to file an complaint for its dishonour, and that too within one month from the date the cause of action arises, can be reconciled. Having given our anxious consideration to this question, we are of the opinion that the above two provisions can be harmonised, with the interpretation that on each presentation of the cheque and its dishonour a fresh right - and not cause of action - accrues in his favour. He may, therefore, without taking pre-emptory action in exercise of this such right under clause (b) of Section 138, go on presenting the cheque so as to enable him to exercise such right at any point of time during the validity of the cheque. But, once he gives a notice under clause (b) of Section 138 he forfeits such right for in case of failure of the drawer to pay the money and the cause of action for filing the complaint will arise. Needless to say, the period of one month from filing the complaint will be reckoned from the day immediately following the day on which the period of fifteen days from the date of the receipt of the notice by the drawer, expires.

In nutshell, the Apex Court declared that a complainant cannot create successive causes of action with the same cheque. If no complaint is filed on the first cause of action the payee is disentitled to create another cause of action to file a complaint for the purpose of launching a prosecution on it. This binding declaration of law was followed by the Courts in identical matters for more than a decade.

However, the correctness of Sadanandan Bhadran (supra) was doubted and was referred to the larger bench of the Apex Court in MSR Leathers vs. S. Palaniappan and Another 2013 ((1) SCC 177, wherein the Apex Court held that no prohibition exists against the subsequent presentation of cheque and institution of a criminal complaint based on the subsequent dishonour of the same. The larger Bench categorically overruled the decision in Sadanandan Bhadran�s case (supra) and held that the prosecution based on second or successive dishonour of the cheque is also permissible so long as it satisfies the requirements stipulated under the proviso to Section 138 of the Act.

The larger Bench of the Apex Court in MSR Leathers held thus:

16. With utmost respect to the Judges who decided Sadanandan Bhadran�s case (supra) we regret our inability to fall in line with the above line of reasoning to hold that while a cheque is presented afresh the right to prosecute the drawer, if the cheque is dishonoured, is forfeited only because the previous dishonour had not resulted in immediate prosecution of the offender even when a notice under clause (b) of proviso to Section 138 had been served upon the drawer. We are conscious of the fact that Sadanandan Bhadran�s case (supra) has been followed in several subsequent decisions of this Court such as in Sil Import, USA v. Exim Aides Silk Exporters, Bangalore, (1999) 4 SCC 567, Uniplas India Ltd. and Ors. v. State (Govt. of NCT Delhi) and Anr., (2001) 6 SCC 8, Dalmia Cement (Bharat) Ltd. v. Galaxy Traders & Agencies Ltd. and Anr., (2001) 6 SCC 463, Prem Chand Vijay Kumar v. Yashpal Singh and Anr., (2005) 4 SCC 417, S.L. Constructions and Anr. v. Alapati Srinivasa Rao and Anr., (2009) 1 SCC 500, Tameshwar Vaishnav v. Ramvishal Gupta, (2010) 2 SCC 329.

Giving logical reasoning for overruling the earlier dictum, the larger bench of the Apex observed thus:

21. There is, in our view, nothing either in Section 138 or Section 142 to curtail the said right of the payee, leave alone a forfeiture of the said right for no better reason than the failure of the holder of the cheque to institute prosecution against the drawer when the cause of action to do so had first arisen. Simply because the prosecution for an offence under Section 138 must on the language of Section 142 be instituted within one month from the date of the failure of the drawer to make the payment does not in our view militate against the accrual of multiple causes of action to the holder of the cheque upon failure of the drawer to make the payment of the cheque amount. In the absence of any juristic principle on which such failure to prosecute on the basis of the first default in payment should result in forfeiture, we find it difficult to hold that the payee would lose his right to institute such proceedings on a subsequent default that satisfies all the three requirements of Section 138.''

The Court taking resort to the established rules of purposive interpretation observed as under:

27. It is trite that the object underlying Section 138 of the Act is to promote and inculcate faith in the efficacy of banking system and its operations, giving credibility to Negotiable Instruments in business transactions and to create an atmosphere of faith and reliance by discouraging people from dishonouring their commitments which are implicit when they pay their dues through cheques. The provision was intended to punish those unscrupulous persons who issued cheques for discharging their liabilities without really intending to honour the promise that goes with the drawing up of such a negotiable instrument. It was intended to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case the cheque was dishonoured and to safeguard and prevent harassment of honest drawers. (See Mosaraf Hossain Khan v. Bhagheeratha Engg. Ltd. (2006) 3 SCC 658, C.C. Alavi Haji v. Palapetty Muhammed & Anr. (2007) 6 SCC 555 and Damodar S. Prabhu v. Sayed Babulal H. (2010) 5 SCC 663). Having said that, we must add that one of the salutary principles of interpretation of statutes is to adopt an interpretation which promotes and advances the object sought to be achieved by the legislation, in preference to an interpretation which defeats such object. This Court has in a long line of decisions recognized purposive interpretation as a sound principle for the Courts to adopt while interpreting statutory provisions. We may only refer to the decisions of this Court in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar (AIR 1963 SC 1207), where this Court observed:

�It is a recognised rule of interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute, and which effectuate the object of the Legislature. If an expression is susceptible of a narrow or technical meaning, as well as a popular meaning, the Court would be justified in assuming that the Legislature used the expression in the sense which would carry out its object and reject that which renders the exercise of its power invalid.�

The Court held that there is no real or qualitative difference between the first & subsequent default and held thus:

31. Applying the above rule of interpretation and the provisions of Section 138, we have no hesitation in holding that a prosecution based on a second or successive default in payment of the cheque amount should not be impermissible simply because no prosecution based on the first default which was followed by a statutory notice and a failure to pay had not been launched. If the entire purpose underlying Section 138 of the Negotiable Instruments Act is to compel the drawers to honour their commitments made in the course of their business or other affairs, there is no reason why a person who has issued a cheque which is dishonoured and who fails to make payment despite statutory notice served upon him should be immune to prosecution simply because the holder of the cheque has not rushed to the court with a complaint based on such default or simply because the drawer has made the holder defer prosecution promising to make arrangements for funds or for any other similar reason. There is in our opinion no real or qualitative difference between a case where default is committed and prosecution immediately launched and another where the prosecution is deferred till the cheque presented again gets dishonoured for the second or successive time.

Thus the Court overruled Sadanandan Bhadran in clear & unambiguous terms holding prosecution based on second or successive dishonour of the cheque valid/legal and in consonance with the spirit/purport and the objective of the NI Act. The Court summed up thus:

If the entire purpose underlying Section 138 of the Negotiable Instruments Act is to compel the drawers to honour their commitments made in the course of their business or other affairs, there is no reason why a person who has issued a cheque which is dishonoured and who fails to make payment despite statutory notice served upon him should be immune to prosecution simply because the holder of the cheque has not rushed to the court with a complaint based on such default or simply because the drawer has made the holder defer prosecution promising to make arrangements for funds or for any other similar reason.

The said dicta of MSR Leathers (supra) has been reiterated/followed by the Apex Court in the cases of Brihanmumbai Electric Sup.& others vs Maharashtra Elect. Regul. Commission decided on 8 May, 2014; Pawan Kumar Ralli vs Maninder Singh Narula 2014 (15) SCC 245; Dashrath Rupsingh Rathod vs State of Maharashtra 2014 (9) SCC 129;
Infrastructure Leasing & Fin.Services vs Delklip Investment Private Ltd. decided on 14 November, 2014; Himanshu vs B. Shivamurthy on 2019 (3) SCC 797 ;Birendra Prasad Sah vs The State Of Bihar 2019 (7) SCC 273 & M/s. Sicagen India Ltd. vs. Mahindra Vadideni & Ors.2019 (4) SCC.

Thus, it is no longer Res Integra that complaint on the basis of a second or successive Statutory Notice u/s 138 NI Act, issued after Re-Presentation of a dishonoured cheque is legal & clearly maintainable.

Written By: Inder Chand Jain
M: 8279945021, Email: [email protected]