Notice Format Under Section 138

Registered AD/Speed Post

 Date:

 Mr. ________________
Address____________

LEGAL NOTICE

Sir,

Under instructions and authority from our client M/s. ______________________ we serve upon you the following legal Notice.

That our client is a Private Limited Company engaged in trading of Computers, Laptops, Computer Parts and Accessories the name of _________________________________ having office at ____________________________________.

That in the year _______________you have approached our client through E-mail communication of your employee __________________ to purchase ________________for your office. Subsequently you have issued purchase order dated _________________amounting to Rs. ______________for _____________

That you have promised our client to pay the cost of the product in the form of Current Dated Cheque as mentioned in the purchase order.

That our client had relied on your promise and as instructed by you delivered the ___________ at your office at _______________ vide Invoice No. __________dated ___________.

That you have issued Cheque No. _____________dated ____________for Rs. _________/- (Rupees ____________only) drawn __________________________ towards payment against the Invoice.

That the aforesaid cheques No. _____dated ________for Rs. _______/- was presented by our client M/s._____________________ on _____ to your Bankers i.e. _____________________________________.

Our clients shock and surprise the said cheque had been dishonoured by your bankers with the reason "Fund Insufficient" which was intimated to our client by their ________________________________ through their cheque return memo dated ____________

That thereafter inspite of many telephonic reminders by our client, you failed to make the payment due to our client.

That now it is clear that you had dishonest intention at the time of purchasing _____ from our client and deceived our client to the tune of ____________.


Our client states that you have issued the above said cheques only with an intention to cheat our client which amounts to an offence punishable under section 138 of Negotiable Instruments Act.

Under the circumstances, we call upon you to pay of Rs.____________ /- within a period of 15 (fifteen) days from the date of receipt of this notice, failing which our client will be constrained to take legal action against you in a court of law for an offence punishable under section 138 of Negotiable Instruments Act for which you will be liable for all costs and consequences.

This is without prejudice to all other legal rights and remedies available to our client for the above-stated purpose.

You are liable to pay a sum of Rs. __________/- as necessary cost and expenses of sending the present legal notice to you.

 Copy of this legal notice is also kept at our office for further ready reference it required in future.

For______, Advocates


_____________, Advocate
Partner

it is very important to issue the notice under Section 138 of Negotiable Instruments Act properly and in accordance with the provisions of the Act. The issuance of notice should be taken very seriously as most of the cases under Section 138 of Negotiable Instruments Acts fail due to defective notice.

FORMAT – LEGAL NOTICE IN ‘CHEQUE BOUNCING CASES’

To,

Mr./Mrs.______________

_______________________

_______________________

CHEQUE BOUNCING CASE – CHEATING

Dear Mr _____or Mrs ,

        Under the instruction of my Client named ______________, residing at_____________ , Delhi .  I serve on you this ‘Legal Notice’, informing you as follows:-

1.  That, when you had visited my Client’s New Delhi residence in the month of __________, you had issued two cheques, bearing No.__________ and No. drawn on ___________Bank dated___________ and____________, for two amounts of Rs. ___________and Rs.____________ and Rs. _________ i. e. total amount of Rs.__________ in my client’s favour in lieu of the repayment of the friendly loan advanced by my client to you, of against amount of Rs._________ without any interest.

2.  That, my Client had deposited the said both Cheques in his Account, in the __________ Bank, during the period of its validity on__________, which was returned unpaid to my Client on___________, on account of ‘Insufficient Funds’ in your Bank Account, to meet the demand stated in the aforesaid both Cheques. (Xerox copy of the Memorandum both dated____________ issued by the said Bank, is enclosed for ready reference).

3.  That, it appears that  in order to cheat and defraud my client and without any intention on your part to pay my Client, the aforesaid friendly loan of Rs._________, you  had deliberately and intentionally issued the aforesaid Cheques, knowingly that  it was bound to be dishonored, on account of ‘Insufficient funds’ in your bank Account.

4.  Under the aforesaid facts and circumstances, through this legal Notice, I on behalf of my client, do hereby call upon you, to pay my Client, the aforesaid amount of Rs.__________ on or before ______________, failing which my client shall initiate legal proceedings for the recovery of the said amount and shall also prosecute you under section 138 of the Negotiable instruments act and you shall be liable for the costs of the proceedings also.

5.  Copy retained .

     Unfeigned Regards,

Rohit Kishan Naagpal

Advocate , Supreme Court of India

Encls: As above

Under the instruction of my Client

Mr./Mrs.____________-___________________

We advice you to take help of a good lawyer who is well versed with the law of Section 138 of the Negotiable Instruments Act to avoid any complications at letter stage.

Notice Format Under Section 138

Regd. AD/ UPC/ BY HAND
Dated————–
To
——————————–
———————————
Sub.:- Legal notice under Section 138 of the Negotiable Instrument Act.

Sir,

The cheque No.—————– dated—————- for an amount of ————drawn on the —————————————————————————branch, was issued by you in lieu of discharge of your financial liabilities to us.

The said cheque was presented for payment but the same has been returned by your bank with the endorsement ——————————–. The Bank has informed us through their cheque return memo dated———–.

You are now requested to make the payment of the above said amount immediately in accordance with the provisions of section 138 of Negotiable Instrument Act failing which we will initiate criminal proceedings against you as contemplated under the above said section.

This is for your information.
Yours
Name
Address

Section 138 of Negotiable Instruments Act explained in details with case law for better understanding of a common man.

Section 138 of Negotiable Instruments Act is an important provision pertaining to the matter of cheque bouncing. The section reads as under:

138. Dishonour of cheque for insufficiency, etc., of funds in the account.—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 from out of that account for the discharge, in whole or in part, of any debt or other liability, 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 by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for  [a term which may be extended to two years’], or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained Section 138 of Negotiable Instruments Act shall apply unless—

(a) the cheque has been presented to the bank within a period of six months (RBI, circular u/s 35 (A) Banking Regulation Act, 1949- w.e.f. 1.4.2012 validity period of cheque/draft/pay order- 3 months.) from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the 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 thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.

Object & Purpose of Section 138 of Negotiable Instruments Act :

Section 138 of Negotiable Instruments Act has been introduced in the statute book to bring stringent provisions pertaining to financial discipline in business dealings. Prior to insertion of section 138 of the Negotiable Instruments Act, a dishonored cheque left the person aggrieved with the only remedy of filing a claim. The object and purpose of bringing new provisions in the Act by way of Section 138 of Negotiable Instruments Act was to make the persons dealing in commercial transactions work with a sense of responsibility and for that reason, under the amended provisions of law, lapse on their part to honor their commitment renders the person liable for criminal prosecution.

In our country, in a large number of commercial transactions, it was noted that the cheques were issued even merely as a device not only to stall but even to defraud the creditors. The sanctity and credibility of issuance of cheques in commercial transactions was eroded to a large extent. The Parliament, in order to restore the credibility of cheques as a trustworthy substitute for cash payment, enacted the aforesaid provisions. The remedy available in Civil Court is a long drawn matter and an unscrupulous drawer normally takes various pleas to defeat the genuine claim of the payee. Goa Plast (P) Ltd. v. Chico Urrsula D’souza, (2004) 2 SCC 235 .

Scope of Section 138 of Negotiable Instruments Act :

Section 138 of Negotiable Instruments Act, reflects the anxiety of the legislature to usher in a new healthy commercial morality through the instrumentality of the penal law. It is a classic example where, as part of an attempt to evolve a healthy norm of commercial behavior, the principal of social engineering through the instrumentality of penal law is put into operation. What was, prior to the amendment of the Negotiable Instruments Act in 1988 only a moral or civil wrong, has been transformed and exalted to the position of a crime by a deft amendment of the Statute. Thus Section 138 of Negotiable Instruments Act assumes importance in criminal adjudication as it was initially a civil liability now converted into a criminal liability.

The essential requirements to attract section 138, Negotiable Instruments Act are:

(a) The cheque for an amount is issued by the drawer to the payee / complainant on a bank account maintained by him.

(b) The said cheque is issued for the discharge, in whole or in part of any debt or other liability.

(c) The cheque is returned by the bank unpaid on account of insufficient amount to honour the cheque or it exceeds the amount arranged to be paid from that account by an agreement made with the bank.

(d) The cheque is presented within 6 months from the date on which it is drawn or within the period of its validity.

(e) 30 days demand notice is issued by the payee or the holder in due course on receipt of information by him from the bank regarding the dishonour of the cheque.

(f) The drawer of said cheque fails to make payment of the said amount of the money to the payee or the holder on due course within 15 days of the said notice.

(g) The debt or liability against which the cheque was issued is legally enforceable.(Kusum Ingots and Alloys Ltd. Vs Pennar Peterson Securities Ltd (2000)2 SCC 745 )

Component of offence under Section 138 of Negotiable Instruments Act:

Section 138 of the  the Act makes it an offence where may cheque drawn by a person on any account maintained by him in a Bank for payment of any amount to other person is returned unpaid by the Bank for insufficiency of the deposit or for the amount payable exceeding such deposit. The components of offence under this provision are  

(a) drawing of the cheque for some amount;

(b) presentation of the cheque to the banker;

(c) return of the cheque unpaid by the drawee bank;

(d) giving of notice by the holder of the cheque or payee to drawer of the cheque demanding payment of cheque amount;

(e) failure of drawer to make payment within 15 days of receipt of such notice.

Harman Electronics Pvt. Ltd.Vs. National Panasonic India Ltd.(2009)1 SCC 720

Complaint

Indra Kumar Patodia Vs. Reliance Industries Ltd.(2012) 13 SCC 1 – Complaint without the signature of complainant is maintainable when it is verified by the complainant and the process is issued by the Magistrate after due verification.(AIR 2013 SC 426). This is a crucial and very important point of the law of Section 138 of Negotiable Instruments Act thereby making it more stringent.

Drawing of a Cheque:

The drawer in payment of legal liability to discharge the existing debt should have drawn a cheque. Therefore any cheque given say by way of gift would not come within the purview of the section. It should be a legally enforceable debt; therefore time-barred debt and money-lending activities are beyond its scope. The words any debt or any other liability appearing in section 138 make it very clear that it is not in respect of any particular debt or liability.

The presumption which the Court will have to make in all such cases is that there was some debt or liability once a cheque is issued. It will be for the accused to prove the contrary. i.e., there is no debt or any other liability. The Court shall statutorily make a presumption that the cheques were issued for the liability indicated by the prosecution unless the contrary is to be proved Sivakumar Vs. Natrajan (2009) 13 SCC 623.

Cheque not issued from the account of the accused : Where the Complaint lacks necessary ingredients of the offence under Section 138: Hon’ble Supreme Court in  Jugesh Sehgal v. Shamsher Singh Gogi, (2009) 14 SCC 683  has observed

“22.  As already noted herein before, in Para 3 of the complaint, there is a clear averment that the cheque in question was issued from an account which was non-existent on the day it was issued or that the account from where the cheque was issued “pertained to someone else”. As per the complainant’s own pleadings, the bank account from where the cheque had been issued, was not held in the name of the appellant and therefore, one of the requisite ingredients of Section 138 of the Act was not satisfied.”

The Court also noted that one of the essential ingredients of the offence punishable under Section 138 of Negotiable Instruments Act is that the cheque must have been drawn on an account maintained by the accused. Since the cheque in the case before the Supreme Court was not issued from the account maintained by the petitioner, it was held that one essential ingredient of offence under Section 138 of Negotiable Instruments Act was not present.”

The matter was referred to a larger bench in the case of Aneeta Hada Vs God father Tour and Travels Ltd (2008)13 SCC 703 to be ultimately decided by the Hon’ble Supreme Court of india in the following terms “Arraigning of the Company as accused imperative (2012)5 SCC 661.

It was further held in the case of Aparna A. Shah Vs Sheth Developers Pvt Ltd and Anr(2013)8 SCC 71 that in case of joint account only the drawer is liable. The same view has been retreated by the Apex Court in the recent ruling of  N Harihara Krishna  Vs J. Thomas reported in 2017 SCC Online SC 1017.

Presentation of Cheque:

The presentation of cheque should be within its validity period. Generally, a cheque is valid for six months, but there are cheques whose validity period is restricted to three months etc. The question arises as to which bank the cheque should reach within the validity period, is it the payee to his bank presents that of drawer’s bank or it is enough if the cheque before six months. Common sense demands that the cheque should reach the drawer bank within the period of validity as it is that bank that eiher pays or rejects payment as per the situation existing on that day Central Bank Of India and Another Vs. Saxon Farms and others (1999)8 SCC 221.

Supreme Court in Sadanandan Bhadran vs. Madhavan Sunil Kuar[(1998)6 SCC 514], held that while the payee was free to present the cheque repeatedly within its validity period, once notice had been issued and payments not received within 15 days of the receipt of the notice, the payee has to avail the very cause of action arising thereupon and file the complaint[Prem Chand Vijay Kumar vs. Yashpal Singh & Anr. [(2005) 4 SCC 417]. Dishonour of the cheque on each re-presentation does not give rise to a fresh cause of action. But the law was settled finally overruling all the contrary views in terms of the judgement of (2013) 1 SCC 177 MSR Leathers Vs. S. Planniappan and Another that so long the cheque remains valid  the prosecution based on subsequent presentation is permissible so long as it satisfies all the requirements of section 138.

Practice and procedure :

DIRECTIONS FOR EARLY DISPOSAL OF CASES:

2014 5 SCC 590   Indian Bank Association and others. Versus Union of India and others –

(1) Metropolitan Magistrate/Judicial Magistrate (MM/JM), on the day when the complaint under Section 138 of the Act is presented, shall scrutinize the complaint and, if the complaint is accompanied by the affidavit, and the affidavit and the documents, if any, are found to be in order, take cognizance and direct issuance of summons.

(2) MM/JM should adopt a pragmatic and realistic approach while issuing summons. Summons must be properly addressed and sent by post as well as by e-mail address got from the complainant. Court, in appropriate cases, may take the assistance of the police or the nearby Court to serve notice to the accused. For notice of appearance, a short date be fixed. If the summons is received back un-served, immediate follow up action be taken.

(3) Court may indicate in the summon that if the accused makes an application for compounding of offences at the first hearing of the case and, if such an application is made, Court may pass appropriate orders at the earliest.

(4) Court should direct the accused, when he appears to furnish a bail bond, to ensure his appearance during trial and ask him to take notice under Section 251Cr.P.C. to enable him to enter his plea of defence and fix the case for defence evidence, unless an application is made by the accused under Section 145(2) for re-calling a witness for cross-examination.

(5) The Court concerned must ensure that examination-in-chief, cross-examination and reexamination of the complainant must be conducted within three months of assigning the case. The Court has option of accepting affidavits of the witnesses, instead of examining them in Court. Witnesses to the complaint and accused must be available for cross-examination as and when there is direction to this effect by the Court.

 We, therefore, direct all the Criminal Courts in the country dealing with Section 138 cases to follow the above-mentioned procedures for speedy and expeditious disposal of cases falling under Section 138 of the Negotiable Instruments Act.

Returning Of the Cheque Unpaid:

Lot of controversy had arisen on the issue. What reasons are relevant to hold the drawer of the cheque criminally responsible for bouncing of a cheque. The case laws on the subject have now made the position clear. It is not what the bank says in its return memo that is relevant but the actual position as on the date when the cheque reaches the drawer bank whether there were enough funds in the drawer account to honour the cheque. The following judgments bring out the correct legal position:

NEPC Ltd. Vs. Magma Leasing Ltd. 1999 (4)SCC 253 – Relying upon Modi Cement Ltd. 1998 (3) SCC 249 – Held that cheque returned by mentioning account closed is also an offence u/s. 138 N.I. Act. Despite being penal provision it has been interpreted purposefully in furtherance to effectiveness and workability of the enactment. Account closed, stop paymentare species of the genus in sufficient fund. MMTC Co. Vs. Medchil pharmaceuticals 2002 (1) SCC 234

Any reason for dishonour is an offence. S. 138 of the NI Act Marginal Note stating “Dishonour of cheque for insufficiency etc. of funds in accounts” addition of word “etc.” cannot be considered to be an accident.

M/s Laxmi Deyechem Vs. State of Gujarat(2012) 13 SCC 375 – overruling Vinod Tawa & others vs. Zahir   & Ors. 2002 (7) SCC 541- Held that dishonour of cheque on the ground of non-resemblance of signature will also attract offence u/s 138 N.I. Act. Subject to rebuttal evidence of defence against presumption u/s. 139 N.I. Act. It was held that  the reasons for dishonour like “as account closed “,”payment” “stopped” ,”referred to drawer”, “signature do not match” or “image is not found “ are only the genus of the species “ either because of the amount of money standing to the credit of that account is insufficient to honour the cheque”

particulars of the transaction which are necessary for him to effectively meet the case against him.Divakaran v. State of Kerala 2016 (4) KLT 233

Divakaran v. State of Kerala 2016 (4) KLT 233 : 2016 (4) KHC 901, that in a criminal case the accused should be informed before the trial not only of the nature of the offence but also the particulars of the transaction which are necessary for him to effectively meet the case against him.