Notice under Section 138 is required to be given to the ‘drawer’ of the cheque and not to any other person#indianlaws

Notice under Section 138 N I Act is required to be given to the ‘drawer’ of the cheque so as to give the drawer an opportunity to make the payment and escape the penal consequences. No other person is contemplated by Section 138 as being entitled to be issued such notice.

The material factual background is that Accused Nos. 1 and 2 were carrying out their business in the names of ‘X’ and ‘Y. Appellant (Z) in the present case had supplied goods to ‘Y’. In part discharge of the liability of ‘X’, two cheques signed by Accused No. 2(Y) as Power of Attorney Holder of Accused No.1, were issued on an account maintained by ‘X’. On presentation, both the cheques were dishonoured. Despite service of demand notice no terms thereof were complied with by the Accused persons. A complaint was thereafter filed against the accused Respondents describing Accused No.1 as the Proprietor of ‘X’ and Accused No.2 as Power of Attorney Holder of the ‘X’. Trial Court acquitted the Respondents on the ground that the Appellant did not institute the case against the partnership firm i.e. ‘X’.

An application for leave to appeal under Section 378(4) of the Code of Criminal Procedure, 1973 was filed before the High Court, which held that the applicant failed to make out a case for grant of leave to appeal under Section 378(4) Cr.P.C. and rejected the application. It further held that the case made out in the complaint was that the goods were sold and supplied to the firm and the liability was of firm while in the affidavit in lieu of examination-in-chief, the appellant came out with a case that the liability was that of ‘Y’ as goods were sold and supplied to ‘Y’ and it was not the case of the appellant that the accused had agreed to take over and discharge the liabilities of ‘X’.

The High Court after having duly perused the complaint, affidavit in lieu of examination-in-chief of the applicant, his cross-examination and other material documents on record held noted that notice of demand was addressed to the first Respondent in her capacity as a Proprietor of ‘X’ and to the second Respondent in his capacity as the Power of Attorney Holder of ‘X’. In the notice itself it was stated that the goods were sold and supplied to the Proprietor of ‘Y’ and goods were supplied to ‘Y’ in response to the orders from the 2nd Respondent as Proprietor of ‘Y’ and the disputed cheques were issued in discharge of the liabilities of such supply. The notice was addressed to the Proprietor and the constituted Attorney of ‘X’, but there was no specific averment that the liability of ‘Y’ was taken over by ‘X’. High Court based on the pleadings and documents had held that no specific case of the Appellant was made out in the complaint that the first accused in the capacity of proprietor of ‘X’ and the second accused in the capacity of power of attorney of ‘X’ had agreed to take over and discharge the liability of ‘Y’.

It was contended before the Apex Court that both the courts below failed to appreciate that the complaint was essentially filed against the accused in their personal capacities since at the time of filing of the complaint the appellant believed that ‘X’ was a proprietary concern of Accused No. 1 and Accused No. 2 was a signatory of the cheques and incharge of the affairs of ‘X’.

The cheques were drawn from the account maintained with ‘X’. The liability however was of ‘Y’ towards making the payment. The Court observed that from a bare reading of Section 138 of the NI Act, the first and foremost essential ingredient for attracting a liability under this Section is that the person who is to be made liable should be the drawer of the cheque and should have drawn the cheque 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 discharge, in whole or part, of any debt or other liability.

The notice under Section 138 is required to be given to the ‘drawer’ of the cheque so as to give the drawer an opportunity to make the payment and escape the penal consequences. No other person is contemplated by Section 138 as being entitled to be issued such notice.

When the drawer of the cheque who falls within the ambit of Section 138 of the Act is a human being or a body corporate or even firm, prosecution proceedings can be initiated against such drawer. In this context the phrase ‘as well as’ used in Sub-section (1) of Section 141 of the Act involve the persons mentioned in the first category within the tentacles of the offence on a par with the offending company. Similarly the words ‘shall also’ in Sub-section (2) are capable of bringing the third category persons additionally within the dragnet of the offence on an equal par. The effect of reading Section 141 is that when the company is the drawer of the cheque such company is the principal offender under Section 138 of the Act and the remaining persons are made offenders by virtue of the legal fiction created by the legislature as per the section. Hence the actual offence should have been committed by the company, and then alone the other two categories of persons can also become liable for the offence.

It was accordingly held that the High Court rightly concluded that the liabilities of ‘Y’ were never taken over by ‘X’ and accordingly the appeal was dismissed.

[Jitendra Vora vs. Bhavana Y. Shah & Anr.]

(SC, 16.09.2015)

Criminal Appeal No. 1001 of 2010