Tri HC | Purpose of demand notice under S. 138 NI Act – not to demand payment, but to inform the party of broken contract and liability to pay

Tripura High Court: The Bench of Arindam Lodh, J. allowed a revision petition under Section 397 read with Section 401 of Code of Criminal Procedure, 1973 and set aside the lower courts’ order acquitting the accused in a case filed under Section 138 of the Negotiable Instruments Act, 1881.

Petitioner herein (complainant before lower court) gave a loan of Rs 3.6 lakhs to the accused in three installments against which the respondent issued three post-dated cheques. When the petitioner tried to encash these cheques, they were dishonoured with the remark ‘insufficient funds’ in the account of the respondent. The petitioner served a statutory demand notice upon the respondent which went unresponded. Thereafter, he filed a complaint in the Trial Court charging the accused for dishonour of cheque. The Trial Court dismissed the case holding that the demand notice was invalid as it did not bear the signatures of petitioner’s Advocate.  Respondent’s acquittal was affirmed and upheld by the learned Sessions Judge. Aggrieved thereby, the instant revision petition was filed.

The Court opined that the decisions arrived at by the lower courts were perverse and unwarranted on both the points of facts and law, hence not sustainable. It was held that Section 138 proviso (b) does not stipulate that the notice is to be sent through an advocate. Further, each page of the demand notice had been signed by the complainant himself, and thus it was a valid notice in terms of Section 94 of the NI Act. It was observed that the object of notice of dishonor of cheque to endorser is not to demand payment, but to indicate to the party notified that his contract arising on the negotiable instrument has been broken and he is liable for payment.

Reliance was placed on Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., 2016 SCC Online SC 954, where it was held that a post-dated cheque issued as security towards payment of installments of a loan transaction falls within the purview of Section 138 NI Act. In view thereof, it was held that the respondent was liable under Section 138 of NI Act, and he was ordered to pay a fine of Rs 3,60,000 to the petitioner as compensation, failing which, he would be sentenced to simple imprisonment of six months.[Subal Chandra Ghosh v. State of Tripura, 2019 SCC OnLine Tri 134, decided on 25-04-2019]