Recently Supreme court bench consisting of Justices RM Lodha, TS Thakur and Anil Dave delivered its judgment in MSR Leathers v S. Palaniappan & Anr (MSR Leathers) holding that a payee or holder of a cheque can now issue a statutory notice to the drawer each time the cheque is dishonoured and institute proceedings on the basis of a second or successive statutory notice also. This judgment is welcome as it over ruled its previous judgment in the case of Sadanandan Bhadran Vs Madhavan Sunil Kumar (1998) 6SCC 514.
It would be necessary to refresh the memory of the readers about the provisions of the Cheque dishnour for better appreciation of the above judgment.
When an Offence under the NI Act is committed?
Offence under Section 138 of the Negotiable Instruments Act,1881 shall be deemed to have been committed, if the following conditions are satisfied:
- Cheque must have been drawn by a person(the drawer) in favour of a payee on his bank account for making payment
- Such payment must be either in whole or partial discharge of a legally enforceable debt
- Cheque must have been returned by the Banker to the payee or holder in due course due to insufficient funds in the account of the drawer or it exceeds the arrangement he had with the bank,
Proviso to section requires compliance of the following additional conditions:
- Cheque must be presented within a period of 6 months from the date of cheque or its validity period which ever is earlier.
- The payee or holder in due course must demand payment of the cheque amount within 15 days of receipt of notice by written notice
- Such notice must be issued within 30 days from the date of receipt of intimation of dishonour from bank and
- The drawer of cheque fails to pay demanded sum within 15 days from the date of receipt of the notice
What principle of law has been laid down in Sadanandan’s case?
In Sadanandan’s case, the Supreme Court(SC) had to consider whether a payee or a holder of a cheque can initiate proceedings under Section 138 of the Act for the second time dishonour,if he has not initiated any action on an earlier cause of action. In this case SC held that a combined reading of Sections 138 and 142 of the Act confirms that cause of action under Section 142(b) can arise only once. It further held that once a notice is given and drawer fails to pay, cause of action arises on expiry of notice period continues for a period of 30 days from the following the expiry of 15 days notice period. The essence of judgment can be summarised as follows:
- Cheque can be presented any number of times during the validity period of cheque
- On each presentation of cheque and its dishonour, a fresh right and not cause of action accrues
- Once a notice is given, cause of action arises on drawer failing to pay demanded cheque sum and continues for 30 days as per 142(c)
- Payee without taking pre-emptory action in exercise of his right may 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.
- If successive cause actions are accepted, it would make the limitation period mentioned in section 142(c) meaning less.
It is quite common in business world that drawer of a cheque often requests for representation of the cheque having subsequently arranged the funds /having knowledge of funds being cleared in his account. But the previous judgment in Sadanandan’s case prevents the payee from representing the cheque for fear of exhausting the limitation period (30 days) due to the second time presentation.
As this appears to be some what unfavourable to both to the drawer of cheque and also to the payee or holder of the cheque and compels the payee to file complaint and prevents likely settlement, the MSR Leather’s case is referred to a larger bench.
Facts of MSR Leathers’ case:
MSR Leathers, the Appellant received 4 cheques drawn in its favour and presented the same to the bank. As the cheques were dishonoured for insufficiency of funds, it issued a notice to the S.Palaniappan Respondent demanding payment of the cheque amounts. Before complaint could be filed, on the request of the Respondents, Appellant represented the cheques to the bank but the same were dishonoured for the second time. The Appellant had to issue second notice and again the cheques were dishonored. This resulted in Appellant filing a complaint on the basis of second notice of dishnour. The Magistrate took cognizance of the offence and issued summons to the respondents who sought discharge primarily on the ground that the complaint had not been filed within 30 days period on the first dishonour of the cheque.The Magistrate upon consideration dismissed the applications for discharge which order was then assailed by the respondents before the High Court of Madras in Criminal Appeal which allowed the revision and quashed the orders passed by the Magistrate relying upon the decision of this Court in Sadanandan Bhadran’s case. The Appellants took the matter to Supreme court.
Thus the issue before the Supreme court(SC) in this case was whether payee or holder of cheque can initiate proceeding of prosecution under Section 138 of Negotiable Instrument Act, 1881 for the second time if he has not initiated any action on earlier cause of action ?
SC observed in Para 13 of its judgment that neither Section 138 nor 142 nor any other provisions contained in the Act forbids the holder or payee of the cheque from presenting the cheque for encashment any number of times within the cheque validity period i.e 6months. Even Sadanandan Bhadran’s case, recognized such right of the holder or the payee of the cheque. It critically examined the view expressed by the court in Sadanandan’s case and expressed the view that an interpretation which curtails the right of the parties to negotiate a possible settlement without prejudice to the right of holder to institute proceedings within the outer period of limitation stipulated by law should be avoided. Any such narrow interpretation would defeat the objective of the enactment as it forces launch complaints when it could have been deferred or it would have become unnecessary if cheque amount is paid by the drawer.
SC with the above observations and reasoning held that prosecution based upon second or successive dishonour of the cheque is also permissible so long as the same satisfies the requirements stipulated in the proviso to Section 138 of the Negotiable Instruments Act and over ruled the decision in Sadanandan Bhadran’s case.
Concluding remark: This judgment gives relief to the payee as he can now issue a statutory notice to the drawer each time the cheque is dishonoured and institute proceedings on the basis of a second or successive statutory notice also. This is also beneficial to the drawer as he gets one more opportunity to settle the payment and thereby courts may face less number of complaints.
G S Rao, DGM(Legal),OCL India Ltd,
Source: Judgement of Supreme court