MIS. UNIPLAS INDIA LTD. AND ORS.

A v.

STATE (GOVT. OF NCT OF DELHI) AND ANR.

JULY 17, 2001 •

[K.T. THOMAS AND R.P. SETHI, JJ.] B

Negotiable Instruments Act, 1881:

Section J 38 proviso (b)-Dishonour of cheque-Notice of demand- /ssued under S.434 of the Companies Act-Validity of-Is a valid notice C under Clause (b) of proviso to S.138-Companies Act, 1956, Ss.433 and 434.

Section /42(b)-Dishonour of cheque-Cause of action-Arising of- Held: Notice of demand has to be given within 15 days of dishonour of cheque-If such a notice is not given within 15 days no cause of action D arises-Successive causes of action cannot be created with repeated presentations of the same cheque for the purpose of launching a prosecution.

Dishonour of cheque-Successive presentations of cheque-Notice of demand-Cheque, when presented for the first time, dishonoured-Notice of demand given after expiry of a period of 15 days-Cheque presented again E and dishonoured-Notice of demand given within the statutory period of 15 days-Validity of second notice-Held: The first dishonour did not snowball into a cause of action as there is no valid notice-Therefore, payee not prevented from presenting the cheque once again, and upon its dishonour, cause of action arises for launching a complaint.

"Cause of action "-Meaning of-In the context of S. J 42(b) of the Negotiable Instruments Act, 1888.

The appellant issued two cheques in favour of the respondentcomplainant, which were dishonoured by the Bank. The respondent sent a G notiee of demand to the appellant under clause (b) of proviso to Section 138 of the Negotiable Instruments Act, 1888 calling upon him to pay the amount within the statutory period of 15 days. As the appellant did not pay the amount within the statutory period the respondent filed a complaint before the Chief Metropolitan Magistrate. 985 H

A The appellant contended before the trial court that the respondent had earlier presented the cheque and when it was dishonoured the respondent issued a notice under Section 434 of the Companies Act, 1956 but did not file a complaint within one month of the expiry of 15 day~ after the said notice and, therefore, the respondent could not create one more cause of action by presenting the cheque once again. The trial court rePelled the contention on B the ground that the first notice under Section 434 of the Companies Act could not be treated as a valid notice under Section 138 of the Negotiable Instruments Act. This position ofthe trial court was upheld by the High Court. Hence this appeal.

C Dismissing the appeal, the Court

HELD : 1. If any notice is issued under Section 434 of the Companies Act, 1956 within 15 days of the information from the Bank regarding return of the cheque drawn by a company as unpaid, such a notice would as well be good enough under clause (b) of the proviso to Section 138 of the Negotiable D Instuments Act, 1881. A complai_nant cannot create successive causes of action with the same heque. 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 op. it. [990-B-C]

Sadanandan"Bhadran v. Madhavan Sunil Kumar, [1998) SCC 514 and E SIL Import, USA v. Exim Aides Silk Exporters. Bangalore, [1999] 4 SCC 567, relied on.

2.1. One of the indispensable factors to form the cause of action envisaged in Section 138. of the Negotiable Instruments Act is contained in clause (b) of the proviso to that Section. It involves the making of a demand by giving a notice in writing to the drawer of the cheque "within fifteen days of receipt of information by him from the bank regarding the return of the cheque as unpaid." If no such notice is given within the said period of 15 days no cause of action could have been created at all. [990-H)

G 2.2.rAdmittedly, the first notice of the earlier dishonoui of the cheque was issued only afte~ the expiry of 15 days from. the receipt of the intimation from the sank regardig the dihonour. u so the' said dishonour remained - without any further escalation and need for snowball into a cause of action.

Its.corollary is th~t-the payee as ot prevented from prsenting the 1cheque once 'again Within the permitted peiod and to' make use of such presentation H and the subsequent dishonour for a cause of action to be founded for launching

-'

A by the payee and then it was dishonoured by the Banlc and thereafter a notice was issued to the drawer on 1.12.1995, but the payee did not file a complaint r--- within one month of the expiry of 15 days after the said notice and hence he cannot create one more cause of action by presenting the cheque once again.

At any rate the complaint filed on 11.4.1996 is beyond the time prescribed by

B law and consequently the court is debarred from taking cognizance of the offence upon the said complaint, contended the appellants. In support of the said contention appellants cited the decisions of this Court in Sadanandan Bhadran V. Madhavan Sunil Kumar, [1998] 6 sec 514. ...,..-

The trial court repelled the said contention on the premise that the ; c notice issued on 1.12.1995 was under Section 434 of the Companies Act which cannot be treated as a notice under section 138 of the NI Act. This position of the trial court was upheld by the learned Single Judge of the High Court on the strength of the following reasons :

"A notice under Sections 433 and 434 of the Companies Act cannot D be treated as a notice under Section 138 of the Act. Therefore, the contention of learned counsel for the petitioners that notice dated 1.12.1995 should be taken as notice under Section 138 of the Act, is unsustainable. In the case on hand, notice under Section 138 of the Act was dated 12.3.1996. It is this notice which is n accordance with

E the provisions of Section 138 that proceedings can be set into motion by giving fifteen day's time to comply with the demand and thereafter within one month file a complaint. The period, if calculated from the issue of notice dated 12.3.1996, brings the complaint well within the period of limitation. Therefore, from the facts, of the case alleged in the complai11t, the position is clear that no exception can be taken against F the order of the Magistrate taking cognizance of the offence under Section 138 of the Act against the petitioners."

Learned counsel for the appellants, contended that the High Court went wrong in saying that a notice under Sections 433 and 434 of the Companies Act cannot be tre.ated as a notice under Section 138 of the NI Act. Any notice G containing a demand for payment of the amount covered by the dishonoured cheque can as well be a notice under Section 138 of the NI Act, according ....

to him.

\, Sections 433 and 434 of the Companies Act are provisions dealing with cases in which a company may be wound up by the court. Section 434 has H to be read in association with Section 433(a) of the said Act. Clause (e) of

'--"

section 433 contains one of the six clauses for which the company can be wound up by the court, i.e. "if the company is unable to pay its debts".

Section 434 contains the two instances when a company is deemed to be unable to pay its debts. Section 434 of the Companies Act is extracted below:

"Company when deemed unable to pay its debts.-{l) A company shall be deemed to be unable to pay its debts-

(a) if a creditor, by assignment r otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under hi(> hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;

(b) if execution or other process issued on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.

(2) The demand referred to in clause (a) of sub-section (1) shall be. deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal

adviser or by any member of the firm." F

What is provided in the section is that a creditor should make a demand requiring the company to pay the amount due to the creditor. The mode of making such demand is also delineated in the section. If any such demand is made, could it be said that such demand would be useful only for the purpose of winding up of the company? Clause (b) of the proviso to Section G 138 of the NI Act also contemplates the making of a demand for payment of the cheque amount as an indispensable step to snowball into a cause of action. The said proviso is extracted below for being used in this context :

"(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 H

by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding ilie return 'of the cheque as unpaid". .

If any notice is issued under Section 434 of the Companies Act within 15 days of the information from the Bank regarding return of the cheque B drawn by a company as unpaid; such a notice would as well be good enough under clause (b) of the proviso to Section 138 of the NI ).ct. This Court has held in Sadanandan Bhadran (supra) 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 C action to file a complaint for the purpose of launching a prosecution on it.

Para 6 of the said decision contains the. thrust of the reasoning. After referring to the four actual premises necessary to concatenate into a cause of action MK. Mukherjee, J. has said thus:

"If we were to proceed on the basis of the generic meaning of the term "cause of action", certainly each of the above facts would constitute a part of the cause of action but then it is significant to note that . clause (b) of Section 142 gives it a restrictive meaning, in that, it refers to only one fact which will give rise to the cause of action and that is the failure to make the payment within 15 days from the date of the receipt of the notice. The reason behind giving such a restrictive meaning is not far to seek. Consequent upon failure of the drawer to pay the money within the period of .15 days; as envisaged under clause ( c) of the proviso to Section 138, the liability of the drawer for being prosecutd for the offence he has committe~ arises, and the period of one month for filing the complaint under Section 142 is to be reckoned accordingly. The. combined reading of the above two sections of Act leaves no room for doubt that cause of action within the meaning of Section 142( c) arises -'and can arise - only once."

The said decision was followed by this Court in SIL Import, USA v.

Exim Aides Silk Exporters, Bangalore, (1999] 4 SCC 567.

One of the indispensable factors to form the cause of action envisaged in Section 138 of the NI Act is contained in clause (b) of the proviso to that section. It involves the making of a demand by giving a notice in writing .to the drawer of the cheque "within fifteen days of receipt of information by him from the bank regarding the return of the cheque as unpaid." If no such notice H is given within the said period of 15 days no cause of action could have been

l.-

created at all.

Thus, it is well neigh settled that if dishonour of a cheque has once

l snowballed into a cause of action it is not permissible for a payee to create another cause of action with the same cheque. The question in this case is, did the payee issue notice within 15 days after the first dishonour of the cheque. The question can as well be put in another form. Was the notice B dated 1.12.1995 within 15 days of the date of intimation from the bank regarding dishonour, or was it sent after that period of 15 days? In fact, that is the crux of the issue involved in this case.

Appellants have not stated that the interval between the date of the earlier dishonour of the cheque and the notice dated 1.12.1995 did not exceed C the statutory period of 15 days. To a query by us learned counsel for the appellants candidly admitted that the notice of 1.12.1995 was issued only after the expirty of 15 days from receipt of the intimation from Bank regarding the dishonour. If so the said dishonour remained without any further escalation and need not snowball into a cause of action. Its corollary is that the payee D was not prevented from presenting the cheque once again within the permitted period and to make use of such presentation and the subsequent dishonour for a cause of action to be founded for launching a complaint as in the present + case. We, therefore, dismiss this appeal. ·

v.s.s.

Appeal dismissed. E