Typo Mistakes to Make a Notice Illegal

In the commercial world, negotiable instruments have been used since long as one of the convenient modes for transfer of money. The Negotiable Instruments Act of 1881 (“NI Act”) was enacted to protect the legitimacy of commercial transactions involving cheques. Owing to the rampant cases of dishonour of cheques, Section 138 of the NI Act was introduced by Government of India by way of an amendment to the NI Act in the year 1989 with main objective to encourage the use of cheques and increasing the credibility of transactions through cheques by making the dishonoring of the cheques as an offence thereby deterring the misuse of cheques and upholding the sanctity of financial transactions.

Section 138 criminalizes the dishonor of cheques due to insufficient funds or closing an account before encashment or other specified reasons and the same discourages individuals from issuing cheques without proper financial backing, thereby instilling a sense of financial responsibility and minimizing the risk of bounced cheques for creditors.  By establishing criminal liability for cheque dishonor, Section 138 empowers the creditor (payee or holder in due course) to seek legal recourse against the drawer (issuer) of the dishonored cheque. This fosters confidence among individuals and businesses to utilize cheques for financial transactions, promoting smooth functioning of the financial ecosystem.

Section 138 of the NI 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 offence under Section 138 of the NI Act can be completed only with the concatenation of a number of acts which are as under :

(1) drawing the cheque by a person on account maintained by him/her with a banker, for payment to another person from out of that account for discharge in whole/part any debt or liability,

(2) presentation of the cheque by the payee or the holder in due course to the bank,

(3) returning the cheque unpaid by the drawee bank for want of sufficient funds to the credit of the drawer or any arrangement with the banker to pay the sum covered by the cheque,

(4) giving notice in writing to the drawer of the cheque within 15 days of the receipt of information by the payee from the bank regarding the return of the cheque as unpaid demanding payment of the cheque amount,

(5) failure of the drawer to make payment to the payee or the holder in due course of the cheque, of the amount covered by the cheque within 15 days of the receipt of the notice.

Consequently, if the drawer fails to make the payment within 15 days of receiving the notice, the payee can file a complaint before the appropriate court within 30 days from the expiry of the notice period. The court may impose penalties, including imprisonment and fines, on the drawer of the dishonored cheque after considering the evidence presented by both parties.

Significance of Notice

As per Section 138, a creditor must send a notice to the drawer demanding repayment within 15 days of receiving the dishonored cheque.

The legal notice acts as a formal communication, informing the drawer about the dishonored cheque, the amount due, and the consequences of non-payment within the stipulated timeframe. This notice serves as a pre-litigation step, aiming to resolve the issue amicably and avoid unnecessary court proceedings. The served legal notice becomes a crucial piece of evidence in case legal proceedings become necessary. It establishes an attempt made by the creditor and fulfills the procedural requirement before initiating a criminal complaint under Section 138. The legal notice period offers the drawer a chance to address the issue. They can arrange for payment within the 15 days, preventing legal action and potential criminal consequences.

The effectiveness of Section 138 therefore, hinges on the proper utilization of the legal notice procedure. The notice serves as a crucial bridge between the dishonored cheque and potential legal action as it establishes a timeframe for compliance and acts as documented evidence in a potential legal proceeding, fulfilling the procedural requirements and strengthening the creditor's case.

Recent Judgment

In a recent judgment titled Mahdoom Bawa Bahrudeen Noorul vs. Kaveri Plastics[1] pronounced on February 26, 2024  the Delhi High Court addressed the significance of a duly drafted notice, by quashing the criminal complaint under Section 138 of NI Act filed by Kaveri Plastics against Mahdoom on account of error in notice served.

As per the facts of the case, Noorul entered into a MOU with Kaveri on April 30, 2012, pertaining to the sale of land in New Delhi, and also agreed to take on lease the said property till the final sale deed is executed. Consequently, certain cheques including a cheque drawn on Indian Overseas Bank for a sum of Rs. 10,000,000 towards the liability of the payment of the rent for the leased property was issued. The said cheque was returned dishonoured vide memo dated May 12, 2012 for reasons "Funds Insufficient", on account of which Kaveri issued a legal notice dated June 08, 2012 to Noorul demanding a payment of Rs. 20,000,000 and subsequently criminal complaint was filed before the Court. At the stage of framing of notice, Noorul filed an application seeking discharge, contending that the notice of demand dated June 08, 2012 called upon the accused to pay double the amount of the cheque issued, and therefore, was not in terms of Proviso (b) of Section 138 of the NI Act, and for this reason, the complaint was not maintainable. The said application, however, was dismissed by the Magistrate by an order dated October 06, 2021, holding that the same is not maintainable.

Noorul thereafter filed the petition before Delhi High Court which was objected by Advocate for Kaveri stating that there was a clerical mistake in the legal notice dated June 08, 2012 as there are more than one cheque issued by the accused and more than one notice was prepared simultaneously on the dishonour of the cheques. By mistake, the amount of Rs. 20,000,000, which was in relation to another cheque, was mentioned as a demand in the notice dated June 08, 2012 relating to the cheque of Rs. 10,000,000 which is the subject matter of the present petition. It was submitted that the complaint has been pending adjudication since the year 2012, and therefore, should not be quashed.

The Court however rejected the said submissions of Kaveri and while allowing the petition in favour of Noorul by holding that service of notice is imperative for maintaining a complaint and it creates a legal fiction. The parliament while enacting Section 138 imposed a condition that, making a demand for payment of the cheque amount by giving a notice in writing is an essential one. The conditional precedent is to make a demand of the amount of cheque. A notice demanding huge amount than the dishonoured cheque amount would not serve the requirement of Section 138(b) of NI Act.

The Court observed that in the present case, admittedly, the notice of demand dated June 08, 2012 demanded Rs. 20,000,000 from the accused instead of the cheque amount of Rs. 10,000,000. The notice, however, did not specify the reason for demanding the amount in excess. It may be true, that there may a typographical error in the said legal notice while typing out the cheque amount but such typographical error if any, does not meet the compliance of the mandatory provisions of Section 138 of the NI Act and the only course left for the complainant was to give a fresh legal notice to the accused which admittedly has not been done in the present case and hence it is safe to conclude that for want of statutory compliance of the mandatory provisions of Section 138 of the NI Act, the present complaint is not maintainable.

The Court relied on a judgment passed by Madhya Pradesh High Court wherein confronted with the position where the cheque amount was of Rs.430,000, however, due to a typographical error, the notice demanded only Rs.43,000, that is, a lesser amount. In spite of the same, the said Court quashed the complaint by observing that merely by saying that the amount so mentioned in the statutory notice was incorrect because of typographical error, the complainant cannot get rid of the notice issued by him under Section 138(b) of NI Act. The provisions of Section 138 of NI Act are penal in nature and, therefore, the provisions are to be construed strictly.

The High Court thus held that the plea of the respondent of there being a typographical error in the notice, even if accepted on facts, cannot be accepted in law to give rise to a cause of action to Kaveri to maintain the complaint under Section 138 of the NI Act. The notice being defective, the cause of action for filing of the complaint under Section 138 of the NI Act did not accrue in favour of Kaveri. Furthermore, the plea of Kaveri that since the complaint has been pending for long, this Court should not exercise its inherent powers to quash the complaint, also cannot be accepted. A party cannot be made to suffer the agony of defending a complaint, which on the face of it is not maintainable.

Anhad Law’s Perspective

The judgment emphasized the need for a party to gain a comprehensive understanding of the provisions and procedures related to Section 138 to navigate such cases effectively. The NI Act, being a penal statute, envisages application of the penal provisions which needs to be construed strictly. Therefore, even if two views in the matter are possible, the Courts lean in favour of the view which is beneficial to the accused. This is more so, when such a view will also advance the legislative intent, behind enactment of the criminal liability.

While navigating Section 138 of NI Act can seem straightforward, several technicalities require awareness and potentially legal consultation for both the payee (receiver) and the drawer (issuer) in case of a cheque dishonour cases to ensure a smooth and successful case. Certain technicalities and considerations which often arise before Courts are as under:

(i)              Validity of the Cheque: Both parties should ensure that the cheque in question is valid and legally enforceable. This includes reviewing that whether the cheque is post-dated, unsigned, stale, issued on a closed account, issued without consideration, issued as a security etc.

(ii)             Grounds for Dishonor: The payee must have valid grounds for dishonor under Section 138, such as insufficient funds, stop payment, account closure, or a mismatch in signatures. Understanding the specific circumstances leading to dishonor is crucial for building a strong case.

(iii)           Notice Requirements: The payee must issue a written notice to the drawer within 30 days of receiving information about the dishonor from the bank. The notice must demand payment within 15 days of receipt and needs to be served on drawer. Failure to comply with these notice requirements can render any legal action invalid.

(iv)           Content of Notice: The notice must contain specific details, including the nature of the dishonour, the amount owed, part payment, if any received and the demand for payment. It should be drafted carefully to ensure compliance with legal standards and to maximize its effectiveness in resolving the issue.

(v)             Preservation of Evidence: Both parties should preserve all relevant evidence, including the dishonored cheque, bank statements, correspondence, and records of communication. This evidence will be crucial in establishing the facts of the case and proving or defending against allegations of dishonor.

(vi)           Jurisdiction and Legal Procedures: Parties should be aware of the territorial and pecuniary jurisdiction where legal action can be initiated and the applicable legal procedures. This includes understanding the jurisdiction of the court where the case will be heard and the process for filing a complaint or defending against allegations. Court may even examine the complainant’s authority to file complaint.  

(vii)          Potential Defenses: The drawer should seek legal consultation to explore potential defenses against allegations of dishonor, such as lack of intent, no enforceable debt, cheque issued without consideration as a security, discharge of debt or procedural irregularities. Understanding available defenses is essential for mounting an effective legal strategy.

(viii)         Negotiation and Settlement: Parties may explore negotiation and settlement options to resolve the dispute amicably and avoid lengthy legal proceedings. Legal assistance can be valuable guidance in negotiating favorable terms and reaching a mutually acceptable agreement.

(ix)           Legal Representation: Both parties should consider hiring competent legal representation to navigate the complexities of Section 138 cases. A skilled legal professional can provide expert advice, represent their interests in court, and help achieve the best possible outcome.

It is thus advisable for a party to seek ample legal consultation to gain a comprehensive understanding of the provisions and procedures related to Section 138 to navigate such cases effectively.

[1] CRL.M.C. 2164/2022 & CRL.M.A. 9155/2022