Demand notice

Case BriefsHigh Courts

Madhya Pradesh High Court: Rajendra Kumar Srivastava, J., while addressing a matter with regard to dishonour of cheque held that, Director/Managing Director/Joint Director/other officers and employees of company can not be prosecuted under Section 138 of NI Act unless the company is impleaded as an accused

Petitioner is aggrieved with the Order passed against him by JMFC framing a charge under Section 138 of Negotiable Instruments Act, 1881.

Complaint was filed by respondent-trade firm against the petitioner wherein it was mentioned that on account of business relations between the parties petitioner had borrowed an amount of Rs 2,00,000 from respondent, which was to be returned by within a period of four months.

In November 2017, petitioner handed over a cheque amounting to Rs 2,00,000 which when the respondent submitted in January, 2018 was dishonoured due to “stop payment” by the petitioner.

On the above-event’s occurrence respondent had sent a legal notice to the petitioner which was ignored by the petitioner and thus a complaint before JMFC was filed.

Petitioners Contention

Respondent had given the amount in question for business purpose and the petitioner had given the said cheque under the capacity of chairman of company namely ‘Well Built Industry India Ltd.’ but the respondent did not implead the company as a party in the complaint case.

The respondent/complainant also failed to specify the role of present petitioner on behalf of the company. Hence, in view of the provision of Section 141 NI Act, the proceedings under Section 138 NI Act are bad in law and deserves to be quashed. With the aforesaid, he prayed to allow this petition.

Section 138 NI Act: Dishonour of cheque for insufficiency, etc. of funds in the account.

Section 141 NI Act: Offences by Companies

“…if an offence is committed by a company under Section 138 of the Act, every person, at the time, the offence was committed, was in-charge and responsible to the company in the conduct of the business of the company, is liable along with the company to be proceeded against and punished accordingly.”

S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, 

“…Necessary averments ought to be contained in a complaint before a person can be subjected to criminal process. A liability under Section 141 NI Act is sought to be fastened vicariously on a person connected with a company, principal accused being the company itself. It is a departure from the rule in criminal law against vicarious liability. A clear case should be spelled out in the complaint against the person sought to be made liable.”

Bench while referring to several decisions held that the person (Director/Managing Director/Joint Director/other officers and employees) of company can not be prosecuted under Section 138 of NI Act unless the company is impleaded as an accused.

Thus, in the present matter it is to be noted that a demand notice was served only on the petitioner/accused, there was no demand notice against company, therefore, without arraying the company as an accused in complaint case, the petitioner can not be prosecuted for the offence of Section 138 NI Act.

Hence the present petition was allowed.[Bhupendra Suryawanshi v. Sai Traders, 2020 SCC OnLine MP 1277 , decided on 09-06-2020]

Case BriefsHigh Courts

Bombay High Court: Vibha Kankanwadi, J., while allowing a writ petition, quashed a complaint under Section 138 of the Negotiable Instruments Act, 1881, filed against the petitioner in a cheque dishonour case. It was held that the complaint filed by the respondent-complainant could not be treated as a “complaint” in the eyes of law.

The complainant, in her complaint, had alleged that the petitioner had taken a loan from her, which he failed to repay. He issued a cheque for the discharge of the said liability, which was dishonoured on presenting for encashment. Therefore, she filed the subject complaint before the Magistrate against the petitioner.

Aggrieved, the petitioner filed the instant petition praying for quashing of the complaint against him. His counsel, M.D. Thube-Mhase, submitted that when, as per the contents of the complaint, the accused had refused to accept the notice on 3-1-2017, the period of 15 days for the compliance after the service or refusal of the notice would have been till 18-1-2017, and the complainant could have filed the complaint on or after 19-1-2017 within the statutory period. However, when she has filed the complaint on 18-1-2017 itself, it cannot be taken as a complaint, and therefore, the complaint is liable to be quashed.

Per contra, A.N. Gaddime and A.V. Indrale Patil, counsel for the complainant, contended that though the complaint was filed on 18-1-2017, the complaint was registered on the next date, i.e., 19-1-2017, and the cognizance was taken by order of issuing process on 15-04-2017, therefore the complaint was maintainable.

The High Court considered the law as laid down in Yogendra Pratap Singh v. Savitri Pandey, (2014) 10 SCC 713, wherein the Supreme Court disapproved the view that if the complaint under Section 138 is filed before the expiry of 15 days from the date on which notice has been served on the drawer/accused, the same is premature and if on the date of taking cognizance a period of 15 days from the date of service of notice on the drawer/accused has expired, such complaint was legally maintainable.

Finally, observing that the date of 15th day or conversely the day on which the refusal was there should be excluded, the High Court held that complaint, which was filed on 18-1-2017, was definitely premature, i.e., before the expiry of 15 days of the refusal of the notice. Therefore, it was held, that the subject complaint could not be treated as a “complaint” in the eyes of law. Consequently, the writ petition was allowed and the complaint was quashed. [Afroj Khan v. Mandodra, 2019 SCC OnLine Bom 5422, decided on 12-12-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal (NCLAT): The Bench of Justice A.I.S Cheema, Member (Judicial), Kanthi Narahari, Member (Technical) and V.P. Singh, Member (Technical), allowed an appeal filed against the order of the National Company Law Tribunal, New Delhi, whereby it had admitted the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for initiation of Corporate Insolvency Resolution Process), filed by the Operational Creditor  against the Flywheel Logistics Solutions (P) Ltd. (Corporate Debtor).

The material fact to note is the Operational Creditor provided freight services to the Corporate Debtor and dues were pending which were not paid by the Corporate Debtor. Hence, the Operational Creditor issued a Demand Notice under Section 8 and, subsequently, initiated the corporate insolvency resolution process. The appellant (shareholder) of the Corporate Debtor) contended that the Demand Notice served by the Operational Creditor relates to a separate corporate entity.

The question of law that arose for consideration was: “Whether the demand notice issued under Section 8 of the I & B Code 2016, against the corporate debtor, for the dues of sister concern/group company, can be treated as a valid notice?

On perusal of record, the Appellate Tribunal noted as admitted that the invoices were issued by the Operational Creditor against “Flywheel Logistics (P) Ltd.”. which was different from the Corporate Debtor, “Flywheel Logistics Solutions (P) Ltd.”. It was on record that two were different corporate entities, having different CIN Number and different registered addresses. The Appellate Tribunal observed: “It is also on record that the mandatory primary requirement for filing a petition under Section 9 of the ‘Insolvency and Bankruptcy Code, 2016’ is the service of the Demand Notice under Section 8 of the Code. The demand notice should have been served along with the copy/bill(s) / invoice(s) on the ‘Corporate Debtor’. But in the present case, the Bill / Invoice was raised against, Flywheel Logistics Private Limited, having CIN No. U60200DL2009PTC192531, whereas the mandatory demand notice under Section 8 of the ‘IBC’ has been served against the ‘Flywheel Logistics Solutions Pvt. Ltd.’ having CIN No. U60232DL2015PTC288609.”

In such circumstances, the Appellate Tribunal held that the Demand Notice issued against the Corporate Debtor was not a valid notice under Section 8 IBC. Accordingly, the appeal was allowed and the impugned order passed by the NCLT, New Delhi was set aside. [Anil Syal v. Sanjeev Kapoor, 2019 SCC OnLine NCLAT 630, decided on 08-11-2019]

Case BriefsHigh Courts

Kerala High Court: R. Narayana Pisharadi, J. dismissed a petition seeking to quash a complaint filed under Section 142 of the Negotiable Instruments Act, 1881.

The complainant and the accused were close relatives. The accused had borrowed an amount of Rs 35,00,000 from the complainant. The cheque given by the accused to repay the money was dishonored due to insufficient funds. The complainant received intimation of this on 13-02-2014 and he sent a notice regarding the same to the accused on 15-02-2015 which was received by him on 17-02-2014.

The learned counsel for the petitioner, K.B. Pradeep, submitted that no demand for payment of the amount of the cheque was made by the complainant as per the notice sent by him under clause (b) of the proviso to Section 138 of the Act and therefore, the notice was defective and the proceedings initiated against the petitioner pursuant to such notice could not be sustained.

The counsel representing the complainant, K.K. Dheerendrakrishnan, contended that the requirement under clause (b) of the proviso to Section 138 of the Act had been complied with.

The High Court observed that a demand for payment of the amount of the cheque by sending a notice in writing was an essential condition for filing such a complaint was a condition precedent for filing a complaint about an offence under Section 138 of the NI Act. The Court relied on K.R. Indira v. G. Adinarayana, (2003) 8 SCC 300 in which it was held that if no demand for payment of amount was made, the notice would fall short of its legal requirement. The Court, on a perusal of the said notice, found that demand of payment of the amount was made in the notice sent by the complainant. In view thereof, the Court held that the impugned notice was meeting the requirements as under Section 138(b) of the Act. The Court also declined the petitioner’s contention that the notice was defective as the nature of the debt or liability was not mentioned. It was held that there was no statutory mandate that the notice should narrate the nature of debt or liability. All the other pleas of the petitioners were not sustained as they were pertaining to questions of facts and the Court held that it would not express its view on disputed questions of fact in a petition under Section 482 of the Criminal Procedure Code, 1974.

In view of the above, the Court held that the impugned notice met the requirement under Clause (b) of the proviso to Section 138 of the Act and hence the petition to quash the said complaint was dismissed.[B. Surendra Das v. State of Kerala, 2019 SCC OnLine Ker 1624, decided on 20-05-2019]

Case BriefsHigh Courts

Jharkhand High Court: Anil Kumar Choudhary, J. dismissed an interlocutory application praying for grant of special leave under Section 378(4) of the Code of Criminal Procedure against a judgment passed by Judicial Magistrate, Jamshedpur on the grounds of probable violation of the settled principle of law.  

The appellant-complainant granted a friendly loan of Rs 35,000 to accused-respondent 2 which was not paid back and the same was demanded back. The accused-respondent 2 issued a cheque in pursuance of the same demand, however, it was dishonored due to lack of funds in the bank account. Thereafter, a notice was issued which was never acknowledged by the accused-respondent 2 and consequently a complaint under Section 138 of Negotiable Instruments Act, 1881 was filed. The trial court, however, acquitted the accused-respondent 2 by concluding the complaint to be premature. 

Issue: whether there exists a prescribed period for filing a complaint to retrieve loan amount or can the same be done at any time after the issuance of notice. 

The appellant-complainant was represented by Mukesh Kumar Dubey who submitted that the trial court was mechanical in it’s approach and ignored the fact and law. Further, it was contested that the judgment is perverse and hence, the special leave should be granted.  The defense was represented by the Additional Public Prosecutor who submitted that a settled principle of law should not be hampered by such appeals. It was contended that in case of notice is not received by the payee, presumption of notice would be on the 30th day from the date of issuance and only after waiting for the statutory period of 15 days the amount would be payable. Therefore, at the earliest, the complaint can be filed after 45 days from the issuance of notice. It was contested that since the complaint was issued only in 22 days therefore, special leave should not be granted.  

The Court after considering all evidences presented concluded that the trial court acted in consonance with the settled principle of law which required a minimum of 45 days from the issue of notice of demand in case there exists no evidence to suggest receipt of notice by the concerned parties. Further, relying on Subodh S. Salaskar v. Jayprakash M. Shah, (2008) 13 SCC 689, the court affirmed the mandated requirement of 30 days from the date of issuance of notice and held that the complaint is premature. Therefore, special leave was not to be granted. [Shyam Sundar Singh v. State of Jharkhand, 2019 SCC OnLine Jhar 768, decided on 20-06-2019]

Case BriefsHigh Courts

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]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Mumbai Bench: This Bench comprising Mr V.P. Singh and Mr Ravikumar Duraisamy as members dismissed a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of corporate insolvency resolution process (CIRP), holding that the same had been filed on wrong facts by giving false information.

Petitioner approached the respondent to render certain services at its manufacturing plant in Tamil Nadu, for which it made an advance payment of Rs 44, 00,000. However, despite repeated reminders, respondent failed in the scheduled delivery. Petitioner, vide a legal notice, called upon the respondent to return advance payment and also compensate it for the financial loss suffered. Thus, the present petition was filed for initiation of against the respondent.

Petitioner submitted particulars of claim, records of respondent’s bank account, bank certificate and demand notice. Respondent filed counter affidavit highlighting irregularities in the instant petition. It was also submitted that delay was on account of the modification instructions given by the employees of petitioner and that the petitioner was not really interested in getting his work done but only interested in making a claim against respondent.

The Tribunal opined that Operational Debt as defined under Section 5(21) of the Act means “a claim in respect of the provision of goods or services including employment or debt in respect of the repayment of dues arising under any law.” Refund of advance money was not in connection with the goods/services including employment or a debt in respect of repayment of dues.

Further, the petitioner ought to have crystallized the damages then only, it could have claimed the amount of compensation. The alleged compensation amount had not even been quantified by the petitioner. Since petitioner’s claim had not been adjudicated by any competent authority in law, hence, it could not be described as operational debt.

In view of the above, it was held that petition had been filed with an ulterior motive to get insolvency petition admitted. Thus, the petition was dismissed imposing a cost of Rs 10 lakhs on the petitioner.[TATA Chemicals Ltd. v. Raj Process Equipments and Systems (P) Ltd., CP 21/I&BP/NCLT/MAH/2018, Order dated 30-11-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Bansi Lal Bhat, Member (Judicial) allowed an appeal filed challenging the proceedings initiated under Section 9 Insolvency and Bankruptcy Code, 2016.

The appellant preferred the present appeal against the proceedings initiated by the National Company Law Tribunal, New Delhi by admitting an application under Section 9 filed by the respondent. Vide the order impugned,  the NCLT admitted the said application, passed the order of moratorium, and appointed the Interim Resolution Professional. The appellant, Corporate Debtor, challenged the order on the ground that no demand notice was served on the Corporate Debtor in terms of Section 8(1) of the Code.

The Appellate Tribunal found that the a demand notice had been served but on the old address of the appellant. The registered office of the appellant was shifted from Delhi to Noida; and further, the Noida office was also sealed by a civil court of competent jurisdiction. It was noted that the demand notice was issued in a wrong address. Further, the Operational Creditor had notice of the changed address at Noida, but no demand notice was issued to that address. Finding that no notice was served on the appellant in terms of Section 8(1), the Appellate Tribunal set aside the order impugned passed by NCLT. In effect, the process initiated vide the order impugned was held illegal and set aside. The application filed by the Operational Creditor under Section 9 was dismissed with a liberty to issue fresh demand notice under Section 8(1). The appeal was allowed in the above terms. [Sharad Kesarwani v. Planetcast Media Services Ltd., 2018 SCC OnLine NCLAT 385, dated 07-08-2018]