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Tag: 138 NI

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Demand Notice Sent to Cheque Drawer Via Email/WhatsApp is Valid: Allahabad High Court

The Hon’ble Allahabad High Court in the matter of Rajendra v. State of U.P. & Anr. whereby an application u/s 482 Cr.P.C. was filed seeking quashing of proceedings under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”), held that a demand notice sent to the drawer of a cheque through ‘Email or WhatsApp‘ under Section 138 of NI Act for the dishonour of a cheque, is a valid notice and the same shall be deemed to be dispatched and served on the same date if it fulfils the requirement of Section 13 of the Information Technology Act, 2000 (“IT Act”).

Section 13 of the IT Act stipulates that once an electronic notice is entered into a computer resource beyond the sender’s control, it is considered dispatched. Similarly, when the electronic notice enters the designated computer resource or the recipient’s computer resources, it is deemed to be served. Further, Section 12 of the IT Act also provides the procedure for acknowledgement of receipt of notice in electronic form.

The Hon’ble Court reached the above conclusion by interpreting proviso (b) of Section 138 of the NI Act, that while this provision requires notice in writing, it doesn’t specify any particular mode for sending the same. Even upon considering Section 94 of the NI Act, it could not be inferred that notice must exclusively be sent by post.

In this backdrop, referring to Section 4 of the IT Act which recognises electronic records, the Court concluded that Section 138 NI Act Notice will also include ‘Email or WhatsApp’ if the same remains available for subsequent reference. In this regard, the Court also referred to Section 65(B) of the Indian Evidence Act, 1972 which accepts the admissibility of electronic records.

In the same case, the Hon’ble Court also laid down that there is no legal requirement to mention the date of service of notice upon the drawer of the cheque in the Complaint itself, if the notice was sent through registered post, then presumption under Section 27 of the General Clauses Act, that notice would have been served within ten (10) days from the date of its dispatch, shall apply. Though it is always open for the drawer of the cheque to take the plea during trial that the notice was never served upon him.

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Bombay High Court Rules that an Authorised Signatory of a Cheque Issued on Behalf of a “Company”, is Not a “Drawer” in terms of Section 143A of the NI Act and Cannot be Directed to Pay Interim Compensation

The Hon’ble Bombay High Court in the recent case of Lyka Labs Limited & Anr. vs. The State of Maharashtra & Anr. & connected matters was faced with common questions of law arising under the Negotiable Instruments Act, 1881 (“NI Act”), pursuant to a batch of matters listed before it. The questions of law posed before the court for decision were as follows:

i)  Whether the signatory of the cheque, authorized by the “Company”, is the “drawer” and whether such signatory could be directed to pay interim compensation in terms of section 143A of the NI Act leaving aside the company?

ii) Whether deposit of a minimum sum of 20% of the fine or compensation is necessary under Section 148 of NI Act in an appeal filed by persons other than “drawer” against the conviction and sentence under section 138 of the NI Act?

In view of the facts and circumstances discussed, and issues raised in the batch of matters before it, the Hon’ble High Court relied upon various judgements of the Hon’ble Supreme Court and thereby, held the following in its judgement pronounced on March 8, 2023:

a)  That the legislature’s purpose was to provide interim relief to the drawee by directing the “drawer” to pay temporary compensation in terms of section 143A of the NI Act. This compensation liability was specifically fastened on the cheque’s “drawer or issuer” excluding anyone else from being made liable to pay interim compensation, vicariously or severally. Therefore, the words of the enactment are clearly intended to be limited to “drawers”, be they natural persons or companies.

b) Under company law, the company’s liability is generally not transferred onto the directors. As per the Companies Act 2013, a company has a separate legal identity. The directors and members of the company act as representatives and mutually exist in a fiduciary relationship. Directors serve as an agent and hence are not liable personally for the acts and actions of the company. However, a director can be held personally responsible if he acts beyond his powers and duties. It is so done by lifting the corporate veil.

c) The relief under section 143A is an interim immediate relief which by literal interpretation of the provision has only been fastened to the drawer/issuer of the cheque. The same can be granted immediately after the stage of recording plea of the Accused by the magistrate. In case the provision is understood to include an ‘authorised signatory of the company’ being a defaulter in terms of section 141 of the NI Act, then such an enquiry as regards breach of fiduciary duty or instance of fraud would defeat the purpose of granting such immediate interim compensation to obviate delay in disposal of cheque dishonour case, which was not contemplated by the legislature while inserting section 143A. Therefore, the power to direct interim compensation cannot be traced under section 141 in addition to section 143(A) of the NI Act.

d) Every person signing a cheque on behalf of the company on whose account a cheque is drawn does not become a “drawer” of the cheque. Such a signatory is only a person duly authorized to sign the cheque on behalf of the company/drawer of the cheque.

e) Further, having held that the expression “drawer” in section 143A does not include the ‘authorized signatory of a company’, the amended section 148 also needs to be interpreted accordingly. The plain language of section 148 makes it clear that the Appellate Court is granted the power to direct deposit of a minimum sum of 20% of the fine or compensation awarded by the Trial Court “in an appeal by the drawer” only and no other person.

f) However, in an appeal filed by persons other than a “drawer”, the Appellate Court can exercise power under section 389 of Code of Criminal Procedure to direct deposit of amount in an appeal filed under section 148 of NI Act against conviction under section 138 of the NI Act, while considering the application for suspension of conviction or sentence.

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Madras High Court affirms: Protection of Moratorium under section 14 of I&B Code is extended only to Corporate Debtor and not to the persons involved in its affairs vis-à-vis. the proceedings under section 138 of the Negotiable Instruments Act, 1881

The Accused No. 3 being the Managing Director of the Accused No. 1 Company filed a Petition before the Hon’ble Madras High Court under section 482 of Cr.P.C. for quashing of the Criminal Complaint filed inter alia against him by the Respondent being the Complainant therein, for an offence under section 138 of the Negotiable Instruments Act, 1881 (“NI Act”).

A cheque was issued by the Accused No. 2 on behalf of the Accused Company as part payment towards the goods supplied by the Complainant. Upon presentation of the said cheque, the same was returned with an endorsement “Account Blocked”. In view thereof, a statutory notice under section 138 of the NI Act was issued by the Respondent/Complainant to the Accused and subsequently, a Complaint was filed in respect thereof.

Admittedly, two of the financial creditors of the Accused Company had also initiated proceedings before the NCLT, wherein an order of admission was passed, and the moratorium had come into effect.

The Petitioner/Accused contended that the cheque was issued after the management of the Accused Company had been taken over by the Interim Resolution Professional. Therefore, the Petitioner/Accused was not in charge of the management/business of the Accused Company and was in no way connected with the Accused Company and the Complaint against him was liable to be quashed.

Further to considering of the above submissions, the Hon’ble Bench also discussed inter alia the decisions given in the cases of M/s Indorama Synthetics (I) Ltd. vs. State of Maharashtra and Anr., M/s. Nag Leathers Pvt. Ltd. vs J.L. Sobhana, Jik Industries Ltd. & Ors. vs. Amarlal v. Jumani & Anr. etc. and held that the issue as to whether by operation of provisions of I&B Code, the criminal prosecution under section 138 r/w 141 of the NI Act, r/w section 200 of Cr. P.C. can be terminated was not something that had not been dealt and decided before. In fact, in view of the judgement of the Hon’ble Supreme Court in P. Mohanraj vs. M/s. Shah Brothers Ispat Pvt. Ltd., wherein it was held that section 138 r/w 141 proceeding against the Corporate Debtor is covered by section 14(1) (a) of I&B Code, however, the moratorium order would not cover the persons other than the Corporate Debtor; it is clear that in respect of the persons other that the Corporate Debtor viz. the Director or the Managing Director, as the case may be, Section 14 of I&B Code would not apply to the proceedings under section 138 NI Act.

In view thereof, the Hon’ble Madras High Court did not find it appropriate to intervene in and/or quash the trial proceedings against the Accused persons associated with the Corporate Debtor. In view thereof, the plea of the Petitioner/Accused was negated by the Hon’ble High Court.