Introduction
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For any lawyer, mastering the drafting of a legal notice under Section 138 of the Negotiable Instruments Act 1881 is practically a rite of passage. Let’s be honest: cheques bounce all the time, and when they do, that notice of demand becomes your client’s first line of defence.
Now, imagine a scenario where a cheque valued at ₹1,00,000 is deposited but is returned due to “Insufficient Funds”. This situation leads to the issuance of a legal notice under Section 138 of the Negotiable Instruments Act, 1881, demanding payment within 15 days. Voilà, potential revenue for you as a lawyer! However, here’s the twist: it’s not merely about notifying them with a message like, “Your cheque bounced, please pay!” The reality is far more intricate than that.
The law specifies requirements regarding the content, wording, and delivery. Just as you think you’ve mastered it, you discover that the courts have developed numerous interpretations over time. While some rulings clarify matters, others leave much to be desired.
Therefore, if a lawyer aims to be effective in cheque dishonour cases, they must master the art (and science) of drafting the ideal Section 138 notice. It involves striking a balance between legal language and the appropriate level of assertiveness to achieve the desired outcome.
What’s Section 138 of the Negotiable Instruments Act All About?
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At its core, Section 138 of the Negotiable Instruments Act 1881 is all about dealing with bounced cheques, but there’s a lot more to it than just saying, “The cheque didn’t go through.”
To prove someone is guilty under this section, six things need to line up:
- The Cheque Was Issued for Debt or Liability: This means the cheque wasn’t just a gift or a loan. It was given because the person owed money.
- It Was Presented on Time: The cheque must be presented to the bank within six months or before it expires, whichever is sooner. If you miss that window, you’re out of luck.
- It Bounced: Mention that the bank didn’t pay out because of insufficient funds or some other issue.
- A Demand Notice Was Issued: The individual expecting the payment must submit a written demand for payment within 30 days of discovering that the cheque has bounced.
- No Payment Was Made: If the person who issued the cheque doesn’t pay within 15 days of receiving that notice, legal action is a must.
- The Punishment: If all the above points are met, the court can sentence the person who issued the cheque.
Now, here’s where it gets interesting: three provisos in Section 138 spell out the rules for points 2, 4, and 5, but (4) and (5) are the real deal-breakers when it comes to the ‘notice’ part of things.
Proviso (b) is all about the notice. It says:
- It must be sent by the payee (or the person legally entitled to get the money).
- It must be in writing (no verbal demands here).
- It must be sent within 30 days of learning about the dishonour.
- It must clearly demand payment of the amount on the cheque.
Proviso (c) is about what happens next. It says:
- The person who issued the cheque has to receive the notice.
- They then have 15 days to make the payment. If they don’t, only then can the payee take them to court.
This notice isn’t just a formality. It’s the linchpin of the whole offence. If any part of it is messed up, the case can fall apart. That’s why understanding every little detail about this notice is crucial.
Who Can Send and Receive a Section 138 Notice?
Under Section 138 of the Negotiable Instruments Act, the notice demanding payment can be sent by the payee (the person the cheque was made out to) or the holder in due course (someone who legally holds the cheque). As long as the lawyer is acting as an agent for the payee or holder, even they can send the notice. After all, people usually go to lawyers to get these notices drafted anyway.
As for who receives the notice, it has to go to the drawer of the cheque (the person who signed it). Sending it to anyone else won’t work.
Picture this: Raj hands a cheque to Neha to repay a loan. Neha deposits it, but the cheque bounces because of insufficient funds. Consequently, Neha intends to pursue legal action under Section 138 of the Negotiable Instruments Act.
Who can send the notice?
- Neha (the payee) can send the notice herself.
- If Neha had transferred the cheque to another person, like Vikram, he, as the holder in due course, could issue the notice.
- Neha can also ask her lawyer to send the notice on her behalf, acting as her agent.
Who should receive the notice?
- Only Raj, because he is the drawer (the person who signed the cheque). Neha can’t send it to Raj’s business partner or anyone else. It must go to Raj directly.
If Raj doesn’t pay up within 15 days, Neha can proceed with legal action.
What Should a Section 138 Notice Include?
When sending a Section 138 notice for a bounced cheque, you need to get two things right:
- It must be in writing. No phone calls or casual messages. It has to be a formal, written notice.
- It must demand payment of the cheque amount. Nothing more, nothing less. Take, for instance, the case of Suman Sethi v. Ajay K. Churiwal, where the Supreme Court held that a demand notice under the Negotiable Instruments Act is valid even if it includes additional amounts like interest or costs as long as the cheque amount is separately mentioned. However, if the notice demands a lump sum exceeding the cheque amount without specifying the actual cheque amount, it may be considered invalid.
- Simply informing the person that their cheque bounced isn’t enough. The notice must clearly demand payment. If it doesn’t, it won’t hold up in court. In Central Bank of India v. M/S Saxons Farms, the Supreme Court ruled that a notice containing the phrases “my client shall represent the two cheques again, and if they are returned unpaid, the matter will be reported to police” and “kindly make the payment if you want to avoid unpleasant action of my client” was a valid demand for cheque payment.
The Format for the Notice
While the law doesn’t mandate a specific format for sending a cheque bounce notice under the Negotiable Instruments Act, there are certain key details that must be clearly communicated to make the notice effective. Here’s what you should definitely include:
- Details of the Drawer: Start by mentioning the name and address of the person who issued the cheque. This ensures there’s no confusion about who is responsible for the payment.
- Details of the Payee: Clearly state the name and address of the person who was supposed to receive the payment. This establishes the relationship between the parties involved.
- Cheque Information: Provide complete information about the cheque, such as the cheque number, date, and the amount for which it was issued. This leaves no room for ambiguity.
- Presentation and Return Details: Specify the date when the cheque was presented for payment and the date it was returned by the bank. Also, include the reason for the cheque bounce, as stated in the bank’s Return Memo.
- Purpose of the Transaction: To establish the legitimacy of the debt, and clearly mention why the cheque was issued. Was it for loan repayment, payment for goods or services, or any other financial obligation?
- Demand for Payment: The notice should clearly demand that the drawer make immediate arrangements to pay the amount due. This is a crucial step before initiating legal action.
- Reference to Legal Provision: Lastly, refer to Section 138 of the Negotiable Instruments Act, which deals with cheque bounce cases. This lets the drawer know that legal action could follow if the payment is not made.
Check out some helpful boilerplate templates over here and here.
How Much Time Do They Have to Pay?
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The person who issued the cheque has 15 days to make the payment, but the countdown starts the day they receive the notice, not the day the cheque bounces.
This was made clear in Munoth Investments Ltd v Puttukola Properties, where the Supreme Court held that the 15-day period commences from the date of receiving the notice. If the timeline is not adhered to, the case may be dismissed.
That’s Just the Tip of the Iceberg!
You’ve just taken the first step! There’s a whole world of criminal drafting waiting for you to explore. From complaints and FIRs to bail applications and appeals, mastering these skills is essential for any aspiring lawyer. Dive deeper with the ‘Lawctopus’ Online Course on ‘Criminal Proceedings & Drafting: Complaints, FIRs, Bails, Applications, Appeals, and More’ and gain hands-on expertise in drafting legal documents that matter. You will get:
- Expert-reviewed, in-depth reading materials on criminal law.
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- Compilation of key case laws and essential legal terms.
- Concise reading materials on crucial criminal law topics.
- Pre-recorded lectures by experienced criminal law experts.
- Weekly live sessions for in-depth discussions and doubt resolution.
- Practical drafting guidance with real-time faculty feedback.
- Self-assessment assignments to track progress.
- Mandatory practical drafting assignments.
- Choice-based drafting assignment: Anticipatory Bail or Quashing Petition.
- Drafting exercise: Application for Maintenance under Section 125, CrPC.
- Faculty provides detailed, personalized feedback on assignments.
- Additional learning through supplementary webinars and workshops
