Notice of Dishonor of Cheque: Law and Important Judgments

cheque bounce

November 13, 2017

What is Notice of Dishonour?

Section 138(b) of the Negotiable Instruments Act, 1881 provides for the Notice of Dishonour. It states that the payee or holder in due course of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid. Thus, the said provision states that if the holder of the cheque receives information from the Bank that the cheque has been dishonoured, he should within 30 days makes a demand to the drawer for payment.

Also see Dishonour of Cheque – Section 138 of the Negotiable instruments Act

Also see Dishonour of Cheque – Cheque Bouncing – Sample Questions

Who sends the notice of dishonor of cheque?

Upon dishonor, the holder of cheque or some party thereto who remains liable thereon, must give notice that the instrument has been so dishonoured to all other parties whom the holders seeks to make severally liable and to some one of several parties whom he seeks to make jointly liable thereon.

To whom is the notice of dishonor given?

The notice may be given:

  • to a duly authorized agent of the person to who it is required to be given
  • where he is dead to the legal representative
  • where he has been declared insolvent- to his assignee

What are the various modes to send notice of Dishonour of Cheque?

The notice of Dishonour can be sent by registered post. In the case of SIL Import, USA v. Exim Aides Silk Exporters[1], the delivery of notice through Fax was acknowledged. It was observed that the date of delivery of fax message cannot be ignored for the purposes of computing the period of limitation and accrual of the cause of action.

What is the object of sending notice?

Central Bank of India v. Saxons Farms[2], the Supreme Court held that the object of the notice is to give a chance to the drawer of cheque to rectify his omission and also to protect an honest drawer. The service of notice of demand in clause (B) of Section 138 is a condition precedent for filing a complaint u/Section 138 of NI Act.

Is there any prescribed form of sending Notice u/Section 138 of NI Act?

No, there is no prescribed Form of Notice. In the case of Central Bank of India v. Saxons Farms[3] it was observed that the requirement is that notice shall be given in writing within thirty days of receipt of information from the bank regarding return of the cheque as unpaid and in the notice a demand for payment of the amount of the cheque has to be made.

Notice must make demand- Where the notice asked the drawer to explain why criminal proceedings should not be launched against him, but did not expressly demand payment, it was held that the notice did not comply with the requirement u/Section 138 of NI Act[4].

When is issue of notice u/Section 138 of NI Act deemed as complete?

In a recent case of 2015 in M/S. Jayalakshmi Textiles vs S.K. Kolandasamy[5], the Madras High Court was confronted with a similar issue and observed that when the notice is sent by registered post by correctly addressing the drawer of the cheque, the mandatory requirement of issue of notice in terms of clause (b) of proviso to Section 138 of the Act stands complied with. It is needless to emphasize that the complaint must contain basic facts regarding the mode and manner of the issuance of notice to the drawer of the cheque.

What is happens when the addressee is not available at the time of delivery or premises remain locked?

In the case of D. Vinod Shivappa vs Nanda Belliappa[6], the Supreme Court elaborately dealt with this issue and made some essential observations regarding notice of dishonor of cheque u/Section 138 of NI Act:

  • That where the notice could not be served on the addressee for one or the other reason, such as his non availability at the time of delivery, or premises remaining locked on account of his having gone elsewhere etc. and if it in such cases it is understood that there has been no service of notice, then the very purpose of the Act would defeat.
  • If in such cases it is deemed that there has been no service of notice then it would be very easy for an unscrupulous and dishonest drawer of a cheque to make himself scarce for sometime after issuing the cheque so that the requisite statutory notice can never be served upon him and consequently he can never be prosecuted.
  • That the drawer may by dubious means manage to get an incorrect endorsement made on the envelope that the premises has been found locked or that the addressee was not available at the time when postman went for delivery of the letter. It may be that the address is correct and even the addressee is available but a wrong endorsement is manipulated by the addressee. In such a case, if the facts are proved, it may amount to refusal of the notice. If the complainant is able to prove that the drawer of the cheque knew about the notice and deliberately evaded service and got a false endorsement made only to defeat the process of law, the Court shall presume service of notice.
  • That whether the service of notice has been fraudulently refused by unscrupulous means is a question of fact to be decided on the basis of evidence.

Reminder notice of dishonor of cheque to the drawer

In a recent case, N. Parameshwaram Unni v. G. Kannan & Anr.[7], the Supreme Court held that a reminder notice to a drawer of cheque cannot be construed as an admission of non-service of the first notice by the complainant. The Court further observed that from the perusal of relevant sections it is clear that generally there is no bar under the N.I. Act to send a reminder notice to the drawer of the cheque and usually such notice cannot be construed as an admission of non-service of the first notice by the appellant as has happened in this case.

The Court in the case also opined that in plethora of cases it has been held that when a notice is sent by registered post and is returned with postal endorsement “refused” or “not available in the house” or “house locked” or “shop closed” or “addressee not in station”, due service has to be presumed. Though in process of interpretation right of an honest lender cannot be defeated as has happened in this case.

Presumption of service of notice under Section 27 of General Clauses Act, 1897

Section 27 of General Clauses Act, 1897 provides for the meaning of service by post. The provision gives rise to a presumption that service of notice has been effected when it is sent to the correct address by registered post. That in view of the presumption available under Section 27 of the Act, it is not necessary to aver in the complaint under Section 138 of the Act that service of notice was evaded by the accused or that the accused had a role to play in the return of the notice unserved.

In V. Raja Kumari v. P. Subbarama Naidu & Anr.[8], the Supreme Court while dealing with a case where the notice could not be served on account of the fact that the door of the house of the drawer was found locked, the Court held that the principle incorporated in Section 27 of the General Clauses Act will apply to a notice sent by post, and it would be for the drawer to prove that it was not really served and that he was not responsible for such non- service.

Also see Landmark Supreme Court Judgment on Sec 138 of Negotiable Instruments Act

[1] (1999) 4 SCC 567

[2] (1999) 8 SCC 221

[3] (1999) 8 SCC 221

[4] Harbinder Singh v. Suman Rani [1996]87 Comp Cas 135

[5] Criminal Revision Case No.733 of 2010

[6] AIR 2006 2179

[7]  (2017)5 SCC 737

[8] (2004) 8 SCC 774

About the Author

Shilpi Sharan

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Shilpi Sharan is the Editor at Vakilno1.com – an Advocate with extensive knowledge in myriad fields of Law. She has a flair of writing and has legal publications in national and international law magazines to her credit. She focuses on legal research and aims at raising public awareness of laws in India.