In CMP No 1965 of 2022- DEL HC- Elements of Section 138 and 141 of the NI Act were paramount to establish an offence thereunder, Delhi High Court
Justice Dinesh Kumar Sharma [11-05-2023]

Read Order: H.G. Retail Solutions Private Limited v Rajiv Kumar Saxena

Simran Singh

New Delhi, May 12, 2023: While exercising its criminal appellate jurisdiction, the Single Judge Bench of Dinesh Kumar Sharma set aside the entire proceedings including the summoning order dated 23-02-2015 and the order of the Additional Session Judge dated 01-04-2021 under the  provision of Section 138 of the Negotiable Interment Act, 1881 (NI Act) dismissing the revision petition of the petitioner.

In the case at hand, the petitioner moved under Section 482 of Code of Criminal Procedure, 1973 (CrPC) challenging the order passed by the Additional Session Judge wherein the revision petition assailing the summoning order passed under section 138 of the NI Act was dismissed. The petitioner assailed the order on the ground that no demand notice was served to the company and the complaint under Section 138 NI Act was time barred and beyond limitation as prescribed. Moreover, since no application seeking condonation of delay was filed by the respondent along with the complaint, the complaint failed in terms of the judgement in Ashwani Kumar Julka v. Parthojit Choudhary

The Bench navigated through Section 138 and 141 of the NI Act which reflected the intricate interplay of essential elements that were required to establish an offence thereunder. In essence, the realisation of a penal offence under section 138 of the NI Act necessitated the confluence of certain indispensable prerequisites:

1. A cheque had to be drawn by the drawer on an account maintained by him in lieu of his discharge of liability towards payment either in whole or part.

2. Such cheque had to be presented to the bank within a period of six months from the date it was drawn or within the period of its validity, whichever was earlier.

3. Such cheque when presented to the bank was returned by the bank unpaid.

4. Issuance of a written demand notice by the payee to the drawer of the cheque demanding payment within a period of 30 days from the date of the receipt of the information by the payee from the bank regarding the return of the cheque as unpaid.  

5. Failure of the drawer to make such payment within a period of 15 days from the date of the receipt of the demand notice.

The Bench noted that the noncompliance with any of the aforementioned imperative steps would vitiate the very substratum of a prosecutorial ‘cause of action’, rendering it not maintainable and bad in law. Thus, compliance of the necessary ingredients was mandatory, in order to constitute an offence under section 138 NI Act.

The Court highlighted that as per section 141 NI Act, the principal accused was the company and vicarious liability would only extend to those responsible, once the principal accused i.e. the company was also proceeded against. Thus, if an offence under section 138 NI Act had been committed by a company, then the company ought to be sent the demand notice, in order to comply with the statutory steps contained in section 138 NI Act which mandates that a demand notice be sent to the drawer of the cheque. In the present case the cheque was drawn by the director Karan Tomar for and on behalf of the company HG Retail. Thus the company ought to have been served the demand notice, as in the absence of serving any demand notice to the company, the essential and mandatory step of serving a demand notice to the drawer of the cheque fails.

The Bench noted that the admittedly "no demand notice was ever sent to the company i.e. the principal accused. There cannot be a prosecution without prosecuting the principal accused. The demand notice was only sent to the directors of the company. The company was made a party in the complaint under section 138 NI Act, however the ingredient of section 138 NI Act which postulates that a demand notice be sent to the drawer of the cheque, stood unfulfilled. The loan agreement was also between the petitioner company HG Retail and the respondent. The director was merely acting on behalf of the company. Thus if the default or non-payment was done at the behest of the company, the company ought to have been sent a demand notice. Even though the company was arrayed as an accused in the complaint under 138, however, without demand notice being served to the company the complaint itself failed and could not be maintained in terms of the provisions contained in section 138 NI Act. It was only when the company was prosecuted and proceeded against in compliance of section 138 NI Act, that vicarious liability in terms of section 141 NI Act would extend to its directors or others responsible for the commission of the offence.

The Bench was of the view that it is imperative that all the elements of Section 138 of the NI Act be duly satisfied prior to taking cognizance of such a complaint. In the absence of demand notice being served upon the company, which served as the drawer of the cheque, the complaint itself failed to meet the requirements stipulated by Section 138 of the NI Act, as one of the essential elements remained  unsatisfied.

Consequently, the Court was of the view that the complaint under section 138 NI Act was not maintainable and was bad in law. Since the complaint itself was held to be bad in law in absence of service of demand notice on the company was liable to fail. Therefore, the Court did not go into the two remaining questions of limitation and the entire proceedings including the summoning order dated 23-02-2015 and the order of the Additional Session Judge dated 01-04-2021 dismissing the revision petition of the petitioner were set aside and the present petition was allowed.