Companies Act Case Law Uniplas India Ltd. And Ors Vs State (Govt.Of Nct Of Delhi) And Anr

Appeal (crl.) 721 of 2001



DATE OF JUDGMENT: 17/07/2001


2001 (3) SCR 985

The Judgment of the Court was delivered by THOMAS, J. Leave granted.

The drawer of a cheque clutches on a straw for wriggling out of the clinch
of a criminal prosecution he is caught in, but the straw is too fragile to
be of any help to him. He thought that a previous notice sent by the payee
Of the cheque, after it was once bounced, was enough to knock off the
prosecution based on a second presentation and second bouncing of the
cheque. But neither the trial court nor the High Court favoured the accused
in his endeavour to secure a discharge from the case on the said ground.
Thus he has come up with this appeal.

Respondent company filed a complaint before the court of a Chief
Metropolitan Magistrate against three appellants for the offence under
Section 138 of the Negotiable Instrument Act (for short the NI Act) on the
following inter alia, allegations;

The third appellant is the Managing Director of the first appellant company
of which the second appellant is Vice President. A cheque in a sum of Rs.
50 lacs and another cheque for above Rs, 3 lacs have been drawn by the
first appellant in favour of the respondent complainant. The said cheques
were presented before the Oriental Bank of Commerce but they were
dishonoured by the Bank as per memo dated 23.2.1996. Notice was sent tb the
appellants on 2.3.1996 calling upon them to pay the amount As the
appellants did not pay the amount within the statutory period, a complaint
was filed on 11.4.1996.

The stand of the appellants is this: The cheque was earlier presented by
the payee and then it was dishonoured by the Bank and thereafter a notice
was issued to the drawer on 1.12.1995, but the payee did not file a
complaint within one month of the expiry of 15 days after the said notice
and hence he cannot create one more cause of action by presenting the
cheque once again. At any rate the complaint filed on 11.4.1996 is beyond
the time prescribed by law and consequently the court is debarred from
taking cognizance of the offence upon the said complaint, contended the
appellants. In support of the said contention appellants cited the
decisions of this Court in Sadanandan Bhadran v. Madhayan Sunil Kumar.
[1998] 6 SCC 514.

The trial court repelled the said contention on the premise that the notice
issued on 1,12.1995 was under Section 434 of the Companies Act which cannot
be treated as a notice under section 138 of the Nl Act. This position of
the trial court was upheld by the learned Single Judge of the High Court on
the strength of the following reasons ;

“A notice under Sections 433 and 434 of the Companies Act cannot be treated
as a notice under Section 138 of the Act Therefore, the contention of
learned counsel for the petitioners that notice dated 1.12.1995 should be
taken as notice under Section 138 of the Act, is unsustainable. In the case
on hand, notice under Section 138 of the Act was dated 123.1996. It is this
notice which is in accordance with the provisions of Section 138 that
proceedings can be set into motion by giving fifteen day’s time to comply
with the demand and thereafter within one month file a complaint. The
period, if calculated from the issue of notice dated 12,3.1996, brings the
complaint well within the period of limitation. Therefore, from the facts
of the case alleged in the complaint, the position is clear that no
exception can be taken against the order of the Magistrate taking
cognizance of the offence under Section 138 of the Act against the

Learned counsel for the appellants contended that the High Court went wrong
in saying that a notice under Sections 433 and 434 of the Companies Act
cannot be treated as a notice under Section 138 of the Nl Act Any notice
containing a demand for payment of the amount covered by the dishonoured
cheque can as well be a notice under Section 138 of the Nl Act, according
to him.

Sections 433 and 434 of the Companies Act are provisions dealing with cases
in which a company may be wound up by the court. Section 434 has to be read
in association with Section 433(a) of the said Act Clause (e) of section
433 contains one of the six clauses for which the company can be wound lip
by the court, i.e. “if the company is unable to pay its debts”. Section 434
contains the two instances when a company is deemed to be unable to pay its
debts. Section 434 of the Companies Act is extracted below:

“Company when deemed unable to pay its debts.-(1) A company shall be deemed
to be unable to pay its debts-(a) if a creditor, by assignment or
otherwise, to whom the company is indebted in a sum exceeding five hundred
rupees men due, has served on the company, by causing it to be delivered at
its registered office, by registered post or otherwise, a demand under his
hand requiring the company to pay the sum so due and the company has for
three weeks thereafter neglected to pay the sum, or to secure or compound
for it to the reasonable satisfaction of the creditor;

(b) if execution or other process issued on a decree or order of any
court in favour of a creditor of the company is returned unsatisfied in
whole or in part; or

(c) if it is proved to the satisfaction of the court that the company is
unable to pay its debts and, in determining whether a company is unable to
pay its debts, the court shall take into account the contingent and
prospective liabilities of the company.

(2) the demand referred to in clause (a) of sub-section (1) shall be deemed
to have been duly given Under the hand of the creditor if it is signed by
any agent or legal adviser duly authorised on his behalf, or in the case of
a firm, if it is signed by any such agent or legal adviser or by any member
of the firm.”

What is provided in the section is that a creditor should make a demand
requiring me company to pay the amount due to the creditor. The mode of
making such demand is also delineated in the section. If any such demand is
made, could it be said that such demand would be useful only for the
purpose of winding up of the company? Clause (b) of the proviso to Section
138 of the NI Act also contemplates the making of a demand for payment of
the cheque amount as an indispensable step to snowball into a cause of
action. The said proviso is extracted below for being used in this context

“(b) the payee or the 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 the cheque, within fifteen days of the
receipt of information by him from the bank regarding the return of the
cheque as unpaid”.

If any notice is issued under Section 434 of the Companies Act within 15
days of the information from the Bank regarding return of the cheque drawn
by a company as unpaid, such a notice would as welt be good enough under
clause (b) of the proviso to Section 138 of the NI Act.This Court has held
in Sadanandan Bhadran (supra) that a complainant cannot create successive
causes of action with the same cheque. If no complaint is filed on the
first cause of action the payee is disentitled to create another cause of
action to file a complaint for the purpose of launching a prosecution on
it. Para 6 of the said decision contains the thrust of the reasoning. After
referring to the four actual premises necessary to concatenate into a cause
of action MK. Mukherjee, J. has said thus:

“If we were to proceed on the basis of the generic meaning of the term
“cause of action”, certainly each of the above facts would constitute a
part of the cause of action but then it is significant to note that clause
(b) of Section 142 gives it a restrictive meaning, in that, it refers to
only one fact which will give rise to the cause of action and that is the
failure to make the payment within 15 days from the date of the receipt of
me notice. The reason behind giving such a restrictive meaning is not far
to seek. Consequent upon the failure of the drawer to pay the money within
the period of 15 days-as envisaged under clause (c) of the proviso to
Section 138, the liability of me drawer for being prosecuted for the
offence he has committed arises, and the period of one month for filing the
complaint under Section 142 is to be reckoned accordingly. “The combined
reading of the above two sections of Act leaves no room for doubt that
cause of action within the meaning of Section 142(c) arises -‘and can arise
– only once.”

The said decision was followed by this Court in SIL Import, USA v. Exim
Aides Silk Exporters, Bangalore, [1999] 4 SCC 567.

One of the indispensable factors to form the cause of action envisaged in
Section 138 of the Nl Act is contained in clause (b) of the proviso to that
section. It involves the making of a demand by giving a notice in writing
to the drawer of the cheque “within fifteen days of receipt of information
by him from the bank regarding the return of the cheque as unpaid.” If no
such notice is given within the said period of 15 days no cause of action
could have been created at all.

Thus, it is well neigh settled that if dishonour of a cheque has once
snowballed into a cause of action it is not permissible for a payee to
create another cause of action with the same cheque, The question in this
case is, did the payee issue notice within 15 days after the first
dishonour of the cheque. The question can as well be put in another form.
Was the notice dated 1.12.1995 within 15 days of the date of intimation
from the bank regarding dishonour, or was it sent after that period of 15
days? In fact, that is the crux of the issue involved in this case.

Appellants have not stated that the interval between the date of the
earlier dishonour of the cheque and the notice dated 1,12.1995 did not
exceed the statutory period of 15 days. To a query by us learned counsel
for the appellants candidly admitted that the notice of 1,12. 1995 was
issued only after the expirty of 15 days from receipt of the intimation
from Bank regarding the dishonour. If so the said dishonour remained
without any further escalation and need not snowball into a cause of
action. Its corollary is that the payee was not prevented from presenting
the cheque once again within the permitted period and to make use of such
presentation and the subsequent dishonour for a cause of action to be
founded for launching a complaint as in the present case. We, therefore,
dismiss this appeal



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