Have you missed the bus? With reference to Sec. 138, Negotiable Instruments Act.

To attach credibility to financial instruments, the Parliament enacted the Negotiable Instruments Act. Further, to provide teeth to the Act, the proceedings were set to take place in a time-bound manner. The timeline stipulated under the Act for the prosecution of an offender is penned down herein below for ease in reference:

1. The cheque should be presented for payment within a period of 3 months from the date of the instrument.[1]
2. The payee or the holder in due course must demand the drawer for payment of the amount, in writing, within 30 days from the receipt of information of dishonor of cheque.[2]
3. If the drawer fails to pay the money within 15 days from the date of receipt of the demand notice, the payee or the holder in due course shall prefer a complaint within 30 days therefrom.[3]

In numerous instances, the payee or the holder in due course does not prefer a complaint within the stipulated period, for the reasons best known to them, and loses a significant right to prosecute the offender.

To save the sinking ship, an attempt is made to represent the cheque in order to reboot the entire process. But owing to a few short-lived judicial precedents, the successive representation of dishonored cheques within its validity did not come to the aid of the payee in all circumstances. However, the issue was noticed and set right by the Supreme Court in its later judgment. The factor that determined the change of path in the right of a payee to prosecute a drawer under Sec. 138 of the Act based on a successive representation of the dishonored cheque is the keynote of this article.

In Sadanandhan Bhadran v. Madhavan Sunil Kumar[4], the Apex Court was presented with the facts wherein the payee did not prefer a complaint on the failure of the drawer to pay the amount within 15 days from the date of receipt of (first) demand notice. On the other hand, the payee represented the dishonored cheque, which was again dishonored for want of sufficient funds. The payee initiated prosecution based on the failure of the drawer to pay the amount within 15 days from the date of receipt of the second demand notice.

The Supreme Court observed that there cannot be a successive cause of action for the same offence. On the failure of the payee to prosecute a drawer on the first cause of action, the offender is absolved of his crime. And lastly, the process of the second presentation of the dishonored cheque will make the limitation clause nugatory. Therefore, the Supreme Court discharged the accused.

In S.L. Constructions & Anr. v. Alapati Srinivasa Rao & Anr[5], the Supreme Court observed that unless the demand notice has been served on the drawer and the drawer fails to pay the amount with 15 days, no cause of action would arise. Therefore, the payee is entitled to present the dishonored cheque any amount of time during its validity and initiate prosecution in this regard if no cause of action has arisen earlier i.e., there is no earlier failure on the part of the drawer to pay the amount within 15 days from the date of receipt of the demand notice from the payee.

In 2013, the Supreme Court in MSR Leathers v. Palaniappan[6], making amends to the earlier decisions, ruled that there is no bar under Sec. 138 or Sec. 142 of the Act to initiate prosecution based on a successive representation of a dishonored cheque. The Court further went on to hold that proviso (c) to Sec. 138 of the Act cannot be construed as a sole event triggering the cause of action. All the 3 conditions laid down in the proviso to Sec. 138 of the Act must be fulfilled. Moreover, when the payee has the right to present the cheque multiple times within the validity of the cheque, there is a co-existing obligation on the part of the drawer to pay the amount. Therefore, it was held that the payee has the right to initiate prosecution based on any of the representations made within the validity of the cheque.

To sum up, the failure of the payee to initiate prosecution upon the first cause of action does not bar the payee from initiating prosecution under Sec. 142 r/w. 138 of the Act based on subsequent representation made within the validity of the cheque.

[1] RBI/2011-12/251, DBOD. AML BC. No. 47/14.01.001/2011-12 dated November 4, 2011, RBI Notification.

[2] Sec. 138, Negotiable Instruments Act.

[3] Sec. 138 r/w 142, Negotiable Instruments Act.

[4] (1998) 6 SCC 514.

[5] (2009) 1 SCC 500.

[6] (2013) 1 SCC 177.