A Company's Cheque, a Security Defence, and Three Days Too Late
M/s Bholanath Engineering Pvt. Ltd., acting through its director Sanjib, issued a cheque dated 27 January 2025 for ₹6,50,000 in favour of M/s Howrah Steel Traders towards balance payment for supplies made between August and December 2024. The cheque was presented on 3 February 2025 and returned on 4 February 2025 with the remark 'funds insufficient'. On 3 March 2025 the Traders sent a demand notice by registered post with acknowledgement due to the company's registered office and to Sanjib's residence; the company received it on 10 March 2025. No payment was made. The Traders filed a complaint under Section 138 of the Negotiable Instruments Act on 28 April 2025, impleading only Sanjib and not the company. Sanjib's defence is that the cheque was issued in 2023 as security for a proposed supply arrangement and that the debt for the 2024 supplies was in any event reduced by a credit note of ₹1,20,000 dated 15 January 2025 issued against the relevant invoice. The complainant accepts the credit note but says it relates to a different consignment.
1. Compute the cause of action and the limitation for the complaint. Is the complaint of 28 April 2025 within time, and what is the consequence if it is not?
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Step one - presentation and return. The cheque was presented on 3 February 2025 and returned on 4 February 2025.
Step two - notice. The demand notice must be made within 30 days of receipt of information of the return. The notice of 3 March 2025 falls within 30 days of 4 February 2025 and is valid.
Step three - the 15-day period. The drawer has 15 days from receipt of the notice to pay. The notice was received on 10 March 2025, so the period ran from 11 March to 25 March 2025. The cause of action arose on 26 March 2025, when the 15 days expired without payment.
Step four - the complaint. It must be filed within one month of the cause of action, that is by 25 April 2025. It was filed on 28 April 2025, three days late.
Consequence. The complaint is outside the main provision of Section 142(1)(b), but the proviso permits the court to take cognizance after the period if the complainant satisfies it that there was sufficient cause for the delay. The application must be made with the complaint and must explain the delay; the court cannot condone delay in the notice, but it can condone delay in filing the complaint. Three days is a short delay and, if explained by the time taken to obtain the return memo or legal advice, condonation should ordinarily be granted, with costs. The accused's remedy is to oppose the application on merits, not to seek dismissal of the complaint outright. The court should decide the condonation application before issuing process.
2. Can Sanjib alone be prosecuted when the drawer is a company and the company has not been arraigned? Discuss Section 141 and the remedy available to the complainant.
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The drawer. Section 138 speaks of the drawer of the cheque. Where the drawer is a company, Section 141 makes the company, and every person in charge of and responsible for its business at the time of the offence, liable, with the well-known provisos.
The rule of arraignment. The Supreme Court in Aneeta Hada v. Godfather Travels held that the company is a necessary party: a director cannot be convicted unless the company is arraigned, because the offence is committed by the company and the director's liability is vicarious. Here the cheque was issued by M/s Bholanath Engineering Pvt. Ltd. through Sanjib, and the complaint impleads only Sanjib. As framed, the complaint is not maintainable against him.
Is the defect curable? Yes, in an appropriate case. The complainant may apply to amend the cause title to implead the company; courts have permitted such an amendment where the company was omitted by mistake and no prejudice is caused, and the Supreme Court's decision in U.P. Pollution Control Board v. Modi Distillery supports impleading a juristic person whose name was left out. The application should be made immediately, before the evidence concludes, and the court should decide it as a preliminary issue.
Alternative. If the amendment is refused, the complainant may file a fresh complaint against the company and the director, but that would face limitation under Section 142 and would need condonation with a satisfactory explanation. Merely describing Sanjib as 'director' in the cause title does not cure the omission, because the company remains unarraigned.
3. How should the court deal with the defence that the cheque was issued as security, and with the credit note of ₹1,20,000? What must the complainant prove?
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The security defence. A cheque given as security is still a cheque drawn for a legally enforceable debt or liability if, at the date of presentation, such a liability exists. The Supreme Court in Sripati Singh v. State of Jharkhand held that a cheque given as security can attract Section 138 once the liability matures and the drawer fails to pay after notice. The defence succeeds only where the cheque was issued for a transaction that never materialised and no liability ever arose. Here supplies were made between August and December 2024 and invoices were raised, and the cheque is dated 27 January 2025 - that is, after the supplies. Sanjib's assertion that the cheque was issued in 2023 for a 'proposed arrangement' is inconsistent with the date on the instrument and with the pleaded balance payment. The court should call for the invoices, the ledger, the bank statement and the cheque-issuance register.
The credit note. The complainant accepts the note but says it relates to a different consignment. The accused must prove the link by producing the note and the corresponding invoice; the burden of showing that the debt was less than the cheque amount lies on him, while the complainant must first prove the debt. If the note covers the same supplies, the outstanding falls to ₹5,30,000 and the cheque for ₹6,50,000 does not correspond to the legally enforceable debt in full. A partial and explained excess may not by itself vitiate the complaint, but a substantial and unexplained excess entitles the drawer to the benefit of doubt. The court must decide on documents, not on oral assertion.