Do you have to wait for 15 days after sending notice to arraign sole proprietorship as an accused?
Negotiable Instruments Act was promulgated by the legislature to provide broad coverage to various instruments such as Cheque, promissory note, etc. The Act was promulgated with a view to give legal coverage to these instruments and bring them within the scope of legal dimension through some legislative Acts.
With this view, legislation framed the Negotiable Instruments Act and provided broad scope with respect to the transactions involving the trade of these instruments. With wide usage, there were chances of these instruments being misused as well. Therefore, the legislature deemed it fit to make dishonor of Cheque a punishable offence in order to make transactions through cheque more feasible.
Section 138 to 142 of the Negotiable Instruments Act was inserted in order to bring both individuals and companies within the framework of this Act, which uses cheques for the convenient method of payments.
ESSENTIAL INGREDIENTS OF SECTION 138 NEGOTIABLE INSTRUMENT ACT
Supreme Court in the case of Kusum Ingots and Alloys Ltd vs Pennar Peterson Securities Ltd, (2000) 2 SCC 745 pointed out the essential ingredients of Section 138 of Negotiable Instrument Act such as:
- a person must have drawn a chequeon an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account for the discharge of any debt or other liability;
- that cheque has been presented to the bank within a period of three monthsfrom the date on which it is drawn or within the period of its validity whichever is earlier;
- thatcheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
- the payee or the holder in due course of the cheque makes a demand for the paymentof the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
- the drawer of such cheque fails to make paymentof the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice.
Thus, Supreme Court clarified that a person must have issued a cheque in discharge of his legally enforceable liability and such an issued cheque has been dishonored to constitute offence under Section 138 NI Act.
However, Section 138 NI Act only talks about liability when a cheque have been dishonored and the holder in due course has sent a notice intimidating the drawer regarding the fate of the cheque.
It further stipulates the waiting period of at least 15 days before the holder of the cheque can file a complaint against the drawer.
However, Allahabad High Court in the case of Ravi Dixit v. State of U.P. held that Section 138 NI Act cannot be interpreted to mean that the complaint cannot be filed even when the accused refuse to make the payment. It aims to see the bonafide of the drawer of the cheque and allows him the opportunity to make the payment.
It further held that once the drawer of the cheque replied to the notice and showed his intention to not make the payment, should the complainant wait for 15 days minimum period. The answer is ‘no’.
Furthermore, it is not always the case that a cheque has been issued by an individual in the discharge of his individual liability. Sometimes, an individual issues a cheque to discharge the legal enforceable liability of his sole proprietorship as well.
The question that arises here is whether the complainant has to make the proprietorship firm as a partner as well in the complaint or he can proceed with the complaint by making the proprietor as the accused?
Section 141 NI Act talks about the liability in case a company commits the offence under the Negotiable Instruments Act. It specifies the liability, in case offence under Section 138 NI Act has been committed by a company. This Section further elaborates that ‘every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.’
Thus, Section 141 NI Act clearly specifies that both the company and its day-to-day management have to be inducted as accused in order to file a complaint against the company.
However, Allahabad High Court in the case of Dhirendra Singh v. State of U.P. further clarified the position of Section 141 NI Act when the offence has been committed by a sole proprietorship.
Allahabad High Court observed that the phrase “association of individuals” under Section 141 NI Act requires such entity to be constituted by at least 2 individuals.
However, a sole proprietorship does not allow for ownership to be shared or be joint and restricts the ownership with one person only. A proprietorship is just a trade name acquired by an individual for conducting business activities.
Since no vicarious liability arise on any other person and identity of the sole proprietor and his concern is one.
Thus, one need not to induct a sole proprietorship as an accused and a complaint against its proprietor is sufficient to constitute offence under Section 138 NI Act.
For the past many decades, people have been using cheque as a medium to transfer funds. With the increase in its usage, there felt a need to provide the remedy to the cheque holders in case of its dishonor, which made the legislature to create Negotiable Instruments Act.
However, with every legislation comes to its interpretation which can differ from person to person.
As the law evolves, numerous judgments have paved the way to make the picture more clear regarding the intention of the legislature to create this NI Act.
As observed earlier, Allahabad High Court had tried to make the picture more clear regarding Section 141 NI Act and clearly stated that there is no need to make sole proprietorship concern as a party to the case.
As the law evolves, more and more judgments will pave the way to clarity towards various other Sections of Negotiable Instrument Act.