Limitation U/S 138 NI Act Runs From Receipt Of Returned Notice Not Its Refusal: Kerala High Court
The Kerala High Court on 8 July held that in prosecutions under Section 138 of the Negotiable Instruments Act (dishonour of cheque for insufficiency of funds), the limitation period for filing a complaint begins from the date the complainant receives the returned postal cover or is informed that the statutory notice could not be served, and not from the date the addressee refused or left the notice unclaimed.
Justice A Badharudeen allowed an appeal filed by Sree Gokulam Chit & Finance Co. (P) Ltd, set aside the Sessions Court's acquittal, restored the Magistrate's conviction, and modified the sentence considering that the transaction was more than two decades old. The Court observed:
“…..the presumption of 'deemed service' should be drawn reckoning the date on which the sender of the notice was notified that the notice has not been served and hence the limitation for filing complaint should commence from the date of deemed service; namely, the date when the complainant received the returned postal cover or was so informed by the postal authority in case the postal cover was lost.”
The case arose after a cheque for Rs. 65,520, issued by the accused as a surety in a chitty transaction, was dishonoured. The Magistrate convicted the accused. However, the Sessions Court reversed the conviction and acquitted the accused, holding that the complaint had been filed beyond the one month limitation period prescribed under Section 142 of the NI Act, reckoning limitation from the date the statutory notice was refused. Aggrieved, the finance company approached the High Court.
The principal issue before the High Court was whether, where a statutory notice is returned with the endorsement "refused" or "unclaimed", the cause of action arises from the date of refusal or from the date the complainant receives the returned notice.
Examining Sections 138 and 142 of the Act, the Court held that the cause of action arises only after the drawer fails to make payment within 15 days of receipt of the statutory notice, making the date of deemed service crucial for computing limitation. It noted:
“….the cause of action for filing a complaint arises only upon the failure of the drawer of the cheque to make payment of the cheque amount to the payee or the holder in due course within 15 days from the date of receipt of the said notice. So, receipt of notice is having relevance to decide the starting point of the cause of action and the limitation”
Relying on decisions of the Supreme Court and the Kerala High Court, the Bench held that where service is deemed because the notice is refused or remains unclaimed, limitation begins only after the complainant receives the returned postal cover or is informed by the postal authorities that service has failed.
Applying the law to the facts, the Court noted that the complainant received the returned postal cover on 19 November 2005. The complaint, filed thereafter, was therefore within the prescribed limitation period.
Accordingly, the High Court restored the Magistrate's conviction. However, considering the age of the dispute, it reduced the sentence from three months' simple imprisonment to imprisonment till the rising of the Court. It also imposed a fine of Rs. 1.31 lakh, directing that Rs. 1.25 lakh be paid to the complainant as compensation.
For Appellant: Advocates K.S Babu and N Sudha
For Respondents: Advocates T Ramesh Babu, C.K Sreejith and M.A Shihab, Public Prosecutor