SUPREME COURT OF INDIA HOLDS THAT NOTICES DEMANDING LOAN AMOUNT ARE NOT INVALID UNDER THE NEGOTIABLE INSTRUMENTS ACT, 1881.

The Supreme Court of India in the case of Vijay Gopala Lphar vs Pandurang Ramchandra Gharpade & Anr., passed a judgement dated 05.04.2019 holding that the notice demanding ‘Loan Amount’ is not invalid if it is same as the ‘Cheque Amount’ under Section 138 of Negotiable Instruments Act, 1881 (“the Act”) as amended thereof.

In the above case the Appellant had taken a hand loan of Rs. 50,000/- (Rupees Fifty Thousand only) from the Respondent/Complainant with a promise that he would return the amount within six months. The Complainant issued 2 cheques of Rs. 25,000/- (Rupees Twenty Five Thousand only) each to the Respondent/Complainant for a legally enforceable debt. The cheques where deposited by the Respondent/Complainant which were dishonoured due to “Funds Insufficient”. The Respondent/Complainant then on 04.03.2008 issued two notices to the Appellant and further filed two separate complaints under Section 138 of the Act each notice with the amount of Rs. 25,000/- (Rupees Twenty Five Thousand only). The Trial Court held the notices defective because the Respondent/Complainant mentioned loan amount and not cheque amount, which according to the Court were contrary to Section 138 of the Act.

The Respondent/Complainant appealed in the High Court at Bombay, which held that, there was no failure on the part of the Respondent/Complainant in making a demand for the payment of amount by issuing the notices. The High Court held that the term ‘loan amount’ should not have been mentioned but however the High Court was convinced that the Respondent/Complainant demanded the payment of Rs. 50,000/- (Rupees Fifty Thousand only) which was the original initial amount that was supposed to be claimed. The High Court reversed the Trial Court’s judgement and convicted the Appellant.

The Appellant further appealed in the Superme Court of India. The Appellant relied upon the clause (b) of the provision of Section 138 of the Act stating that the demand by notice should be only for the cheque amount and not on the loan amount. The counsel for Appellant relied upon the judgement in the case of Suman Sathi vs Ajay K. Churwal & Anr. (2000) 2 SCC 380, Rahul Builders vs Arihant Fertilizers & Chemicals & Anr. (2008) 2 SCC 321 and in support of his claims that the notices under Section 138 of the Act can be issued only for the cheque amount and not for any other amount. The Apex Court upon examining the above mentioned judgements held that, there is no question that the notices issued under section 138 of the Act has to be exclusive for the cheque amount. In the judgements referred above, the notices issued under Section 138 of the Act refer to the loan amounts which were much higher than the cheque amount. Whereas, in the present suit, the loan amount and the cheque amount is the same i.e. Rs. 50,000/- (Rupees Fifty Thousand only). Therefore, the above referred judgements cited by the learned counsel for the Appellant are not applicable to the current case. Hence, the Apex Court dismissed the appeal.

B Suchit Patel

Associate

The Indian Lawyer

Leave a Reply

Your email address will not be published. Required fields are marked *