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Query: A limited company, my client, received a cheque from a customer for goods purchased in the normal course of business. However, the cheque was returned due to insufficient funds. The limited company is my client. What is best legal remedy available to recover the amount?
The best legal remedy available to the limited company in this situation would be to file a complaint under Section 138 of the Negotiable Instruments Act, 1881 against the customer who issued the cheque with insufficient funds. This section deals with the dishonour of cheques due to insufficiency of funds in the account and provides for criminal liability for the drawer of the cheque.
In the case of P.J.Agro Tech Limited & Ors vs Water Base Limited (28 Jul 2010), the Supreme Court considered whether a complaint under Section 138 of the Act would be maintainable against a person who was not the drawer of the cheque from an account maintained by him. The Court held that in order to attract the provisions of Section 138, the cheque must be drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from that account. Therefore, if the cheque was issued by the customer to the limited company and was dishonoured due to insufficient funds, a complaint under Section 138 would be maintainable.
In the case of Nepc Micon Limited And Others vs Magma Leasing Limited (29 Apr 1999), the Supreme Court further clarified that even if the account is closed at the time of presenting the cheque, it would still amount to insufficient funds to honour the cheque. The Court held that closure of the account after issuing the cheque would be an offence under Section 138 as there was insufficient or no fund to honour the cheque in that account.
Additionally, in the case of Kirshna Texport & Capital Markets Ltd vs Ila A Agrawal & Ors (06 May 2015), the Supreme Court reiterated the provisions of Section 138 and emphasized the conditions that need to be fulfilled for the offence to be complete. The Court highlighted that the cheque should be drawn on an account maintained by the drawer with a banker for payment of any amount of money to another person, and the drawer must fail to make the payment within fifteen days of receiving a notice of dishonour.
Therefore, based on the above judgments, the best legal remedy for the limited company would be to file a complaint under Section 138 of the Negotiable Instruments Act, 1881 against the customer who issued the cheque with insufficient funds. The company can seek punishment for the customer, including imprisonment or fine, as provided under the Act. It is important for the company to follow the procedural requirements of Section 138, such as presenting the cheque within the specified time period and issuing a notice of dishonour to the customer. By taking legal action under Section 138, the company can seek to recover the amount due to them for the goods purchased in the normal course of business.
References:
In the case of P.J.Agro Tech Limited & Ors vs Water Base Limited (28 Jul 2010), the Supreme Court considered whether a complaint under Section 138 of the Act would be maintainable against a person who was not the drawer of the cheque from an account maintained by him. The Court held that in order to attract the provisions of Section 138, the cheque must be drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from that account. Therefore, if the cheque was issued by the customer to the limited company and was dishonoured due to insufficient funds, a complaint under Section 138 would be maintainable.
In the case of Nepc Micon Limited And Others vs Magma Leasing Limited (29 Apr 1999), the Supreme Court further clarified that even if the account is closed at the time of presenting the cheque, it would still amount to insufficient funds to honour the cheque. The Court held that closure of the account after issuing the cheque would be an offence under Section 138 as there was insufficient or no fund to honour the cheque in that account.
Additionally, in the case of Kirshna Texport & Capital Markets Ltd vs Ila A Agrawal & Ors (06 May 2015), the Supreme Court reiterated the provisions of Section 138 and emphasized the conditions that need to be fulfilled for the offence to be complete. The Court highlighted that the cheque should be drawn on an account maintained by the drawer with a banker for payment of any amount of money to another person, and the drawer must fail to make the payment within fifteen days of receiving a notice of dishonour.
Therefore, based on the above judgments, the best legal remedy for the limited company would be to file a complaint under Section 138 of the Negotiable Instruments Act, 1881 against the customer who issued the cheque with insufficient funds. The company can seek punishment for the customer, including imprisonment or fine, as provided under the Act. It is important for the company to follow the procedural requirements of Section 138, such as presenting the cheque within the specified time period and issuing a notice of dishonour to the customer. By taking legal action under Section 138, the company can seek to recover the amount due to them for the goods purchased in the normal course of business.
References: