YAG ASSOCIATES

2140, Solitaire Building, Near Jio Mall, BKC, Bandra (E) – 400051.

BY REGISTERED POST A.D. / SPEED POST

Date: 12th January 2025

To,
Mr. Rajeev Narayan
[Full Address]
Subject: Notice under Section 138 read with Sections 139, 142 & 146 of the
Negotiable Instruments Act, 1881, for dishonour of cheque No. ______ dated
05.01.2025

Sir,
Under instructions from and on behalf of my client, M/s. Zenith Technologies
Pvt. Ltd., a company incorporated under the provisions of the Companies Act,
2013, having its registered office at Citi Mall, Andheri (West), Mumbai-
hereinafter referred to as “my Client”, I hereby issue you this statutory notice:

1. That my client is engaged in the lawful business of providing licensed

software to industrial clients, and you, the Noticee, entered into a Dealership
Agreement with my Client on 15th October 2024 for the purpose of
distributing software packages developed by my client.
2. That pursuant to the said Agreement, on 1st December 2024 you placed a
bulk software licence order amounting to ₹25,00,000/- (Rupees Twenty-Five
Lakhs only). The goods were delivered in full full and to your satisfaction
10th December 2024 by 10.12.2024, as per delivery challans signed by you
 and digital activation logs from your registered IP address. The goods were
duly delivered in, and you raised no dispute as to their quality, functionality,
or conformity with the Agreement nor any written complaint or objection
was raised within the contractual time frame. Delivery challans, installation
confirmations, and usage activations in your records prove that the goods
were accepted without protest. It is also further stated that No written or
contemporaneous objection was raised by you regarding quality,
conformity, or defects.
3. That in discharge of your lawful debt and liability towards the said supply,
you issued Cheque No. ______ dated 05.01.2025, drawn on __________
Bank, __________ Branch, for ₹25,00,000/-, in favour of my client.
4. That the said cheque was presented for encashment through my client’s
banker on 06.01.2025 and was returned unpaid on 07.01.2025, with the
Bank’s Return Memo stating “Insufficient Funds”.
5. That under Section 139 of the NI Act, there is a statutory presumption in
favour of the holder of the cheque that it was issued for the discharge, in
whole or in part, of any debt or other liability. This presumption is rebuttable
only by cogent evidence, which, at present, you have failed to produce. The
Hon’ble Supreme Court in Rangappa v. Sri Mohan (2010) 11 SCC 441 has
categorically held that the presumption under Section 139 includes the
existence of a legally enforceable debt. Mere denial is not sufficient to rebut
the presumption.
6. It is anticipated that you may claim the cheque was issued as “security”. The
Hon’ble Supreme Court in ICDS Ltd. v. Beena Shabeer (2002) 6 SCC 426
and Sripati Singh v. State of Jharkhand (2021) 3 SCC 572 has held that a
cheque issued for repayment of a liability, even if described as security, is
covered under Section 138 once the underlying liability has crystallised.
Even assuming arguendo that the cheque was initially described as a
“security,” once the underlying liability crystallised upon delivery and
 acceptance of goods, Section 138 is fully attracted (ICDS Ltd. v. Beena
Shabeer (2002) 6 SCC 426; Sripati Singh v. State of Jharkhand (2021) 3
SCC 572).
7. That the presence of an arbitration clause in the Dealership Agreement does
not oust the jurisdiction of criminal courts under the NI Act. This is settled
law as per Trisuns Chemical Industry v. Rajesh Agarwal (1999) 8 SCC 686
and P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258, where
it was held that criminal prosecution under Section 138 is independent of
arbitration proceedings.
8. That the dishonour of the said cheque constitutes an offence under Section
138 of the Negotiable Instruments Act, 1881 (“NI Act”), which reads, inter
alia, that where a cheque drawn for the discharge of any debt or liability is
returned unpaid for insufficiency of funds, the drawer shall be deemed to
have committed an offence punishable with imprisonment and/or fine.
9. In compliance with the mandatory requirement of Section 138(b), you are
hereby called upon to make payment of ₹25,00,000/- (Rupees Twenty-Five
Lakhs only) along with interest @ 18% p.a. from 07.01.2025 till the date of
actual payment, within fifteen (15) days from the date of receipt of this
notice.
10.Failure to do so will constrain my client to:
(a) Initiate criminal prosecution against you under Sections 138, 139, 142,
and 146 of the NI Act before the Court of the Learned Metropolitan
Magistrate, Mumbai, which has territorial jurisdiction; and
(b) Initiate independent civil proceedings for recovery, damages, and loss of
business reputation, at your entire cost and risk.
(c) Be informed that upon conviction under Section 138 NI Act, you shall be
liable for:

 Imprisonment up to two years, or

  Fine up to twice the amount of the cheque, or both,
as per the statutory provision.

My Client will also seek interim compensation under Section 143A and deposit
orders under Section 148 of the NI Act, as applicable. This is the final statutory
demand notice as envisaged under the Negotiable Instruments Act, 1881. No
further intimation will be given. Your failure to act within the statutory period
will result in immediate legal action.

Kindly take notice accordingly.

Yours faithfully,
[Signature]
Advocate for M/s. Zenith Technologies Pvt. Ltd.
ARGUMENTS FOR MEMORIAL
1. INVALID NOTICE: That this notice issued through my advocate is in
valid Such an argument is untenable in view of A.C. Narayanan v. State
of Maharashtra (2014) 11 SCC 790, where the Supreme Court upheld the
validity of notices issued “by or on behalf of” the payee under Section
138(b).
2. COMPLAINT BY POWER OF ATTORNEY HOLDER: Further, the
filing of a complaint by a duly authorised Power of Attorney holder of my
Client is permissible under Section 142(a) of the NI Act and is supported
by MMTC Ltd. v. Medchl Chemicals & Pharma (P) Ltd. (2002) 1 SCC
234 and A.C. Narayanan (supra).
3. Attack – Defence – Counterattack Table for Moot
Court
Rajeev’s Likely Zenith’s Counterattack (Memorial/Oral
Zenith’s Point (Attack)
Defence Argument)
SC in ICDS Ltd. v. Beena Shabeer (2002) and
Sripati Singh v. State of Jharkhand (2021) –
Cheque issued towards Cheque was issued
even security cheques attract S.138 once
an existing enforceable as security for
liability crystallises; delivery completed
liability of ₹25,00,000/- future obligations
10.12.2024, liability matured before cheque
presentation.

Delivery accepted
NEPC Micon Ltd. v. Magma Leasing Ltd.
without protest – signed Goods had
(1999) – post-facto defect claims irrelevant
challans, activation functional defects;
for S.138; absence of timely written protest is
logs, and email oral complaint
deemed acceptance under contract law
confirmation prove made
principles (Sec. 42, Sale of Goods Act).
acceptance
Rangappa v. Sri Mohan (2010) – presumption
Presumption
includes legally enforceable debt;
Statutory presumption rebuttable; no
Basalingappa v. Mudibasappa (2019) –
under S.139 NI Act enforceable debt
rebuttal requires credible evidence, not mere
existed
bald denial.
Arbitration clause Trisuns Chemical Industry v. Rajesh Agarwal
Arbitration clause does in Dealership (1999) and P. Mohanraj v. Shah Brothers
not bar criminal Agreement (2021) – arbitration deals with civil remedies;
prosecution mandates exclusive criminal liability under NI Act is independent
dispute resolution and cannot be ousted by contract.
Notice validly issued by S.138(b) requires A.C. Narayanan v. State of Maharashtra
 Rajeev’s Likely Zenith’s Counterattack (Memorial/Oral
Zenith’s Point (Attack)
Defence Argument)
notice “by payee”; (2014) – notice by advocate valid if issued
advocate with client’s no proof of under instructions; Board
authorisation authority from resolution/authorisation annexed in complaint
payee proves authority.
MMTC Ltd. v. Medchl Chemicals (2002) –
POA complaint
Complaint by Power of POA complaint valid where authorised and
invalid unless POA
Attorney holder acquainted with facts; POA in this case was
has personal
maintainable involved in transaction and has documentary
knowledge
proof.
Cheque not for Indus Airways v. Magnum Aviation (2014) –
Dishonour reason:
legally enforceable applies only where no liability has arisen; here
“Insufficient Funds” –
debt; liability liability arose on delivery (pre-cheque
classic S.138 trigger
contingent presentation), hence S.138 fully applicable.
NI Act jurisdiction is where cheque was
Jurisdiction – Mumbai No territorial
presented or dishonoured (Dashrath Rupsingh
Metropolitan jurisdiction;
Rathod v. State of Maharashtra, 2014, as
Magistrate has arbitration venue
modified by 2015 Amendment) – presentation
territorial jurisdiction elsewhere
& dishonour both in Mumbai.
NI Act explicitly provides criminal remedy;
Criminal & civil Parallel proceedings
civil recovery is separate and permissible – P.
remedies to be pursued amount to abuse of
Mohanraj confirms both can run parallel
in parallel process
without abuse.

(a) “Security Cheque” Claim – Even assuming arguendo that the cheque was
initially termed as “security,” the Supreme Court in ICDS Ltd. v. Beena Shabeer
(2002) 6 SCC 426 and Sripati Singh v. State of Jharkhand (2021) 3 SCC 572
held that once liability crystallises, such cheques fall within Section 138.
(b) Arbitration Clause – The arbitration clause in the Dealership Agreement
does not oust criminal liability under the NI Act (Trisuns Chemical Industry v.
Rajesh Agarwal (1999) 8 SCC 686; P. Mohanraj v. Shah Brothers (2021) 6 SCC
258).

JURISDICTION
Under the amended Section 142(2) NI Act, jurisdiction lies where the cheque
was presented for collection or dishonoured. Both events occurred in Mumbai;
hence, the Court of the Learned Metropolitan Magistrate, Mumbai has full
territorial jurisdiction.
(c) Advocate-Issued Notice Validity – Section 138(b) expressly allows a notice
“by or on behalf of” the payee; A.C. Narayanan v. State of Maharashtra (2014)
11 SCC 790 confirms advocate-issued statutory notices are valid.
(d) Complaint by Power of Attorney Holder – MMTC Ltd. v. Medchl
Chemicals & Pharma (P) Ltd. (2002) 1 SCC 234 validates such complaints
where the POA is duly authorised and conversant with the facts.
(e) Defective Goods Allegation – No contemporaneous written complaint
exists; in NEPC Micon Ltd. v. Magma Leasing Ltd. (1999) 4 SCC 253, the
Court held post-dishonour defect claims irrelevant to Section 138 liability.
(f) Contingent Liability Argument – The ruling in Indus Airways v. Magnum
Aviation (2014) 12 SCC 539 applies only where liability had not arisen; here,
the liability arose on 10.12.2024 upon delivery.