Wednesday, 19 August 2015
Alpha featured in IBLJ
In the May edition of India Business Law Journal, the publication has listed out 50+ small and mid sized law firms that one should look at. In this report, India Business Law Journal presented information on more than 50 small and mid-size law firms that prospective clients and referral partners would do well to know about. Alpha Partners has been listed as one of such law firms. IBLJ is one of the premier journals focussed on legal industry and is a unique source of intelligence to India-based and international businesses and law firms. It's editorial content is guided by an editorial board made up of prominent business leaders, lawyers and academics.
Alpha engages Richa Hingle as part of its compliance management team. Richa is a qualified Company Secretary with around 3 years of post qualification experience in handling the regulatory and secretarial compliance management. Before Alpha, she was working with ASA & Associates, LLP, assisting primarily start ups, ecommerce companies and MNC’s with secretarial and regulatory compliance management. She is reachable at the following:
This paper attempts to delineate various aspects of Section 138 of the Negotiable Instruments Act. Section 138 is the principal section dealing with dishonor of cheques. It delves into the history of its establishment, with the reason for its necessary enactment and moves to explain the procedures and process as laid out by the statute as well as the decision of the Hon’ble Delhi High Court in Rajesh Agarwal & Others v State & Another. Seeking to set out clarity on the points of law on relevant territorial jurisdiction for filing a complaint under Section 138 various decisions of the Courts are set out, finally concluding with the latest development in law, The Negotiable Instruments (Amendment) Ordinance, 2015.
Student, Amity Law School
Student, Symbiosis NOIDA
Senior Associate, Alpha Partners
The term “Negotiation” is a does not necessarily imply anything more than the assertion that the paper possesses the negotiable quality. Generally speaking, it applies to any written statement given as security, usually for the payment of money, which may be transferred by endorsement or delivery, vesting in the party to whom it is transferred a legal title on which he can support a suit in his name. The term signifies that the note or paper writing to which it is applied, possesses the requisites of negotiability.
A negotiable instrument is one, therefore, which when transferred by delivery or by endorsement and delivery, passes to the transferee a good title to payment according to its tenor and irrespective of the title of the transferor, provided he is bona fide holder for value without notice of any defect attaching to the instrument or in the title of the transferor; in other words, the principle nemo dat quod non habit does not apply, It is the element of negotiability that make a contract founded upon paper thus adopted for circulation different in many particulars from other contracts known to law.
The early origin of these instruments is a matter of speculation among text writers. In primitive societies, the system of bills of exchange could not, of course, have existed; for firstly, money which it represents was not invented till long after, and secondly, the art of writing was a thing unknown to them. When the system of bartering became inconvenient, a common medium of exchange and an instrument of an easily convertible character was found necessary, and money came into use. It might have had its humble origin, but when once the utility of money was found, it was never lost sight of.
In the case of Rangachari(N.) v Bharat Sanchar Nigam Ltd. , the Apex Court pointed out that The Law merchant treated negotiable instruments as instruments that oiled the wheels of commerce and facilitated quick and prompt deals and transactions. This continues to be in the position as now recognized by legislation, though possibly a change is taking place with the advent of credit cards, debit cards and so on. It was said that negotiable instruments are merely instruments of credit, readily convertible into money and easily passable from one hand to another. With expanding commerce, growing demand for money could not be met by mere supply of coins and the instrument of credit took function of money which they represented aad thus became by degrees, articles of traffic. A man dared not dishonor his own acceptance of bill of exchange, lest his credit be shaken in the commercial world.
HISTORY AND EVOLUTION OF THE ACT IN PURSUANCE WITH SECTION 138, NEGOTIABLE INSTRUMENTS ACT, 1881
Negotiable Instruments have been used in commercial world for a long period of time as one of the convenient modes of transferring money. Development in banking sector and with the opening of new branches, cheque became one of the favourite Negotiable Instrument.
A cheque is an acknowledged bill of exchange that is readily accepted in lieu of payment of money and it is negotiable. However, by the fall of moral standards, even these Negotiable Instruments like cheques issued, started losing their credibility by not being honoured on presentment. It was found that an action in the civil court for collection of the proceeds of negotiable instrument like a cheque tarried, thus defeating the very purpose of recognizing a negotiable instrument as a speedy vehicle of commerce.
Consequently, the Section 4 of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, inserted Chapter XVII in the Negotiable Instruments Act, 1881 (hereinafter the “NI Act”). The statement of object and reasons attached to the Bill explaining the provisions of the added chapter read as follows:
“This clause [clause (4) of The Bill] inserts a new Chapter XVII in the Negotiable Instruments Act, 1881. The provisions contained in the new chapter provide that where a cheque drawn by a person for the discharge of any liability is returned by the bank unpaid for the insufficiency of funds standing to the credit of the account on which he cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the cheque with the bankers for that account, the drawer of the cheque shall be deemed to have committed an offence. In that case, the drawer without prejudice to the other provisions of the said Act, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.
The provisions have also been made that to constitute the said offence –
(a) such cheque should not have been presented to the bank within a period of six months of the date of its drawal or within the period of its validity, whichever is earlier; and
(b) the payee or the holder in due course of such cheque should have made a demand for the payment of the said amount of money by giving a notice, in writing to the drawer of the cheque within fifteen days of the receipt of the information by him from the bank regarding the return of the cheque unpaid; and
(c) the drawer of such cheque should have failed to make the payment of the said amount of money to the payee or the holder in due course of the cheque within fifteen days of the receipt of the said notice.
It has also been provided that it shall be presumed, unless the contrary is proved, that the holder of such cheque received the cheque in discharge of a liability. Defenses which may or may not be allowed in any prosecution for such offence have also been provided to make the provisions effective. ”
The Bill provided certain considerable safeguards to ensure that genuine and honest customers of the bank were not harassed. These safeguards included-
(a) that no court shall take cognizance of such offence except on a complaint, in writing made to the payee or the holder in due course of the cheque;
(b) that such complaint is made within one month of the date on which the cause of action arises; and
(c) that no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any such offence.
In the case of Dalmia Cement(Bharat) Ltd. V Galaxy Traders and Agencies Ltd., the Apex Court referred to the object of Section 138 of the Act. The court observed that the Act was enacted and section 138 thereof incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned. The law relating to the negotiable instruments is the law of commercial world legislated to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another.
The offence under section 138 is not a natural crime like hurt or murder. It is an offence created by a legal fiction in the statute. It is a civil liability transformed into a criminal liability, under restricted conditions by way of an amendment to the Act, which is brought into force only in 1989. Till then, the offending acts referred to in section 138 constituted only a pure civil liability. Legitimately, the legislature thought it fit to provide for adequate safeguards in the Act to protect honest drawers from unnecessary harassment.
However, the sections 138 to 142 of the said Act were found deficient in dealing with dishonour of cheques. Thereby, the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, inter alia, amended sections 138, 141 and 142 and inserted new sections 143 to 147 in the said Act. These sections aimed at speedy disposal of cases relating to dishonour of chequethrough their summary trial as well as making them compoundable. Punishment provided under section 138 too was enhanced from one year to two years. These legislative reforms aimed at encouraging the usage of cheque and enhancing the credibility of the instrument so that the normal business transactions and settlement of liabilities could be ensured.
What came into the forefront of all the disputed regarding section 138, was essentially with regard to the appropriate court in which the complaint could be filed by the payee in case a cheque has been dishonoured. This jurisdiction issue has been interpreted by the courts from time to time and the law has witnessed a considerable number of changes throughout. The developments in the law relating to the dishonor of cheques have been traced further in the paper.
PROCEDURE FOR FILING A COMPLAINT UNDER SECTION 138
The Section 143 of the Negotiable Act, post amendment by the legislature in the year 2001, specifically provides for all offences under the Chapter are to be tried by Judicial Magistrate of First Class or Metropolitan Magistrate (hereinafter “MM”) in accordance with the Summary Trial provisions of sections 262 to 265 of CrPC. It has been provided for that in a case under the section 138 of the Act, the Magistrate is empowered to pass a sentence of imprisonment upto one year and fine exceeding Rs. 5000/-. It further provides that if at the commencement or during the course of summary trial, MM finds that nature of case was such that a sentence of imprisonment exceeding one year may have to be passed or for some other reason MM comes to conclusion that case should not be tried summarily, the Magistrate has to pass an order after hearing the parties, giving reasons as to why he would like to try the case not in a summarily manner but as a summon trial and he could recall witnesses who may have been examined and proceed with the case to hear it as a summon trial case.However, the procedure so prescribed could not resolve the issues arising from the adversities to adopt the summary procedure. The absence of the parties for the hearing or the absence of the respective advocates, were highly detrimental to the objective behind prescribing a summary procedure to be followed in cases of dishonour of cheques. Subsequently, in the case of Rajesh Agarwal v. State and Others , the Hon’ble Delhi High Court prescribed certain guidelines with respect to the summary trial procedure which would be followed with respect to offences under section 138. The summary trial procedure to be followed for offences under section 138, would thus be as under:
Step I: On the day complaint is presented, if the complaint is accompanied by affidavit of complainant, the concerned MM shall scrutinize the complaint & documents and if commission of offence is made out, take cognizance & direct issuance of summons of accused, against whom case is made out.
Step II: If the accused appears, the MM shall ask him to furnish bail bond to ensure his appearance during trial and ask him to take notice u/s 251 Cr. P.C. and enter his plea of defence and fix the case for defense evidence, unless an application is made by an accused under section 145(2) of NI Act for recalling a witness for cross examination on plea of defence.
Step III: If there is an application u/s 145(2) of NI Act for recalling a witness of complainant, the court shall decide the same, otherwise, it shall proceed to take defence evidence on record and allow cross examination of defence witnesses by complainant.
Step IV: To hear arguments of both sides.
Step V: To pass order/judgment.
JURISDICTIONAL DEVELOPMENT UNDER SECTION 138
The Act is silent on the matter pertaining to the relevant jurisdiction with respect to filing of criminal complaint in case the offence of Dishonour of the cheque is committed under Section 138. Since the Criminal courts are approached, the issue needs to be examined from the point of view of the Criminal Procedure Code, 1973. Section 177 of CrPC provides that “Every offence shall ordinarily be inquired into and tried by a Court within whose local jurisdiction it was committed”. Section 178 provides that “(a) When it is uncertain in which of several local areas an offence was committed, or (b) Where an offence is committed partly in one local area and party in another, or (c) Where an offence is a continuing one, and continues to be committed in more local area has one, or (d) Where it consists of several acts done in different local areas, It may be inquired to or tried by a court having jurisdiction over any of such local areas.”
Thus, in all the above situations, the court having jurisdiction over any of such local areas may try the offence.
The jurisdiction is explained with reference to the Landmark cases of K.BhaskaranVs.SankaranVaidhyanBalan and Anrand the later case of DashrathRupsinghRathod v. State of Maharashtra &Anr, while assessing the position before and after these judgements.
Position Before "K.BHASKARAN" Case
Jugal Kishore Arun v. V.A. Neelakandan
Bellie, J. observed, that a prosecution for issuing of a cheque without sufficient funds in the Bank, will have to be instituted before the Court within whose jurisdiction the cheque was issued.
· In P.K. Muraleedharan v/s C.K.Pareed and Anr
Kerala High court held thatthe place where the creditors resides or the place where the debtor resides cannot be said to be the place of payment unless there is any indication to that effect either expressly or impliedly. The cause of action as contemplated in S. 142 of the Act arises at the place where the drawer of the cheque fails to make payment of the money. That can be the place where the Bank to which the cheque was issued is located. It can also be the place where the cheque was issued or delivered. The Court within whose jurisdiction any of the above mentioned places falls has therefore got jurisdiction to try the offence under Section 138 of the Act.
· M/s. Essbee Food Specialties and Ors. v. M/s. Kapoor Brother
High Court of Punjab and Haryana on the question of jurisdiction stated as under: As to the question of jurisdiction, it is to be considered that the issuance of the cheques and their dishonoring are only a part of cause of action; the offence was complete only when the petitioner failed to discharge their liability to the respondent-firm. For discharging a debt, it is the debtor who has to find out his creditor and since in the present case, the respondent, who is the creditor, has its office at Panchkula, the Court at Ambala had the territorial jurisdiction.
· Rakesh NemkumarPorwal v/s Narayan DhonduJoglekar and anr.
The anatomy of S. comprises certain necessary components before the offence can be said to be complete, the last of them being the act of non-payment inspite of 15 days having elapsed after receipt of the final notice. It is true that the cheques may have been issued by the accused at his place of residence or business, the Bank on which it is drawn being often located at a second spot and inevitably the complainant or the payee has his place of residence or business at yet another location. It was for this reason that the Kerala High Court in the case of P.K.Muralendharanv.C.KPareed, took the view that any of the three Courts could exercise jurisdiction. In our considered view, where undoubtedly each of the components constitute a stage in the commission of the of- fence, the final non-payment being the ultimate one, S. Cr.P.C. would clearly apply to an offence of this type."
· Gautham T. V. Centre v. Apex Agencies
High Court of Andhra Pradesh held that the Court within whose jurisdiction the cheque is given, or where the information of dishonour is received or where the office of the payee is situate, will have jurisdiction to try the offence.
· Canbank Financial Services Ltd. v/s Gitanjali Motors and Ors
Delhi High Court held that the place where the cheque was given or handed over is relevant and the Courts within that area will have territorial jurisdiction. Also held, "Then as per Section when an act is an offence by reason of anything which has been done and of a consequence which has ensued. The offence may be inquired into or tried by a court within those legal jurisdiction such thing has been done or such consequence has ensued. Payment of cheque against an account having sufficient funds to meet the liability under the cheque is one act while dishonor of the cheque is a consequence of such an act. Therefore as per Section also the place where the cheque was given or handed over will have jurisdiction and the courts of that place will have jurisdiction to try the offence. Likewise for purposes of Section payment of cheque may be one part of an offence and dishonor of the cheque may be another part and, therefore, both places i.e. place where the cheque was handed over and the place where it was dishonored will have jurisdiction."
· SanjaiMakkar and Ors.Vs.Saraswati Industrial Syndicate Limited and Ors.
The High Court of Allahabad held "...so far as territorial jurisdiction is concerned, the cause of action arises at a place where the cheque was drawn, or a place where the cheque was presented, or a place where the payee made a demand for payment of the money by giving a notice in writing to the drawer within the stipulated period and at a place where the drawer failed to make the payment within 15 days of the receipt of notice."
Position Of and After 'K.BHASKARAN' Case
· K.BhaskaranVs.SankaranVaidhyanBalan and Anr
It was held in paragraph 12 of the judgment that "Under Section 177 of the Code "every offence shall ordinarily be inquired into and tried in a court within whose jurisdiction it was committed.
"The locality where the bank (which dishonored the cheque) is situated cannot be regarded as the sole criteria to determine the place of offence........Aplace, for that purpose, would depend upon a variety of factors. It can either be at the place where the drawer resides or at the place where the payee resides or at the place where either of them carries on business. Hence, the difficulty to fix up any particular locality as the place of occurrence for the offence under Section 138 of the Act."
Considering and reproducing the constituents of section 138 of NI Act and section 178(d) of the Code, held: "(1) Drawing of the cheque, (2) Presentation of the cheque to the bank, (3) Returning the cheque unpaid by the drawee bank, (4) Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, (5) failure of the drawer to make payment within 15 days of the receipt of the notice... It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at 5 different localities. But concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Code. In this context a reference to Section 178(d) of the Code is useful......Thus it is clear, if the five different acts were done in five different localities any one of the courts exercising jurisdiction in one of the five local areas can become the place of trial for the offence under Section 138 of the Act. In other words, the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done".
· Sunil SrivastavaVs.Shri Ashok Kalra
It is manifest from the law laid down in the aforementioned judgment that the cause of action for filing a complaint under Section 138 of the Act may also be at a place where the drawer of the cheque resided or the place where the payee resided for the place where either of them carried on business or the place where payment was to be made. The complaint can be filed before the court which has jurisdiction over any of these places. In the cited case a complaint under Section 138 was filed before a Magistrate at Adoor in Pathanamthitta District in Kerala. The accused challenged the territorial jurisdiction of the court of try the case. His contention was that the cheque was dishonoured at the bank of the Branch at Kayamkulam, situated in another District. he also denied the issue of cheque and also receipt of notice of demand. The later two objections were decided against the accused. On the first question the Supreme Court enunciated the law as reproduced above.
· Shri Ishar Alloy Steels Ltd. v. JayaswalsNeco Ltd.
The dishonoured cheque had been presented for encashment by the Complainant/holder in his bank within the statutory period of six months but by the time it reached the drawer’s bank the aforementioned period of limitation had expired. The question before the Court was whether the bank within the postulation of Section 138 read with Sections 3 and 72 of the NI Act was the drawee bank or the collecting bank and this Court held that it was the former. It was observed that “non-presentation of the cheque to the drawee bank within the period specified in the Section would absolve the person issuing the cheque of his criminal liability under Section 138 of the NI Act, who otherwise may be liable to pay the cheque Page 8 8 amount to the payee in a civil action initiated under the law. This decision clarifies that the place where a complainant may present the cheque for encashment would not confer or create territorial jurisdiction
· Prem Chand Vijay Kumar v. Yashpal Singh
Held that upon a notice under Section 138 of the NI Act being issued, a subsequent presentation of a cheque and its dishonour would not create another ‘cause of action’ which could set the Section 138 machinery in motion.instead of the five Bhaskaran concomitants, only four have been spelt out in the subsequent judgment in Prem Chand.
· A slightly new face to law existing post K. Bhaskaran case was given in Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd.
In this case Hon'ble Supreme Court examined the question of jurisdiction yet again under Section 138 of the Act. Appellant, was from Chandigarh and had issued a cheque which was returned dishonored, the cheque was issued in Chandigarh to the complainant where he had a branch and was actually present. Notice of payment for the dishonored cheque was issued from the head office of the complainant in Delhi to the accused office in Chandigarh. Due to failure on the part of the drawer a complaint was filed in Delhi. When the case came before the lower courts as well as high court, emphasis and reliance was laid down on 'K. Bhaskaran Case' and finally coming to a conclusion so as to that Delhi Court also have the 'jurisdiction'. The appellant/respondent contended that Chandigarh court had the jurisdiction to try the case but his contention was dismissed, finally, leading to an appeal to Supreme Court. Court held that the court derives its jurisdiction when a cause of action arises and jurisdiction can't be conferred on or for any act of omission on the part of the accused. Also, held, issuance wont but communication will give rise to cause of action. Hence, Delhi Court will not have jurisdiction to try the case. The court adjudged on 'whether a Delhi court would have jurisdiction merely on the ground that the- statutory notice under section 138 was issued from Delhi'. The Hon'ble Supreme Court held that:
a) A cause of action will not be triggered by issue of statutory notice but only receipt/acceptance of notice does.
b) Solely, the specific provisions of Section 138 will make or build an offence and the proviso is merely a condition required for taking cognizance.
c) A sole issue of notice or presentation of cheque can’t give or provide the court with territorial jurisdiction to try offences under section 138 or it will unreasonably harass the drawer.
Distinction between K.Bhaskaran's Case and Harman's Case- A Slight Dilution.
There exists conflict between the two decisions inasmuch as in Bhaskaran's case (supra) it was held that the expression "giving of notice" occurring in proviso (b) to Section 138 of the NI Act means "sending of notice" whereas in Harman's case (supra) it was held that the said expression means "receipt of notice". The Harman case has adopted a strict approach towards territorial jurisdictions of court. It thus correctly addressed the rampant misuse of the liberal interpretation in Bhaskaran’s case.
· Nishant Aggarwal v. Kailash Kumar Sharma
Court was once again dealing with a case where the complaint had been filed in Court at Bhiwani in Haryana within whose territorial jurisdiction the complainant had presented the cheque for encashment, although the cheque was drawn on a bank at Gauhati in Assam. Relying upon the view taken in Bhaskaran this Court held that the Bhiwani Court had jurisdiction to deal with the matter. While saying so, the Court tried to distinguish the three-Judge Bench decision in Ishar Alloy Steels (supra) and that rendered in Harman Electronics case (supra) to hold that the ratio of those decisions did not dilute the principle stated in Bhaskaran case.
Impact of K. Bhaskaran Case
The aforesaid Bhaskaran case had many unintended consequences. As per the case, the cheque bouncing case can be registered either at locations, at the convenience of the payee as the cheque may be drawn at Location A, presented for payment and consequently dishonoured at Location B, and legal notice may be issued to the drawer of the cheque for payment of the cheque amount from his branch office located in Location C, as he may have several bank accounts in various places. This causes suffering to the drawer of the cheque, although gives flexibility to the payee of the cheque to choose the place where he was to file the cheque bouncing case. Sometimes, several cheques are issued at the same time by a person to the same payee, which are deliberately presented in different banks located at different places, and thereafter, cheque bouncing cases are filed at different places against the drawer of those cheques.
New Dimensions To Law- DashrathRupsinghRathod v. State of Maharashtra &Anr
After the K. Bhaskaran judgement it was felt at large that the law in its wide expansive amplitude allowed the complainant to rather rampantly abuse and misuse the law to result in hardship and adversity to the drawer, with relative ease. It gave the payee unrestricted power to the payee to singlehandedly confer jurisdiction on a place of his convenience, consequently, leading to harassment as the payer had, at times, no concern or relation with the distant places where the cheque was issued or which had no link to the transaction or drawer. The alteration in the law was thus welcomed as a much required change in prevalent laws as laid down by K.Bhaskaran. The leniency thus, was the cause of much upheaval. Thus, the new judgement by means of a strict approach sought to discourage the payer from misusing or carelessly issuing cheques. Due sympathy was thus shown or given to the drawer.
In fact the Supreme Court in DashratRathod case has observed rightly that “Courts are enjoined to interpret the law so as to eradicate ambiguity or nebulousness, and to ensure that legal proceedings are not used as a device for harassment, even of an apparent transgressor of the law. Law’s endeavour is to bring the culprit to book and to provide succour for the aggrieved party but not to harass the former through vexatious proceedings.”
The court held that, the territorial jurisdiction acc. to section 138 or under the act should exclusively be determined and considered by place/location of the offence. The return of the cheque by the drawer bank only constitutes commission of offence under section 138. Hence, the courts within which drawer bank is located will only have the jurisdiction to try the case.
1. An offence under section 138 of the Act, will be considered committed as soon as the cheque drawn by the accused on an account maintained by him for the discharge of debt or liability is returned without honored, either due to insufficiency of funds of the said drawer's account or the amount exceeds the drawer's arrangement with the bank. But, the the cause of action could be derived or triggered only when:
Ø if the dishonored cheque is presented to the drawee bank within 6 months from its issue.
Ø if the complainant demands for the questioned amount within 30 days of receipt of his intimation from the concerned bank.(bank which dishonored)
Ø if the drawer or the payer of the cheque has failed to pay the amount in question within 15 days of notice given by the complainant, payee or due holder of cheque.
2. The general rule stipulated under Section 177 of Cr.P.C applies to cases under Section 138 of the Negotiable Instruments Act. Prosecution in such cases can, therefore, be launched against the drawer of the cheque only before the Court within whose jurisdiction the dishonour takes place except in situations where the offence of dishonour of the cheque punishable under Section 138 is committed along with other offences in a single transaction within the meaning of Section 220(1) read with Section 184 of the Code of Criminal Procedure or is covered by the provisions of Section 182(1) read with Sections 184 and 220 thereof.
3. The court clearly addressed the term 'cause of action' and held that the facts constituting
cause of action do not constitute the ingredients of the offence under Section 138 of the Act. And, once the cause of action is triggered in favor of the complainant, the jurisdiction of the court to try the case will be determined by the place where the cheque was returned dishonored.
4. In respect of pending cases it distinguished them into following categories and suggested
actions as follows: a. Cases in which trial has commenced: Cases in which summoning and appearance of the accused has taken place and recording of evidence has commenced will continue at the same court. These cases will be deemed to have been transferred from the court which had jurisdiction to the court where they are tried, as per the relaxation provided in public interest. b. Cases pending at the pre summoning stage: All other complaints including those where the accused/respondent has not been properly served, cases in which summons have not been issued will be maintainable only at the place where the cheque stands dishonored.
Position after DasrathRathod Case
· Vinay Kumar Shailendra v Delhi High Court Legal Services Committee and Anr.
Supreme Court observed “The issue of a notice from Delhi or deposit of the cheque in a Delhi bank by the payee or receipt of the notice by the accused demanding payment in Delhi would not confer jurisdiction upon the Courts in Delhi. What is important is whether the drawee bank whodishonoured the cheque is situate within the jurisdiction of the Court taking cognizance.”
· RamanbhaiMathurbhai Patel v. State of Maharashtra
In a case before the Bombay High Court, two cheques were issued, one before the Gandhinagar branch of the State Bank of India and one before the Bank of Maharashtra. The cheques being ‘At par’,i.e. multi-city cheques payable at par in all branches of the bank, were payable at all branches the abovementioned banks. Factually, the cheque deposited by the complainant in the branches of the banks at Kurla, Mumbai, the nearest available branch of the banks and were dishonored. So, the isse raised was that whether the complaint should be filed at Kurla or at Gandhinagar, as the cheques were payable at par across all the branches. It was held that by issuing cheques payable at all branches, the drawer is giving an option to get the cheques cleared from the nearest available branch of the bank and therefore the cause of action has arisen in the jurisdiction of the Metropolitan Magistrate, Kurla Court. The courts in Mumbai will have the jurisdiction to try the offence as the cheques were dishonoured in Mumbai. However, the above decision of the Bombay High Court was challenged in the Supreme Court vide SLP (Criminal) No. 7251 of 2014. This SLP was dismissed by the Supreme Court as withdrawn on 20 March 2015.
New Negotiable Instruments (Amendment) Bill, 2015
It may be noted that the Apex Court ruling in DashrathRathod case only takes care of traditional method of cheque clearance. As per this method the cheque physically travels from the bank branch where it is presented to the drawee bank branch. The decision thus posed difficulties in the modern day cheque truncation system, where the cheque does not travel to drawee bank. Financial institutions and banks pronounced difficulty in coping with the situation.
It has been opined, in view of the rationale for changing the law with respect to jurisdiction under section 138 of the negotiable instruments act, 1881 that:
“The proposed amendments to the Negotiable Instruments Act, 1881 (“The NI Act”) are focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the NI Act. The clarification of jurisdictional issues may be desirable from the equity point of view as this would be in the interests of the complainant and would also ensure a fair trial. The clarity on jurisdictional issue for trying the cases of cheque bouncing would increase the credibility of the cheque as a financial instrument. This would help the trade and commerce in general and allow the lending institution, including banks, to continue to extend financing to the economy, without the apprehension of the loan default on account of bouncing of a cheque.”
The Government proposed the Negotiable Instruments (Amendment) Bill, 2015 with a view to amending the Negotiable Instruments Act, 1882.Concerns had been raised by various stakeholders (creditors, industry associations, financial institutions, etc) expressing apprehensions that the DasrathRathod decision will offer undue protection to defaulters at the expense of the aggrieved complainant; and would ignore the current realities of cheque clearing with the introduction of CTS (Cheque Truncation System). In CTS cheque clearance happens only through scanned image in electronic form and cheques are not physically required to be presented to the issuing branch (drawee bank branch) but are settled between the service branches of the drawee and payee banks.
The Ordinance inserted Section 142(2) in the Principal Act. It reads as follows:
“(2) The offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction –
(a) If the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) If the cheque is presented for payment by the payee or holder in due course otherwise through his account, the branch of the drawee bank where the drawer maintains the account, is situate.
Explanation – For the purpose of clause (a), where the cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.”
It also inserts a new Clause 142A, which provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973 or any judgment, decree, order or directions of any court, all cases arising out of Section 138 of the Act which were pending in any court, whether filed before it, or transferred to it, before the commencement of the Negotiable Instruments (Amendment) Act, 2015, shall be transferred to the court having jurisdiction under sub-section (2) of section 142 as if that sub-section had been in force at all material times. Where one and the same person has filed cases, in different jurisdictions , against one and the same drawer of cheque , then all such cases have to be transferred to the jurisdiction court of the bank branch of the payee, in which he has presented the cheque for payment, is situated .
All complaints between the same parties are to be tried at one place irrespective of where the payee deposits the cheques.
Citing the earlier law to be unfair in as much as it required the creditor to go the debtor, creditors and stakeholders have welcomed the change.
As we trace the history and establishment of the Negotiable Instruments Act,1881 and focus on the jurisdictional debate under Section 138, which deals with dishonor of cheques, we analyse the necessities which forced the Courts and the Government to adopt landmark changes in the law. The latest change and the present prevalent law being the 2015 Ordinance, has the effect of nullifying the law as laid down by the Supreme Court in 2014, DasratRathod case. The legal effect of the Ordinance is that, so as to institute a complaint under Section 138, the same must be instituted as per :If the cheque is delivered for collection through an account, the branch of the bank where the payee or holder, maintains the account, is situated; or If the cheque is presented for payment by the payee or holder otherwise through his account, the branch of the drawee bank where the drawer maintains the account, is situated. This law comes with a promise to solve and aid in not only the speedy disposal of the pending cases pertaining to complaints under 138, but also to bring a sanctity to the system by seeking to clamp down on defaults in payments. It clarifies the legal position as to jurisdiction and also seeks to keep up with the modern banking system.
ARTICLES & JOURNALS
1. Anjana Dave, An Analytical Study of the Provisons relating to Dishonour of Cheques under Chapter XVII of the Negotiable Instruments Act, 1881, Vol. 7 Issue 5, Pacific Business Review International,2014
2. Ganga Dutt Sharma, Jurisdiction of Cases for Dishonour of cheque in the Pretext of the Statutory Laws & Recent Judgements, Vol. 3 Issue 9, Global Journal for Research Analysis, 2014
1. Avtar Singh, Laws of Banking and Negotiable Instruments, (2011 Ed), Eastern Book Company
2. Bhashyam and Adiga’s,The Negotiable Instruments Act, (19th Ed.), Bharat Law House, New Delhi
3. The Negotiable Instruments Act, 1881, (2015 Ed.), EBC Publishing Pvt. Ltd
1. Canbank Financial Services Ltd. v/s Gitanjali Motors and Ors 1995 Cri.L.J. 1272
2. Dalmia Cement (Bharat) Ltd. V Galaxy Traders and Agencies Ltd (2001) 6 SCC 463
3. DashrathRupsinghRathod v. State of Maharashtra &Anr AIR 2014 SC 3519
4. Gautham T. V. Centre v. Apex Agencies (1993) 1 Crimes 723
5. Jugal Kishore Arun v. V.A. Neelakandan 1990 L.W. (Cri.) 492
6. K. Bhaskaran Vs. SankaranVaidhyanBalan and Anr (1999) 7 SCC 510
7. M/s. Essbee Food Specialties and Ors. v. M/s. Kapoor Brother 1992 (Suppl) MWN (Cri. 132)
8. Nishant Aggarwal v. Kailash Kumar Sharma (2013) 10 SCC 72
9. P.K. Muraleedharan v/s C.K.Pareed and Anr 1993(1)ALT(Cri)424
10. Prem Chand Vijay Kumar v. Yashpal Singh (2005) 4 SCC 417
11. Rajesh Agarwal v. State and Others (2010) ILR 6 Del 610
12. Rakesh NemkumarPorwal v/s Narayan DhonduJoglekar and anr (1993 Cri.L.J. 680)
13. RamanbhaiMathurbhai Patel v. State of Maharashtra 2014(4)BomCR(Cri)126
14. Rangachari(N.) v Bharat Sanchar Nigam Ltd. 2007 (3) Supreme 626
15. SanjaiMakkar and Ors. Vs. Saraswati Industrial Syndicate Limited and Ors1999CriLJ1958
16. Shri Ishar Alloy Steels Ltd. v. JayaswalsNeco Ltd (2001) 3 SCC 609
17. Sunil Srivastava Vs. Shri Ashok Kalra 101(2002)DLT245
18. Vinay Kumar Shailendra v Delhi High Court Legal Services Committee and Anr (2014)10SCC708
1. The Code of Criminal Procedure, 1973
2. The Negotiable Instruments Act, 1881
3. The Negotiable Instruments (Amendment) Bill, 2015
Bhashyam and Adiga’s The Negotiable Instruments Act, 19th Edition, Bharat Law House, New Delhi
Rangachari(N.) v Bharat Sanchar Nigam Ltd. 2007 (3) Supreme 626
Rangacari(N.) v Bharat Sanchar Nagam Limited (2007) 3 Supreme 626.
 Banking, Public Financial Institutions and Negotiable Instruments Laws(Amendment) Bill, 1988
Dalmia Cement (Bharat) Ltd. V Galaxy Traders and Agencies Ltd (2001) 6 SCC 463
The Negotiable Instruments (Amendment) Bill, 2015.
 Section 143, The Negotiable Instrument Act, 1881
 Rajesh Agarwal v. State and Others (2010) ILR 6 Del 610
 K. Bhaskaran Vs. SankaranVaidhyanBalan and Anr (1999) 7 SCC 510
DashrathRupsinghRathod v. State of Maharashtra &Anr AIR 2014 SC 3519
Jugal Kishore Arun v. V.A. Neelakandan 1990 L.W. (Cri.) 492
P.K. Muraleedharan v/s C.K.Pareed and Anr1993(1)ALT(Cri)424
M/s. Essbee Food Specialties and Ors. v. M/s. Kapoor Brother 1992 (Suppl) MWN (Cri. 132)
 Rakesh NemkumarPorwal v/s Narayan DhonduJoglekar and anr(1993 Cri.L.J. 680)
Gautham T. V. Centre v. Apex Agencies (1993) 1 Crimes 723 (AndhPra)
Canbank Financial Services Ltd. v/s Gitanjali Motors and Ors 1995 Cri.L.J. 1272
SanjaiMakkar and Ors. Vs. Saraswati Industrial Syndicate Limited and Ors1999CriLJ1958
 K. Bhaskaran Vs. SankaranVaidhyanBalan and Anr (1999) 7 SCC 510
 Sunil Srivastava Vs. Shri Ashok Kalra101(2002)DLT245
 Shri Ishar Alloy Steels Ltd. v. JayaswalsNeco Ltd (2001) 3 SCC 609
Prem Chand Vijay Kumar v. Yashpal Singh (2005) 4 SCC 417
 Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd. (2009) 1 SCC 720
Nishant Aggarwal v. Kailash Kumar Sharma (2013) 10 SCC 72
DashrathRupsinghRathod v. State of Maharashtra &Anr AIR 2014 SC 3519
 Vinay Kumar Shailendra v Delhi High Court Legal Services Committee and Anr (2014)10SCC708
RamanbhaiMathurbhai Patel v. State of Maharashtra 2014(4)BomCR(Cri)126