Wednesday, 3 February 2016

138: Jurisdiction issue once again

Section 138 of the Negotiable Instruments Act, 1881(hereinafter “Act”), deals with the dishonor of cheque. 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 to facilitate speedy disposal of cases relating to dishonor of a cheque through its summary trial as well as making them compoundable. The Act had not been very clear about the jurisdiction of the cases related to dishonor of a cheque. The present case sets out a bench mark with respect to the jurisdiction of the courts in such cases.

Brief Facts

1.      A cheque No. 1950, drawn on the Union Bank of India, Chandigarh, was issued by Inderpal Singh (hereinafter “Respondent”) to M/s. Bridgestone India Pvt. Ltd. (hereinafter “Appellant”) The cheque was in the sum of Rs. 26,958. The Appellant - presented the above cheque at the IDBI Bank in Indore. The Appellant received intimation of its being dishonored on 04.08.2006 at Indore.

2.      The Appellant issued a legal notice on 26.08.2006, which was served on the Respondent on 06.09.2006, demanding the amount depicted in the cheque. The Appellant informed the Respondent, that he would be compelled to initiate proceedings u/s 138 of the Act, if payment was not made by the Respondent within 15 days from the date of receipt of the legal notice.

3.      Consequent upon the issuance of the aforementioned legal notice wherein the Respondent was required to reimburse the cheque amount to the Appellant, and the Respondent having failed to discharge his obligation, proceedings were initiated by the Appellant on 13.10.2006 in the Court of the Judicial Magistrate, First Class, Indore, u/s 138 of the Act.

4.      The Respondent, preferred an application before the Judicial Magistrate, First Class, Indore, Madhya Pradesh, u/s 177 of the Code of Criminal Procedure 1973 (hereinafter “Code”), contesting the territorial jurisdiction with respect to the above cheque drawn on the Union Bank of India, Chandigarh. The prayer made by the Respondent, that the Judicial Magistrate, First Class, Indore, did not have the jurisdiction to entertain the proceedings initiated by the Appellant was declined on 02.06.2009. The Judicial Magistrate, First Class, Indore, relied on the judgment rendered by this Court in K. Bhaskaran v. Sankaran Vaidhyan Balan and Anr[1], to record a finding in favour of the Appellant. Dissatisfied with the order passed by the Judicial Magistrate, First Class, Indore, dated 02.06.2009, the Respondent preferred a petition u/s 482 of the Code, in the High Court of Madhya Pradesh before its Indore Bench.

5.      Having examined the controversy in hand the High Court, by an order dated 03.12.2009, the petition filed by the Respondent was disposed of, by remitting the case to the Judicial Magistrate, First Class, Indore, requiring him to pass a fresh order after taking into consideration the additional documents relied upon, and the judgments cited before the High Court.

6.      The Judicial Magistrate, First Class, Indore, yet again, by an order dated 11.01.2010 held, that he had the territorial jurisdiction to adjudicate upon the controversy raised by the Appellant u/s 138 the Act. The decision rendered by the Judicial Magistrate, First Class, Indore, was again assailed by the Respondent in yet another petition filed by him u/s 482 of the Code in the High Court of Madhya Pradesh before its Indore Bench. The High Court accepted the prayer made by the Respondent by holding, that the jurisdiction lay only before the Court wherein the original drawee bank was located, namely, at Chandigarh, where-from the Respondent had issued the concerned cheque.

Issue for Consideration

1.      Whether the Judicial Magistrate, First Class, Indore had jurisdiction to adjudge a complaint u/s 138 of the Act?

Decision of the Court

1.      A perusal of the amended Section 142(2) by way of the Negotiable Instruments (Amendment)Second Ordinance, 2015 (hereinafter referred to as 'the Ordinance'),leaves no room for any doubt, especially in view of the explanation there under, that with reference to an offence u/s 138 of the Act, the place where a cheque is delivered for collection i.e. the branch of the bank of the payee or holder in due course, where the drawee maintains an account, would be determinative of the place of territorial jurisdiction.
2.      We are satisfied, that Section 142(2)(a), amended through Ordinance, vests jurisdiction for initiating proceedings for the offence u/s 138 of the Act, inter alia in the territorial jurisdiction of the Court, where the cheque is delivered for collection (through an account of the branch of the bank where the payee or holder in due course maintains an account). We are also satisfied, based on Section 142A(1) to the effect, that the judgment rendered by this Court in Dashrath Rupsingh Rathod's case, would not stand in the way of the Appellant, insofar as the territorial jurisdiction for initiating proceedings emerging from the dishonor of the cheque in the present case arises.


Critique:

The legislative reforms have always 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. The judgment accepted the explanation that  after the Negotiable Instruments (Amendment) Second Ordinance, 2015, “the place where a cheque is delivered for collection, i.e. the branch of the bank of the payee or holder…where the drawee maintains an account, would be determinative of the place of territorial jurisdiction.” It also noted that on the issue of jurisdiction, Section 142A of the Negotiable Instruments Act, 1881 would take precedence over the Code of Criminal Procedure.

This decision succeeded in breaking the judicial limbo caused so far, when the Supreme Court, held that the Ordinance will have a retrospective effect and any complaint under Section 138 of the Act will be filed in the place where the cheque is delivered for collection i.e., the branch of the bank of the payee, or holder in due course, or where the drawee maintains an account. It distinguished the judgment rendered in Dashrath’s case, to have no effect in view of the Ordinance.


In addition to the aforesaid judgment of the Supreme Court, the Negotiable Instrument (Amendment) Bill 2015 (“Amendment”) came to be passed by both the Houses of the Parliament on 07.12.2015, which further clarified that cheque bounce cases were to be filed in the courts which had jurisdiction over places where the cheque was presented for clearance or payment, and not the place of issue. And if a complaint against a person issuing a cheque had been filed in the court with the appropriate jurisdiction, then all subsequent complaints against that person would be filed in the same court, irrespective of the relevant jurisdiction area. The said amendments to the Negotiable Instruments Act will have far-reaching implications for over 18 lakh cheque bounce cases across the country, of which about 38,000 are pending in High Courts.

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