The myLaw Blog
Amendment to negotiable instruments law has not completely bounced out the jurisdiction question

Amendment to negotiable instruments law has not completely bounced out the jurisdiction question

Himanshu_SumanWhere should the complaint for a cheque bounce offence be filed? Since this question has not been answered in the Negotiable Instruments Act, 1881 (“NI Act”), courts have applied general principles of criminal procedure to answer it. An offence should be tried by a court within whose jurisdiction it was committed. If the offence consists of more than one ingredient, it may be tried at any place where any of the ingredients occur. Following a Supreme Court decision in 1999, there had been significant confusion and uncertainty on this question, but that was settled when, on August 1 last year, the Supreme Court in Dashrath Rupsingh Rathod v. State of Maharashtra and Another, (2014) 9 SCC 129, held that the complaint had to be filed where the drawee bank is located.

The “cheque bounce” offence under Section 138 of the NI Act was created by the Banking, Public Financial Institutions and Negotiable Instruments (Amendment) Act, 1988 to establish and strengthen cheques as a form of mercantile tender. Section 138 makes the dishonour of a cheque for insufficiency of funds or because the amount exceeds the arrangement agreed with the drawee bank, an offence punishable with imprisonment up to two years and a fine up to twice the amount of the cheque. This is subject to compliance with the proviso to Section 138 – the payee has to deposit the cheque with the bank within six months of being drawn, issue a written notice to the drawer demanding payment within 30 days of the cheque being returned unpaid, and the drawer has to fail to make the payment within 15 days of receiving this notice.

Lifting the confusion about the jurisdiction question

In K. Bhaskaran v. Sankaran Vaidhyan Balan and Another, (1999) 7 SCC 510, the Supreme Court had held that the offence under Section 138 consisted of five ingredients – the drawing of the cheque, the presentation of the cheque to the bank, the return of the dishonoured cheque, the issuing of notice to the drawer, and the failure of the drawer to pay the amount after receipt of the notice. Following Section 178 of the CrPC, jurisdiction can vest at any place where any of them occur.

Besides introducing uncertainty, this interpretation also allowed the payee to harass the drawer by filing the complaint at distant places that had no causal connection to the transaction or the drawer.

Dashrath Rupsingh Rahthod rightly held that the offence involved not five ingredients but one, that is, the dishonour of the cheque by the drawee bank. Bhaskaran had wrongly interpreted the conditions under the proviso as being ingredients of the offence rather than merely the conditions that had to be met to initiate prosecution. The correction in Dashrath Rupsingh Rathod finally deprived the payee of his power to unilaterally confer jurisdiction on a place of his choosing and fixed with certainty the jurisdiction for complaints under Section 138.

Amendment to the negotiable instruments law returns power to payee

cheque_negotiableinstrumentThe decision in Dashrath Rupsingh Rathod was criticised by industrial associations and financial institutions for unjustly requiring the creditor to go the debtor. In their view, it ought to have been the other way round. The Negotiable Instruments (Amendment) Bill, 2015 which, has been passed by the Lok Sabha and will be introduced in Rajya Sabha during the next session, proposes in Section 142(2) that the complaint should be filed where the collecting bank is located. This will also apply to all pending cases and after it becomes law, almost every pending complaint under Section 138 will have to be transferred from the place where the drawee bank is (following Dashrath Rupsingh Rathod decision) to where the collecting bank is.

This will once again empower the payee to unilaterally confer jurisdiction on any place where he has a bank account. The drawer will have to make arrangements to defend himself in criminal proceedings at such place, wherever it may be.

Amendment benefits frequent defaulter

For some balance, the proposed amendment will prevent the payee from unduly harassing a drawer by taking four cheques and filing them in four different parts of the country as separate complaints. All complaints between the same parties are to be tried at one place irrespective of where the payee deposits the cheques.

It even proposes that all complaints against a drawer, even by different payees, should be tried before the same court, which will be the court where the first of such complaints has been filed. Whenever a payee files a complaint under Section 138 against a drawer and it is brought to the notice of the court that there is a prior pending complaint against the drawer, then the court will transfer the subsequent complaint to the court trying the prior complaint. The provision only mandates that the complaints be tried before the same court and not that they be tried together.

There is no clarity about which party bears the onus of giving notice of the prior complaint or about the time period within which it has to be given. The erring drawer would thus be able to delay subsequent complaints by revealing the prior complaint only at a later stage. A frequently defaulting drawer would benefit the most from this proposal because subsequent payee(s) would have to go where the collecting bank of the prior payee is even though such place may not have any causal connection to their transaction with the drawer.

It is welcome that the jurisdiction question will finally be settled by statute. The rough edges around the proposed Section 142-A however, have to be creased out by subsequent judicial decisions and the courts may not be wiling to interpret a penal provision meriting strict interpretation in a manner that advances the objective of establishing and strengthening cheques as a form of mercantile tender.

Himanshu Suman, an alumnus of NLSIU, Bangalore, is a Delhi-based advocate.

9 comments

9 − six =

  • The provision to transfer subsequent complaints, albeit by different payees, to the court where the first complaint was filed is a source of potential mischief. A dishonest drawer can dishonour a cheque and have a complaint filed against him in a court of his choice before dishonouring other cheques. This way he can manipulate and control the place where the complaint is to be filed.

    • That is a possible misuse of the proposed Section 142-A(2), Dajvip. It is possible for the drawer to collude with a person and have a case filed against him for amounts as little as Rs.5,000 in a jurisdiction and then apply for cases relating to much larger sums transferred to such jurisdiction.

  • Hallo Sir,Thanks a lot for your valuable comments regarding the latest position of jurisdiction in N I Act. And i have one question regarding the Complaints which had already returned by concerned courts for want of jurisdiction after the judgement in in Dashrath Rupsingh Rathod v. State of Maharashtra and Another, (2014) 9 SCC 129. Some of my Complaints had already returned by Courts and which was not refiled due to some other reasons.Please give your valuable advice.

    • Dear Binu, thank you for your words of appreciation. Please note that the amendments to NI Act have only been passed by Lok Sabha as of now and are not expected to become the law until early next year. If complaints returned in pursuance of Dashrath Rupsingh Rathod case have not been refiled in the prescribed 30 days, then the complaint is barred by limitation and the proposed amendments in any case do not save the complaints from limitation.

  • Thanks for the round up. It sums up the law regarding the jurisdiction of dishonoured cheques in a concise and easy to understand manner. I would like to put forth a few points.

    In my opinion, the transfer of subsequent cases to the court of the first complaint was only specific to the payee, as the payee may have multiple bank accounts and would thus be in a position to harass the drawer. Though reading your write up did raise a very important question and upon referring to the Amendment Bill of 2015, I was surprised to see that the language was ambiguous in this regard and the strict interpretation given by you would be the natural consequence.

    Such an interpretation would defeat the purpose of the introduction of s.138, would go against the Object of the Amendment (as noted from the Statement of Objects and Reasons) and would invariably whittle down the effect of s.138, as a subsequent aggrieved payee may be forced to prosecute the case against a defaulter in a far away location.

    Further, in my view the courts would interpret the amended provisions in consonance and contiguity with earlier judicial precedents on the subject, i.e. a purposive construction of the act. Section 138, though a penal provision, as per the rules of interpretation commands a strict interpretation, but the courts have not shied away from giving the statute a purposive construction and this view is best exemplified by the NEPC Micon Ltd. v/s Magma Leasing Ltd. where the Hon’ble Supreme Court observed –
    “15. In view of the aforesaid discussion we are of the opinion that even though Section 138 is a penal statute, it is the duty of the court to interpret it consistent with the legislative intent and purpose so as to suppress the mischief and advance the remedy. As stated above, Section 138 of the Act has created a contractual breach as an offence and the legislative purpose is to promote efficacy of banking and of ensuring that in commercial or contractual transactions cheques are not dishonoured and credibility in transacting business through cheques is maintained. The above interpretation would be in accordance with the principle of interpretation quoted above ‘brush away the cobweb varnish, and show the transactions in their true light’ (Wilmot, C.J.) or (by Maxwell) ‘to carry out effectively the breach of the statute, it must be so construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited’…”

    Further, with the more recent case of M/S Laxmi Dyechem vs State Of Gujarat & Ors, 2012, the Hon’ble Supreme Court has further widened the ambit of s.138 to suppress the mischief by bringing within the ambit the innovative tactics that the drawer may adopt in order to take advantage of the subtle nuances of the statute.

    The Parliament should take note of this play of words, which in my honest opinion is a legislative drafting overlook and the legal stance should be clarified by the statute itself before it is passed by the Council of States in the coming monsoon session. Failing which, it is expected of the Judiciary to give the amended provisions a construction that would advance the remedial purpose sough by s.138. When it comes to the matter of jurisdiction a balance of convenience needs to be struck between a dishonest drawer and an aggrieved payee, the scales weighing favourably for the latter. A dishonest drawer should not be given the benefit of the strict interpretation of a penal statute at the peril and cost of an honest payee.

    Thank you again for the wonderful sum up.

    • Dear Dig Vijoy, thank you for your words of appreciation. The proposed Section 142-A(2) is ambiguous and it is quite possible to interpret it in a manner that even different payees are required to go to the jurisdiction where the prior complaint is filed. Such an interpretation would, indeed, defeat the purpose and objects of the amendment.
      However, the interpretation that I have suggested is quite probable as Dashrath Rupsingh Rathod held that Section 138 being a penal offence is to be interpreted strictly. Dashrath Rupsingh Rathod being the decision of a 3-judge bench, holds the field and will override NEPC Micon Ltd. case and Laxmi Dyechem case, both of which were decided by 2-judge benches. It will be really interesting to see how the courts interpret Section 142-A(2) and the justifications that are used for the favoured interpretation.

  • I think that transfer of subsequent complaints to the place of first complaint refers to the same payee and it doesn’t apply when payees are different.

  • Its really informative sum up of the new amendment.
    Reading Clause (2) and (3) of Section 142A together gives an impression that subsequent cases refers to the case filed by one and the same payee else the language of Clause (3) would also have been different. However, I agree that the language is quite ambiguous and leads to different interpretations.

  • If it is not refiled after the complaint is returned to the complainant within 30 days, what happens? What is the remedy to the accused?

Get Updates