By K P C Rao.
LL.B., FCS., FICWA
Practicing Company SecretaryBACKGROUND
The Negotiable Instruments Act 1881 was passed in 1882 and was amended in 1989 and 2002, Before 1988 there was no provision in the Act to restrain the person issuing the Cheque without having sufficient funds in his account. The only remedy against a Dishonoured cheque was a civil liability accrued. In order to ensure promptitude and remedy against the defaulters of the Negotiable Instrument a criminal remedy of penalty was inserted in Negotiable Instruments Act, 1881 by amending it with Negotiable Instruments Act, 1988. The second noteworthy amendment was when the parliament enacted the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 which is intended to plug the loopholes. This amendment Act inserts five new sections from 143 to 147 touching various limbs of the parent Act. This act is applicable to the whole of India including the state of Jammu and Kashmir, which was brought under the purview of the Act in 1956.
The objective of the act is to define the various negotiable instruments such as promissory notes, bills of exchange, cheque etc. Also to prescribe the liability in case of a failure of the instrument to fulfill its debt due to the default on the part of the payer or to curb scrupulous practices adopted to escape liability in respect of negotiable instruments.
Section 138 of the NI Act deals with the offence pertaining to dishonour of cheque for insufficiency of funds in the drawer's account and attracts criminal liability.Ingredients Required to be Fulfilled Under Section 138 to attract Criminal Liability
To constitute an offense under Section 138 of the Act, the following ingredients are required to be fulfilled.1) A person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account;
2) The cheque should have been issued for the discharge, in whole or in part, of any debt or other liability;
3) That cheque has been presented to bank within a period of three months from the date on which it is drawn or within the period of its validity whichever is earlier;
4) That cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
5) The payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
6) The drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;To put it in simpler terms the law states that the person must owe some amount of money to another and draws a cheque in that regard to fulfill that liability, the cheque be drawn on an account in a bank by him. The cheque was then presented to the bank within 3 months of the date on which it is drawn. However due to insufficiency of funds the cheque is returned by the bank unpaid. The payee (the bank) makes a demand for payment of said amount which the person owed within 30 days of the information received by him (the person who owed the money) that the cheque was returned unpaid; and thereafter the person fails to pay the amount within 15 days of the notice by the bank.
CONFUSION OVER THE TERRITORIAL JURISDICTION
There was a lot of confusion surrounding the territorial jurisdiction concerning criminal complaints filed under section 138 of the Negotiable Instruments Act, 1881 in case of dishonor of cheques in India prior to 2014. However, the issue of territorial jurisdiction has been resolved by a Three Judge Bench of the Hon’ble Supreme Court of India in the case of Dashrath Rupsingh Rathod vs State of Maharashtra [2014(9) SCALE97]. In this case, the Court held that return of the cheque by the drawee bank alone constitutes the commission of the offence under section 138 of the Act and indicates the place where the offence is committed.
JURISDISCTION OF COURTS REDEFINED
The aforementioned judgment took a contrary view from what was laid down by a two Judges bench of the same court in K. Bhaskaran Vs.Sankaran Vaidhyan Balan and Anr [(1999)7SCC510]. K. Bhaskaran observed that the offence under Section 138 of the NI Act, 1881 can be completed only with the concatenation of a number of acts. Following are the acts which are components of the said offence: (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 five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different localities. But concatenation of all the above five is a 'sine qua non' for the completion of the offence under Sec. 138 of the NI Act. Referring Section 178(d) of the Code of Criminal Procedure, 1973 it is clear that 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 NI 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.
But the Hon'ble Supreme Court in Dashrath Rupsingh Rathod disagreed with the Bhaskaran judgment and observed that Bhaskaran allows multiple venues to the Complainant which runs counter to the Apex Court's preference for simplifying the law. 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. Therefore, precision and exactitude are necessary especially where the location of litigation is concerned. The Court further observed that a reading of Section 138 of the NI Act in conjunction with Section 177 of Code of Criminal Procedure leaves no manner of doubt that the return of the cheque by the drawee bank alone constitutes the commission of the offence and indicates the place where the offence is committed. In this analysis the Hon'ble Supreme Court held that the place, situs or venue of judicial inquiry and trial of the offence must logically be restricted to where the drawee bank, is located.IMPACT OF APEX COURT RULING ON PENDING CASES - DIRECTIVES TO AVOID LEGAL IMPLICATIONS
Keeping in mind the fact that the decision in 'Dashrath' will have a massive impact on the cases already pending in various Courts if the same is applied prospectively, the Supreme Court thought it to be expedient to direct that only those cases where, post the summoning and appearance of the alleged accused, the recording of evidence has commenced as envisaged in Section 145(2) of the Negotiable Instruments Act, 1881, will proceed to continue at that place. To obviate and eradicate any legal complications, the category of Complaint cases where proceedings have gone to the stage of Section 145(2) or beyond shall be deemed to have been transferred by the Apex Court from the Court ordinarily possessing territorial jurisdiction, as now clarified in Dashrath's case, to the Court where it is presently pending. All other Complaints, including the ones where the Accused/ Respondent has not been properly served shall be returned to the Complainant for filing in the proper Court. If such Complaints are filed /refiled within thirty days of their return, they shall be deemed to have been filed within the time prescribed by law, unless the initial or prior filing was itself time barred.
It was also observed by the Hon'ble Supreme Court that the relief introduced by Section 138 of the NI Act is in addition to the contemplations in the Indian Penal Code. It is still open to such a payee recipient of a dishonoured cheque to lodge a First Information Report with the Police or file a Complaint directly before the concerned Magistrate. If the payee succeeds in establishing that the inducement for accepting a cheque which subsequently bounced had occurred where he resides or ordinarily transacts business, he will not have to suffer the travails of journeying to the place where the cheque has been dishonoured. All remedies under the Indian Penal Code and Code of Criminal Procedure are available to such a payee if he chooses to pursue this course of action, rather than a Complaint under Section 138 of the NI Act. And of course, he can always file a suit for recovery wherever the cause of action arises dependent on his choosing.
POSITION AFTER DASHRATH'S CASEThe Hon'ble Supreme Court by way of the afore judgment in Dashrath's case has put an end to the perplexity of territorial jurisdiction in cases under 138 of NI Act by clearly laying down that only return of the Cheque by the drawee bank constitutes the commission of the offence under section 138 of the Negotiable Instruments Act, 1881 and also indicates the place where the offence has actually been committed. Hence according to this judgment it is that place, situs or venue where the drawee bank is located, is the place where judicial inquiry and trial of the offence must logically be restricted.
WHAT ABOUT 'MULTI-CITY AT PAR' CHEQUES?
Nowadays, most of the cheques are multi-city cheques that can be encashed at par in any branch of the bank on which it is drawn. The question in such a case would be:
(a) if a multi-city cheque can be presented in any branch of the bank and if it can be cleared / encashed by that branch without sending it to the local branch where the drawer of the cheque actually has his account, does it not mean that dishonour of the cheque can also take place in the branch of the bank where it was actually presented and which dishonoured it without referring it to the local branch where the drawer of the cheque has his account? So where does the dishonour take place? Is it at the branch where the cheque is presented for clearing (but which cannot clear it due to non-availability of sufficient funds, etc.), or
(b) is it at the branch where the drawer has his account (though the cheque is not referred to this branch for clearing)?
However, the Apex Court in Dashrath case did not clarify its view on the territorial jurisdictions of courts in respect of “AT PAR” cheques. But, within one month after the decision of the Apex Court in Dashrath's case, a decision of the Bombay High Court in the case of Ramanbhai Mathurbhai Patel v. State of Maharashtra had created the same uncertainty again in respect of 'multi-city cheques' payable at par in all branches of the bank. The above decision of the Bombay High Court was challenged in the Supreme Court vide SLP. This SLP has now been dismissed by the Supreme Court as withdrawn on 20 March 2015. This means that the Bombay High Court decision has become final.
In its judgment in Ramanbhai Mathurbhai Patel case, the Bombay High Court specifically dealt with “AT PAR’ issue. It was held that the payee of a multi-city cheque, which is payable ‘AT PAR’ in all branches of the bank, can choose the place where he wants to present the cheque, and thereafter when it is sent for clearing to the nearest branch of the bank in that city, the court having jurisdiction over that clearing branch has the territorial jurisdiction of the cheque bouncing case.
The relevant observations of the Bombay High Court are as under:
“It is thus clear that in the present case by issuing cheques payable at all branches, the drawer of the cheques had given an option to the banker of payee to get the cheques cleared from the nearest available branch of bank of the drawer. It, therefore, follows that the cheques have been dishonoured within the territorial jurisdiction of Court of Metropolitan Magistrate at Kurla. In view of judgment of Hon’ble Supreme Court in the matter of Dashrath v. State of Maharashtra, the learned Metropolitan Magistrate of Kurla Court has jurisdiction to entertain and decide the complaint in question.”
Pursuant to these two verdicts, there was a lot of confusion surrounding the jurisdiction of court in case of dishonor of “AT PAR” cheques. The confusion over jurisdiction of courts in dishonor of 'AT PAR' cheque cases has settled, for the time being by dismissal of the SLP petition.CONCLUSION
To check piling up of cheque bounce cases in various courts, the Union Cabinet on 22nd April, 2015 has approved changes in Negotiable Instruments Act to provide for filing of such cases only in places where cheque is presented. The move is aimed at fast tracking of resolution of cheque bounce cases while removing the ambiguities on jurisdictional issues. It is expected that the proposed would help trade and commerce in general and allow lending institutions, including banks, to continue to extend financing to the economy, without the apprehension of the loan default on account of bouncing of a cheques. The main amendment included is the stipulation that the offence of rejection/return of cheque 'will be enquired into and tried only by a court' within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment is situated. (PIB dated 22/04/2015)
The amendments have been proposed in the backdrop of difficulties expressed by various stakeholders arising out of the recent legal interpretation of the place of jurisdiction for filing cases under Section 138 of the NI Act to be the place of drawers' bank by the Supreme Court.