CHEQUE BOUNCING CASES - CONTROVERSY
OVER TERRITORIAL JURISDICTION OF COURTS
By K P C Rao.
LL.B., FCS., FICWA
Practicing Company Secretary
BACKGROUND
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 CASE
The 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.
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