[2016] 

65 taxmann.com 169 (Article)

Date of Publishing: June 29, 2015

DETERMINATION OF JURISDICTION IN CHEQUE DISHONOUR CASES: A

CLASSIC EXAMPLE OF A SWINGING PENDULUM

AMAN DWIVEDI & SALONI BHANDARI

With a view to curb the piling up of 'cheque bouncing' cases in courts, the government for quite some
time was mulling to amend the Negotiable Instruments Act, to the effect that 'cheque dishonouring'
cases would be required to be filed in the court within whose local jurisdiction the payee maintains a
account in the bank through which he seeks to collect the amount provided for in the concerned
cheque. The promulgation of the recent Negotiable Instruments (Amendment) Ordinance, 2015 has
attempted to completely overturn the pre-extant legal position maintained by the Supreme Court of
India in relation to the treatment of cheque dishonouring cases. This article, not only highlights the
key takeaways of the said ordinance but would also strive to assess whether such a move by the
government is indeed a favourable one or whether the position which had been adopted by the courts
in their recent judgments was relatively better. The article also attempts to analyze if the revised
stance is indeed considered to be more effective, as suggested by the government, then whether such a
move would be able to capture and remedy all the technical laches that were deliberated upon by the
courts in relation to the aforementioned cases.

Introduction

1. The President of India promulgated the Negotiable Instruments (Amendment) Ordinance, 2015
(hereinafter "Ordinance") on June 15, 2015 pursuant to which certain amendments have been effected
in the Negotiable Instruments Act, 1881 (hereinafter "Act"). The Ordinance was brought into force on
the date of promulgation itself.1

The Negotiable Instruments (Amendment) Bill, 2015 which was passed by the Lok Sabha on May 13,
2015 was similar to the Ordinance, in the sense that the substantive principles covered in both for
determination of the jurisdiction of the cases under section 138 of the Act were the same, except that
two distinct and additional situations of payment of cheque also found mention in the Ordinance, which
shall be highlighted in the later sections of this article. Since approval from the Rajya Sabha in regard to
the said Bill was still pending and the Parliament was not in session currently, the Central Government
as an urgent measure sought to give effect to the said Ordinance. These legislative measures have been
sought to be introduced on the premise to encourage the usage of cheques and to enhance the
credibility of this instrument so that the normal business transactions and settlement of liabilities could
be ensured.2-3

One of the most notable amendments introduced vide this Ordinance is the alteration in the
jurisdiction of the courts to adjudicate upon the cases of cheque dishonouring. This Ordinance attempts
to supersede the judgment dated 1 August 2014 of the Supreme Court in the case of Dashrath Rupsingh
Rathod v. State of Maharashtra4
Unfolding of the 'Law' under section 138 of the Act by virtue of judicial precedents:

2. One of the first cases in which the jurisdiction of courts was deliberated upon in reference to
admission of cases for offences under section 138 of the Act was the case of K. Bhaskaran v. Sankaran
Vaidhyan Balan, and similar judgments on this issue. The tussle in regard to the determination of
territorial jurisdiction of the courts in cases under section 138 of the Act, between the stance adopted by
the Supreme Court and the position furthered by the Ordinance shall be the main area of discussion in
this article. In course of this discussion, initially the position which had been pronounced by the
Supreme Court in the aforementioned judgment shall be brought forth followed by a critique of the
revised stance given effect to by the Ordinance.5

This rationale of the court was subject of much criticism by various stakeholders, as they were of the
opinion that many unintended consequences emanated from the same and, accordingly, they argued
that such an interpretation of Section 138 was very biased against the interests of the drawer of the
cheque. Since the judgment provided a large room for the complainants to unnecessarily harass the
drawer as much flexibility was accorded to the payee of the cheque to choose the place where he wished
to file the concerned case. This judgment gave rise to the practice that cases started to be filed
deliberately by the complainant at a remote place, merely by virtue of issuing a notice by him from his
branch office located at that place, to the 'drawer of the cheque' for payment of the cheque amount in
order to harass him. In furtherance of the same attitude, there were instances wherein several cheques
were issued at the same time by a person to the same payee, were on purpose presented in different
banks located at different places, and thereafter, cheque bouncing cases were filed at different places
against the drawer of those cheques.

The aforementioned stance as endorsed by the Supreme Court in the K. Bhaskaran's case (supra) was
diluted by the case of Harman Electronics (P.) Ltd v. National Panasonic India (P.) Ltd, wherein the
court read section 138 of the Act with sections 177 to 179 of the Code of Criminal Procedure, 1973,
following which, the court observed that the offence under section 138 can be completed only with the
concatenation of the following five acts, viz., drawing of the cheque, presentation of the cheque to the
bank, returning the cheque unpaid by the drawee bank, giving notice in writing to the drawer of the
cheque demanding payment of the cheque amount and finally, the failure of the drawer to make
payment within 15 days of the receipt of the notice. It was, accordingly, laid down by the court that upon
the completion of the offence, any court, within whose jurisdiction any one of these five acts took place,
would have the requisite jurisdiction to try such a case. In other words, the court provided that if the
aforesaid five different acts were done in five different localities then 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, implicating that the complainant could 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. 6

However, the Supreme Court in its recent judgment rendered in the case of Dashrath Rupsingh
Rathod. The Supreme Court in this case, while addressing the issue whether the Delhi High Court
would have jurisdiction solely because the statutory notice under section 138 of the Act was issued from
Delhi, opined that the issuance of a statutory notice does not give rise to a cause of action, only receipt
of notice does. Accordingly, it adopted the viewpoint that if mere presentation of the cheque or issue of
notice would bestow upon a court the territorial jurisdiction to try offences under section 138 of the Act,
then the same would inevitably lead to harassment of the drawer. 7

This issue was the subject matter of deliberation in the Bombay High Court in the case of Ramanbhai
Mathurbhai Patel v. State of Maharashtra, expressed a contrary sentiment and held that the
jurisdiction of the court to try the case will be determined by reference to the place where the cheque is
dishonoured. Hence, the place, situs or venue of trial of offence must be restricted to where the drawee
bank is located. This judgment apparently did curtail the leeway once accorded to the payee, pursuant
to the Bhaskaran's ruling, in respect of him determining the court to file the concerned case was,
however, as suggested by many experts still plagued by certain problems the primary of them being
that, it did not deliberate upon the applicability of the principle laid down by it on 'multi-city cheque'
that can be encashed at par in any branch of the bank on which it is drawn. The enigma encompassing
such a case was that if a multi-city cheque can be presented in any branch of the bank and if it can be
encashed by that branch without sending it to the local branch where the drawer of the cheque actually
has his account, would it then not mean by necessary implication 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? Thus, the perplexity
which remained was would the offence of dishonouring of cheque in relation to a 'multi-city cheque' was
committed at the branch where the cheque was presented for clearing (but which could not clear it due
to non-availability of sufficient funds, etc.), or would it occasion at the branch where the drawer has his
account (though the cheque is not referred to this branch for clearing)? 8 wherein the court maintained
that in respect of 'multi-city cheques', i.e., cheques that can be encashed at par in any branch of the
bank on which it is drawn, the territorial jurisdiction of the court under Section 138 of the Act would be
determined by the test that whichever court exercises jurisdiction over the clearing branch of such a
cheque, shall have the territorial jurisdiction to try that case. It would be pertinent to mention herein
that the above decision of the Bombay High Court was challenged in the Supreme Court 9

It is opined herein that the ratio laid down in this judgment in respect of 'multi-city cheques' brought
back the very same uncertainty that plagued the determination of territorial jurisdiction of the courts
under Section 138 of the Act to square one, which existed pursuant to the ruling laid down in the
Bhaskaran's case as the decision of the Bombay High Court implies 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 thus, determining the place of filing the concerned case of cheque dishonouring.

The government in an attempt to remedy the said problem and to address the concern raised by various
stakeholders, including various financial institutions and industry associations, that the ruling of the
Dashrath Rupsingh Rathod case accorded undue protection to defaulters at the expense of the
aggrieved complainant and with an objective to enhance the credence attached to this instrument as a
mode of payment initially sought to enact the Negotiable Instruments (Amendment) Bill, 2015 but
owing to the reasons as mentioned in the beginning of this article subsequently came up with the
promulgation of the Ordinance.

Negotiable Instruments (Amendment) Ordinance, 2015: Key Takeaways from

3. The Ordinance, which very recently was brought into force, has amended the legal position that was
furthered by the Supreme Court in the Dashrath Rupsingh Rathod's case (supra) in reference to
jurisdiction of courts for offences under section 138 of the Act. Now a cheque dishonouring case under
Section 138 of the Act will have to be filed in a court at a place as per the provisions of Section 142(2) of
the Act, which has been inserted vide the Ordinance.

The said clause reads as under:

"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 an account, the branch of the drawee bank where the drawer maintains the
account, is situated.
Explanation. - For the purposes of clause (a), where a 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."

The said amendment in the Act has now mandated that cases concerning 'cheque dishonouring' shall be
taken up by those courts in whose jurisdiction the branch of the bank where the payee maintains the
account, is situated. Illustratively, if an individual is based at Delhi and he maintains an account in a
bank in a particular area of Delhi and he receives a cheque from another person who resides in
Mumbai, if the said individual presents the said cheque in Delhi in the bank where he has his account
and, if this cheque is dishonoured, then the cheque bouncing case can now be filed only in Delhi in the
court which has jurisdiction over the area where his bank is located.

Further, the Ordinance has introduced a new provision, viz., Section 142A to the Act which states as
under:-

"142A. (1) 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 which were
pending in any court, whether filed before it, or transferred to it, before the commencement of the
Negotiable Instruments (Amendment) Ordinance, 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.
(2) Notwithstanding anything contained in sub-section (2) of section 142 or sub-section (1), where
the payee or the holder in due course, as the case may be, has filed a complaint against the drawer
of a cheque in the court having jurisdiction under sub-section (2) of section 142 or the case has
been transferred to that court under sub-section (1), and such complaint is pending in that court,
all subsequent complaints arising out of section 138 against the same drawer shall be filed before
the same court, irrespective of whether those cheques were delivered for collection or presented for
payment within the territorial jurisdiction of that court.
(3) If, on the date of the commencement of the Negotiable Instruments (Amendment) Ordinance,
2015, more than one prosecution filed by the same payee or holder in due course, as the case may
be, against the same drawer of cheques is pending before different courts, upon the said fact having
been brought to the notice of the court, such court shall transfer the case to the court having
jurisdiction under sub-section (2) of section 142 before which the first case was filed and is
pending, as if that sub-section had been in force at all material times.''

Thus, the Ordinance in order to provide adequate protection to the drawer of the cheque has also
sought to incorporate the principle that in instances, wherein more than one cheque issued by a single
drawer to the complainant have been dishonored then all those cases shall be filed in the same court
wherein the first case against the drawer was lodged by the complainant pursuant to the newly
introduced Section 142(2) of the Act. It is opined, accordingly, that this move of the government shall
aid the disposal of cheque dishonouring cases more effectively and in more streamlined manners as
even multiple cheque bouncing cases against the same party can be now be filed only in one court, even
if the cheques are presented in different banks at different locations.

The Ordinance, pursuant to Section 142, has also sought to transfer all the cases which were pending as
of June 15, 2015 to the appropriate courts in the light of the revised territorial jurisdiction of courts for
trying offences under Section 138 of the Act.

The Ordinance is similar to the Bill to the extent that the substantive principle for determination of the
jurisdiction of the cases under section 138 of the Act is the same under both, except that that two
distinct situations of payment of cheque (i) by submitting the same for collection through an account, or
(ii) payment of a cheque otherwise through an account, that is, when cheques are presented across the
counter of any branch of drawee bank for payment, are provided for under the Ordinance as mentioned
earlier.

Further, the Ordinance has kept pace with the current realities of the cheque now being encashed by the
Cheque Truncation System (CTS), wherein cheque clearance happens only through scanned image in
electronic form and cheques are not physically required to be presented to the drawee bank branch but
are settled between the service branches of the drawee and payee banks. It has amended Explanation 1
appended to Section 6 of the Act and has introduced new Explanation 3 to the said section. These
amendments have consequentially enhanced the scope of the Act not only to include drawing of a
physical cheque but also a 'cheque in the electronic form'.

Conclusion

4. From the discussion above it is apparent that the issue encompassing the determination of territorial
jurisdiction of the courts in relation to trying of cheque dishonouring cases has been a classic example
of a swinging pendulum, in the sense that the legal outlook has changed from time-to-time. The two
contesting factors which have influenced such an ever changing legal view have been first, to further the
reading of Section 138 of the Act with a view to make the law more complainant friendly and secondly,
to accord such a reading of the said section which precludes the possibility of the drawer being
unnecessarily assailed and tormented by the payee. These two factors have attempted to eclipse and
counter each other when it comes to deciding the jurisdiction of the courts under Section 138 of the Act.
This constant tussle has resulted into this ever changing legal position on the issue.

In reference to this Ordinance it is opined herein, that it has indeed attempted to strike a fine balance
between these two factors to bring definitiveness in cases attracting Section 138 of the Act, but only
temporarily, as in the eventuality of the government failing to get the Ordinance to adopt the visage of
an 'Amendment Act' and subsequently if the Ordinance expires, then the same shall trigger more
disturbance with cases that are now being returned to the payees' cities would head back to drawers'
cities. Further, in light of the transfer of all pending cases, as mandated by the newly introduced Section
142(2) of the Act, it is felt that the Ordinance has failed to carve out a distinction in those cases in which
proceedings have already commenced and a wide sweeping attempt has mandated even those cases to
be transferred, which then struck against the very objective for the Ordinance was enacted, i.e., to
ensure speedy disposal of cheque dishonouring cases, as transfer of such cases may require fresh
commencement of all the proceedings.

The government officials have brought forth that cheque bouncing cases involving around 18 lakh
people are currently stuck in the Indian judiciary, primarily due to the dilemma confounding the
jurisdiction of the courts in those cases; thus, it is hoped that as the same issue now stands resolved
with certainty vide the Ordinance, it shall trigger an expeditious disposal of all those cases. It is also
hoped and believed that the Ordinance shall be able to deliver the promise which the government
furthered while enacting the said piece of legislation, i.e., 'it shall strengthen the financial system and
will beef up the integrity of the system.'

■■

1. Clause 1 of the Ordinance.

2-3. Clause 2 of the Statement of Objects and Reasons appended to the Negotiable Instruments
(Amendment) Bill, 2015.

4. [2014] 128 SCL 26/49 taxmann.com 497.

5. [1999] 7 SCC 510.

6. [2011] 3 taxmann.com 67

7. (supra)

8. [Criminal Writ Petition No. 2362 of 2014.]

9. Vide SLP (Criminal) No. 7251 of 2014.