September,16,2015: The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval for the proposal to promulgate the Negotiable Instruments (Amendment) Ordinance, 2015. 

The proposed amendments to the Negotiable Instruments Act, 1881 (“The NI Act”) are focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the NI Act. 

A judicial limbo has covered courts of the nation as the Negotiable Instruments (Amendment) Ordinance, 2015, which was promulgated by the President of India on June 15 2015 at the instance of the Central Government, has lapsed on August 31 2015. It has caused a limbo in a large number of cheque bouncing (Dishonour of cheques) cases pending before various courts apart from a large number of cases that are in the process of being filed. The uncertainty is with regard to jurisdictional competency of a court to entertain a cheque dishonour case u/s 138 of the Negotiable Instruments Act, 1881.

The clarity on jurisdictional issues for trying cases of cheque bouncing would increase the credibility of the cheque as a financial instrument. This would help trade and commerce in general and allow the lending institution, including banks, to continue to extend financing to the economy, without the apprehension of loan default on account of bouncing of a cheque. 

In view of the urgency to create a suitable legal framework for determination of the place of jurisdiction for trying cases of dishonour of cheques under section 138 of the NI Act, the Government has decided to amend the law through the Negotiable instruments (Amendment) Ordinance, 2015. 

The objective is to ensure that a fair trial is conducted keeping in view the interests of the complainant by clarifying the territorial jurisdiction for trying the cases for dishonour of cheques. The Ordinance is similar to the Bill in the sense that the substantive principle for determination of the jurisdiction of cases under section 138 of the NI Act remains the same, 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 covered under the Ordinance. 

Background

Section 138 of the NI Act deals with the offence pertaining to dishonour of cheque for insufficiency, etc., of funds in the drawer’s account on which the cheque is drawn for the discharge of any legally enforceable debt or other liability. The object of the NI Act is to encourage the usage of cheques and enhancing the credibility of the instrument so that the normal business transactions and settlement of liabilities can be ensured. 

Various financial institutions and industry associations have expressed difficulties, arising out of the recent legal interpretation of the place of jurisdiction for filing cases under Section 138 to be the place of drawers’ bank by the Supreme Court. To address the difficulties faced by the payee or the lender of the money in filing the cases under Section 138 of the NI Act, because of which, large number of cases were stuck, the jurisdiction for offence under Section 138 has been proposed to be clearly defined. Accordingly, the Negotiable Instruments (Amendment) Bill, 2015 (“the Bill”) in Parliament was introduced in Lok Sabha on 6th May, 2015 and considered and passed by Lok Sabha on 13th May, 2015. However, since the Rajya Sabha was adjourned sine die on 13th May, 2015, the Bill could not be discussed and passed by that House and the Bill could not be enacted. 

The Bill provides for filing of cases only by a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment is situated. Further, where a complaint has been filed against the drawer of a cheque in the court having jurisdiction under the new scheme of jurisdiction, 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 presented for payment within the territorial jurisdiction of that court. 

Further, it has been provided that if more than one prosecution is filed against the same drawer of cheques before different courts, upon this fact having been brought to the notice of the court, the court shall transfer the case to the court having jurisdiction as per the new scheme of jurisdiction. 

Timeline

Chronologically speaking, in the case of the Negotiable Instruments (Amendment) Ordinance, 2015, it was promulgated by the President of India on June 15 2015. The Parliament reassembled on July 21 2015 for the Monsoon session. Therefore, as per Art 123, this Ordinance shall cease to operate on the expiration of a period of 6 weeks w.e.f. July 21 2015. This means that this Ordinance lapsed on August 31 2015. During the Monsoon Session, the Negotiable Instruments (Amendment) Bill, 2015, that was based on the above Ordinance, was passed by the Lok Sabha on August 6 2015. However, this Bill was not passed by the Rajya Sabha. Therefore, the said Ordinance could not be replaced by the Parliament by passing the related Amendment Bill and a subsequent legislation.

Judicial pronouncements

On August 1 2014 the Supreme Court in Dashrath Rupsingh Rathod v. State of Maharashtra,(2014) 9 SCC 129 delivered a landmark judgment on territorial jurisdiction as to dishonor of cheque cases. It was held that a cheque bouncing case can be filed only in a court which has the territorial jurisdiction over the place where the cheque is dishonoured by the bank on which it is drawn. Thus, if a cheque is drawn by a person on his bank account at Jaipur, the cheque dishonour case in respect of this cheque can be filed only in a court at Jaipur within whose territorial jurisdiction the said bank is located. Such a case cannot be filed in any other court at any other place.

For example, if you are the payee of the cheque and if you present this cheque for clearing at Delhi, it cannot be filed at Delhi. Thus, the uncertainty about the place where such a case can be filed was removed. Further, as per this judgment, the payee of a cheque could not unnecessarily harass the drawer of the cheque by filing the cheque bouncing case at the place of his choice by deliberately choosing a different place for presenting the cheque or for sending the notice, etc.

Subsequently, difficulties had cropped up about Dashrath Singh. This is so because the payee of the cheque had to file the case at the place where the drawer of the cheque has a bank account. Thus, if one resides at Jaipur and has a bank account in Jaipur, and he gets a cheque from a person from his bank account in Delhi, he’ll have to go to Delhi to file the case, even though the fault for cheque dishonour may be that of the person who gave him the cheque. Moreover, Dashrath Singh was also not clear on another issue as to what would happen in the case of a cheque which is “at par payable at all branches of the bank”. 

Ordinance route 

In an attempt to overrule a judgment by the ruling establishment, the jurisdiction to file cases of cheque bouncing was changed by the Ordinance. So, after this Ordinance, a cheque dishonour case u/s 138 of the Negotiable Instruments Act, 1881, could be filed in a court at a place as per the provisions of Section 142(2) of the Act, which had been inserted by this Ordinance, and even all pending cheque bouncing cases were required to be transferred to the courts.

The legal position was completely changed with the above Ordinance. The above judgments were superseded by it.

Firstly, in the Negotiable Instruments Act, 1881, a new clause (2) was inserted in Section 142, which laid down as under:

“(2) 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.”

Secondly, a new Section 142A was inserted which laid down 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.”

Jurisdiction of filing cheque dishonour cases as per the Ordinance

(1)   Now a cheque bouncing case could be filed only in the court at the place where the bank in which the payee has account is located.

(2)   Secondly, once you have filed a cheque bounce case in one particular court at a place in this manner, subsequently if there is any other cheque of the same party (drawer) which has also bounced, then all such subsequent cheque bounce cases against the same drawer would also have to filed in the same court

(3)   Thirdly, all cheque bounce cases which were pending as on 15 June 2015 in different courts in India, were required to be transferred to the court which had jurisdiction to try such case in the manner mentioned above, i.e., such pending cases were to be transferred to the court which had jurisdiction over the place where the bank of the payee is located. If there are multiple cheque bounce cases pending between the same parties as on 15 June 2015, then all such multiple cases would be transferred to the court where the first case has jurisdiction as per above principle.

Ordinance was introduced to bring some uniformity in the matter of cheque dishonour cases. It took care of the interests of the payee of the cheque while at the same time also taking care that the drawer of the multiple cheques was not harassed by filing multiple litigations at different locations.

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