The Negotiable Instruments (Amendment) Ordinance, 2015

The speculations put to rest finally

Last year in August the Apex Court of Indian in its decision in Dashrath
Rupshing Rathod Vs. State of Maharastra & Anr. Dated August 1,
2014[Citation:(2014) 9 SCC 129]

passed a verdict with regard to the

Jurisdiction of cases involving dishonour of cheques falling under Section 138

of the Negotiable Instruments Act, 1881, which was difficult to digest for many
people who were victims of cheque bounce matters. The Honble Supreme Court
through its bench comprising Justice TS Thakur, Justice Vikramjit Sen and
Justice C Nagappan in its binding decision in the above stated case held that
the Complaint Cases under Section 138 of the Negotiable Instruments Act,
1881 can be instituted only at the place where the cheque is actually
dishonoured which is the Bank of the Drawer, the Accused in the Cases.
The Honble Supreme Court after examining the earlier case laws with regard to
jurisdictional aspect of cases under Section 138 of the Negotiable Instruments
Act, 1881 held as follows:
31. To sum up:
(i) An offence under Section 138 of the Negotiable Instruments Act, 1881 is
committed no sooner a cheque drawn by the accused on an account being
maintained by him in a bank for discharge of debt/liability is returned
unpaid for insufficiency of funds or for the reason that the amount exceeds
the arrangement made with the bank.
(ii) Cognizance of any such offence is however forbidden under Section 142
of the Act except upon a complaint in writing made by the payee or holder
of the cheque in due course within a period of one month from the date the
cause of action accrues to such payee or holder under clause (c) of proviso
to Section 138.
(iii)

The

cause

of

action

to

file

complaint

complainant/payee/holder of a cheque in due course if

accrues

to

(a) the dishonoured cheque is presented to the drawee bank within a

period of six months from the date of its issue.
(b) If the complainant has demanded payment of cheque amount
within thirty days of receipt of information by him from the bank
regarding the dishonour of the cheque and
(c) If the drawer has failed to pay the cheque amount within fifteen
days of receipt of such notice.
(iv) The facts constituting cause of action do not constitute the ingredients
of the offence under Section 138 of the Act.
(v) The proviso to Section 138 simply postpones/defers institution of
criminal proceedings and taking of cognizance by the Court till such time
cause of action in terms of clause (c) of proviso accrues to the complainant.
(vi) Once the cause of action accrues to the complainant, the jurisdiction of
the Court to try the case will be determined by reference to the place where
the cheque is dishonoured.
(vii) The general rule stipulated under Section 177 of Cr.P.C applies to
cases under Section 138 of the Negotiable Instruments Act. Prosecution in
such cases can, therefore, be launched against the drawer of the cheque
only before the Court within whose jurisdiction the dishonour takes place
except in situations where the offence of dishonour of the cheque
punishable under Section 138 is committed along with other offences in a
single transaction within the meaning of Section 220(1) read with Section
184 of the Code of Criminal Procedure or is covered by the provisions of
Section 182(1) read with Sections 184 and 220 thereof.
Possibly unintentionally and with good intent but this Judgement did actually
create a huge amount of dissatisfaction with most of the victims of the cheque
bounce frauds. The Complainants who were the victims of the cheque bounce
matters suffered as they had to go and file their cases, including the pending
cases as aforesaid in the courts where the Drawer held its account. This
caused severe and undue hardship to the already reeling complainants in all
such cases. This judgement was given a retrospective effect and thousands of

cases which were already pending in various courts (in which trial had not
commenced) were transferred to different courts in conformity with the
decision of the Honble Supreme Court.
What actually motivated the Apex Court to give this judgement is summed up
by the Honble Court in the judgements penultimate para which reads as
herein under:
32. Before parting with this aspect of the matter, we need to remind
ourselves that an avalanche of cases involving dishonour of cheques has
come upon the Magistracy of this country. The number of such cases as of
October 2008 were estimated to be more than 38 lakhs by the Law
Commission of India in its 213th Report. The result is that cases involving
dishonour of cheque is in all major cities choking the criminal justice
system at the Magistrates level. Courts in the four metropolitan cities and
other commercially important centres are particularly burdened as the
filing of such cases is in very large numbers. More than five lakh such
cases were pending in criminal courts in Delhi alone as of 1st June 2008.
The position is no different in other cities where large number of
complaints are filed under S.138 not necessarily because the offence is
committed in such cities but because multinational and other companies
and commercial entities and agencies choose these places for filing the
complaints for no better reason than the fact that notices demanding
payment of cheque amounts were issued from such cities or the cheques
were deposited for collection in their banks in those cities. Reliance is often
placed on Bhaskarans case to justify institution of such cases far away
from where the transaction forming basis of the dishonoured cheque had
taken place. It is not uncommon to find complaints filed in different
jurisdiction for cheques dishonoured in the same transaction and at the
same place. This procedure is more often than not intended to use such
oppressive litigation to achieve the collateral purpose of extracting money
from the accused by denying him a fair opportunity to contest the claim by
dragging him to a distant place. Bhaskarans case could never have
intended to give to the complainant/payee of the cheque such an
advantage. Even so, experience has shown that the view taken in

Bhaskarans case permitting prosecution at any one of the five different

places indicated therein has failed not only to meet the approval of other
benches dealing with the question but also resulted in hardship,
harassment and inconvenience to the accused persons. While anyone
issuing a cheque is and ought to be made responsible if the same is
dishonoured despite compliance with the provisions stipulated in the
proviso, the Court ought to avoid an interpretation that can be used as an
instrument of oppression by one of the parties. The unilateral acts of a
complainant in presenting a cheque at a place of his choice or issuing a
notice for payment of the dishonoured amount cannot in our view arm the
complainant with the power to choose the place of trial. Suffice it to say,
that not only on the Principles of Interpretation of Statutes but also the
potential mischief which an erroneous interpretation can cause in terms of
injustice and harassment to the accused the view taken in the
Bhaskarans case needs to be revisited as we have done in foregoing
paragraphs.
As is apparent from the reading of the above para, the primary focus of the
Supreme Court was to prevent the abuse of this Section by the Complainants
to harass the Accused in many cases by filing cases in far of cities from the
place where the Complainants resided and at times at multiple cities in the
light of the options interpreted to be available by the earlier two bench decision
of the Honble Supreme Court in K. Bhaskaran v. Sankaran Vaidhyan Balan
(1999) 7 SCC 510 wherein a two-Judge Bench has, inter alia, interpreted
Section 138 of the NI Act to indicate that,
the offence under Section 138 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.
The Judgement of Bhaskaran was till then relied upon in many cases to allow
the complainant to file complaint under section 138 of the Negotiable
Instruments Act, 1881 at any of the places where any of the above stated five
cause of action arose. This according to the Supreme Court in Dashrats case
could not be allowed as it gave an unfair advantage to the Complainant and in
many cases, caused undue harassment to the Accused where multiple cases
were filed in multiple states by the Complainant with the sole objective of
harassing the Accused in such cases which could also turn out to be without
merit at times.

The intention of the Honble Court was good but it failed to consider the other
side of the coin. The already victimised Complainants now after the judgement
had to chase the Accused in various parts of the country and many times it
turns out that these local courts failed to provide speedy trial or judgement
and are far less efficient than the courts where the cases of otherwise would
have been brought in.
Pursuant to the judgement of the Supreme Court, representations have been
made to the Government by various stakeholders, including industry
associations and financial institutions, expressing concerns about the wide
impact this judgement would have on the business interests as it will offer
undue protection to defaulters at the expense of the aggrieved complainant; will
give a complete go-by to the practice/concept of Payable at Par cheques and
would ignore the current realities of cheque clearing with the introduction of
CTS (Cheque Truncation System) where cheque clearance happens only
through scanned image in electronic form and cheques are not physically
required to be presented to the issuing branch (drawee bank branch) but are
settled between the service branches of the drawee and payee banks; will give
rise to multiplicity of cases covering several cheques drawn on bank(s) at

different places; and adhering to it is impracticable for a single window agency

with customers spread all over India.
To address the difficulties faced by the payee or the lender of the money in
filing the case under section 138 of the Negotiable Instruments Act, 1881,
because of which, large number of cases are stuck, the government introduced
the Negotiable Instruments (Amendment) Bill 2015 in the parliament wherein
by way of addition of clause (2) in Section 142 and a new Section 142A
jurisdiction for offence under section 138 has been clearly defined to be the
place where the payees account where the cheque bounces is situated.
Further, in case a number of cases are filed by the same complainant against
the same accused all cases shall be filed and tried in the court where the first
case was filed irrespective of the cheques having different jurisdiction
otherwise.
The said Negotiable Instruments (Amendment) Bill 2015 was passed by the Lok
Sabha on May 13, 2015 and the same is pending approval of Rajya Sabha.
However, since the Parliament is not in session and the government felt it
necessary that the said amendments be introduced immediately and thus the
government through the President of India introduced the Negotiable
Instruments (Amendment) Ordinance, 2015 w.e.f. June 15, 2015 to introduce
the said amendments.
The amendments introduced are as given below:
1. Existing Section 142 of the Negotiable Instruments Act, 1881 shall now
be Section 142 Clause (1) and another Clause (2) shall be added which
reads as hereinunder:
(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.
2. Secondly another

section

numbered

as Section

142A

has

been

introduced which reads 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 subsection (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 complaints 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.

3. Thirdly, an Explanation III was added to Section 6 and Explanation I

clause (a) was substituted with the following:
(a) a cheque in the electronic form means a cheque drawn in electronic
form by using any computer resource and signed in a secure system with
digital signature (with or without biometric signature) and asymmetric
crypto system or with electronic signature, as the case may be:
The earlier definition of cheque in electronic form read as herein under:
(a) A cheque in the electronic form means a cheque which contains the
exact mirror image of a paper cheque, and is generated, written and
signed in a secure system ensuring the minimum safety standards
with the use of digital signature (with or without biometrics signature)
and asymmetric crypto system;
Explanation III which was inserted read as below:
Explanation III For the purpose of this section, the expressions
asymmetric crypto system, computer resource, digital signature,
electronic form and electronic signature shall have the same meanings
respectively assigned to them in the Information Technology Act, 2000.
The much needed amendments brought through by the government
through the Negotiable Instruments (Amendment) Ordinance, 2015 has
finally put the questions to rest finally and conclusively. Now all cases
under section 138 of the Negotiable Instruments Act, 1881 shall be
instituted at the place where the payee has presented the dishonoured
cheque for payment. All existing cases pending in the courts already
instituted shall be transferred to the courts having jurisdiction under the
amended section. Further, if the Complainant and the Accused are same
all cases shall be brought before and tried by the same court where the
first of all the cases under section 138 of the Negotiable Instruments Act,
1881 has been instituted.
Apart from this the definition of the cheque in the electronic form has
been amended to bring it in conformity with the recent technological
advancement in the banking sector with regard to the electronic cheque.

However, on the flip side this puts back the pressure on the Accused
where the Accused would have to travel to the place of the Complainants
choice i.e. the place where the Complainant presents the cheque for
encashment. However, the amendment also mandates that all cases
pertaining to the same Complainant and Accused would be brought
before the same court irrespective of the fact that the cheques were
presented for encashment at different courts. This rules out the
possibility of undue harassment to either of the two parties.
Now what remains to be seen is whether by the time this ordinance laps
in the coming 6 months the amendment bill is passed and we have the
amendments permanently marked in the Negotiable Instruments Act,
1881.

This Ordinance shall bring huge respite to many litigants who are
suffering harassment due to the earlier jurisdictional requirement of
filing at the Drawers place. Further, the Ordinance has finally put all
controversies at rest. The prayer that remains is that once the Ordinance
expires and the parliament opens for its monsoon session the Rajya
Sabha also approves the amendment bill and the Negotiable Instruments
(Amendment) Act, 2015 is brought into effect.