Jurisdiction Conundrum in Cheque Bounce Matters The Negotiable Instrument (Amendment) Act 2015 a Panacea

Jurisdiction Conundrum in Cheque Bounce Matters The Negotiable Instrument (Amendment) Act 2015 a Panacea 1 Garv Malhotra and 2 Maneesh Kumar 1 Advocate, Supreme Court of India. 2 Joint Secretary, Ministry of Railways, Government of India, New Delhi. Abstract Codified about 135 years ago, cheque as a financial instrument has struggled to attain credibility. The ingenuity of human mind has discovered ways to avoid honouring or deferring what otherwise is a genuine financial commitment. The jurisdiction of trial issue flooded courts with litigations estimated at 18 lakh cases. The courts oscillated between the civil concept of place of suing and the criminal concept of commission of offence. The stakeholders also have competing interests w.r.t. the place where jurisdiction of trial lies. Synthesising various hues, an amendment has been enshrined in the Negotiable Instrument Act 1881 with a view to increase the credibility of the cheque as a financial instrument and help trade and commerce in general and the lending institutions in particular. This paper attempts to traverse the chequered passage of this amendment, legislative history, the raison d être, impact assessment of the amended provisions ending with the concluding remarks. It is an attempt to empower a lay reader, provide a practical handout for a legal practitioner, food for thought for a researcher and general reading for an inquisitive student of Law. 1 Introduction: Cheque, a financial instrument, is a boon as well as bane. If clears, it is boon, if not, it is bane and "Disclaimer: The views expressed in this paper are those of the author and co-author and do not constitute legal advice or the views of the Ministry of Railways, Government of India." leads to avoidable hassles. Cheque, generally, involves three parties, the Drawer (who writes the cheque), the Drawee (bank upon which cheque is drawn by the drawer) and the Payee (in whose favour cheque is drawn by the Drawer). There are following three ways in which cheque is presented by the Payee : a. Presented across the counter in Drawer s bank. b. Presented in Payee s bank through account. c. Endorsed to third party called Holder in due course who presents the cheque through his/her account. When the bank, where the cheque is presented, returns the cheque, it is called dishonour of cheque i.e. the Drawer has failed to honour his financial commitment. Dishonour, perhaps, is a nomenclature devised in the process because it robs instrument of its due honour. Dishonour of cheque has been a civil as well as criminal wrong. Civil remedy is in the form of recovery suit. Criminal remedy, however, was circuitous in the form of section 420 & 406 of Indian Penal Code. The very act of dishonour of cheque was classified as a criminal offence in the statute i.e. The Negotiable Instrument Act 1881 in the year 1988, accentuated further in the year 2002. The efforts, however, proved deficient in handling the situation In common parlance it is called cheque bounced. On the face of it, it does not appear to be a very serious event as it does not lead to a breakdown situation, but it robs the financial instrument of its credibility. If such event takes place by design and not by chance or oversight, the Payee is left with no option but to file a civil suit for recovery of the amount and an optional criminal complaint for Imperial Journal of Interdisciplinary Research (IJIR) Page 34

punishment which includes fine on the Drawer for blameworthy conduct. All these hassles are not factored in while entering into a genuine commercial transaction. More than individual episodes, it introduces an element of uncertainty, lack of credibility and trust worthiness in commercial transactions. Cash transactions, an inconvenient means and digital transfers through RTGS, NEFT, Debit/Credit Cards, Net banking etc. having limited patronage, the need to streamline this area could hardly be overemphasized. This is also evident from the fact that there are over 18 lakh cheque bounce cases pending in various courts in India 2. The Negotiable Instrument Act 1881 and legislative reforms prior to 2015 Amendment to enhance credibility of Cheques: The Negotiable Instruments Act, 1881 was enacted to define the law relating to Promissory Notes, Bills of Exchange and Cheques etc. The Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 inserted a new Chapter XVII, comprising sections 138 to 142 in the Negotiable Instruments Act, 1881. Section 138 of the said Act provides for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque. As sections 138 to 142 of the said Act were found deficient in dealing with dishonour of cheques, the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, inter alia, amended sections 138, 141 and 142 and inserted new section 143 to 147 in the said Act aimed at speedy disposal of cases relating to the offence of dishonour of cheques through their summary trial as well as making them compoundable. Punishment provided under section 138 too was enhanced from one year to two years. These legislative reforms are aimed at encouraging the usage of cheque and enhancing the credibility of the instrument so that the normal business transactions and settlement of liabilities could be ensured 3. Relevant statutory provisions regarding jurisdiction of courts in cheque bounce cases and landmark judicial pronouncements: The Negotiable Instrument Act 1881, as such does not contain specific provision regarding jurisdiction of courts where such complaints can be filed. However relevant provisions where oblique reference is to the court where cognisance of the offence of dishonour can be taken are Section 142, wherein further reference is drawn to Section 138. Section 142 titled Cognizance of offences envisages: Notwithstanding anything contained in the Code of Criminal Procedure, 1973 -- (a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque; (b) such complaint is made within one month of the date on which the cause-of-action arises under clause (c) of the proviso to section 138 : Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period. (c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138. Section 138 titled Dishonour of cheque for insufficiency, etc., of funds in the account referred to above envisages as under: Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that 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 that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years 4, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless-- 2 Economic Times, 8 th December, 2015 Amendments to Negotiable Instruments Bill: Cheque bounce cases can now be filed where it is presented. 3 Statement of Objects and reasons The Negotiable Instrument (Amendment) Bill 2015. 4 Substituted by Act of 2002 w.e.f. 06.02.2003 in place of "a term which may be extended to one year." Imperial Journal of Interdisciplinary Research (IJIR) Page 35

(a) the cheque has been presented to the bank within a period of six months 5 from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, 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 thirty days 6 of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.-- For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability. A perusal of the above provisions indicate that the jurisdiction of courts is to be drawn from the Code of Criminal Procedure 1973, thereby requiring survey of relevant sections i.e. 177 to 179 of the Code of Criminal Procedure 1973. Section 177 Every offence shall ordinarily be inquired into and tried by a Court within whose local jurisdiction it was committed. Section 178 (a) When it is uncertain in which of several local areas an offence was committed, or (b) where an offence is committed partly in one local area and partly in another, or (c) where an offence is a continuing one, and continues to be committed in more local areas than one, or (d) where it consists of several acts done in different local areas, it may be inquired into or tried by a Court having jurisdiction over any of such local areas. Section 179 When an act is an offence by reason of anything which has been done and of a consequence which has ensued, the offence may be inquired into or tried by a Court within whose local jurisdiction such thing has been done or such consequence has ensued. The place of commission of offence, offence constituting several stages/parts and thus involving more than one area, offence and its consequence in two different areas have been subjected to different interpretations w.r.t. place of filing complaint for dishonor of cheque. Multiplicity of litigations on 5 As per RBI Direction dated 16th November 2011, the period for depositing Cheque has been reduced from six months to three months. 6 Substituted by Act of 2002 w.e.f. 06.02.2003 in place of "within fifteen days". admissibility issue, let alone merits of the matter and long drawn out judicial process contributed to a lot of confusion and uncertainty in this area. The issue set at rest by division bench judgement of Hon ble Supreme Court in September, 1999 got revived again with three judge bench judgement of the Hon ble Supreme Court as enumerated below: K.Bhaskaran v Sankaran Vaidhyan Balan and Anr 7., the Hon,ble Supreme vide their judgement dated 29.09.1999 observed as under: 15. The offence under Section 138 of the Act 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. 16. It is not necessary that all the above five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at 5 different localities. But concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Code. In this context a reference to Section 178(d) of the Code is useful.. 17. Thus it is clear, 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 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. Thus the jurisdiction was held to be wide and expansive. The complainant thus got an option to choose a place out of the five places to cause make accused travel to that place to defend himself. Dashrath Rupsingh Rathod v State of Maharashtra 8 Hon ble Supreme Court in their three judge bench judgement dated 01.08.2014 held as under: 56. 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. 7 (1999)7SCC510 8 (2014)9SCC129 Imperial Journal of Interdisciplinary Research (IJIR) Page 36

(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 a complaint accrues to a complainant/payee/holder of a cheque in due course if (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 Code of Criminal Procedure 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 Section138 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. The exposition of law laid by Hon ble Supreme Courte thus envisaged that the territorial jurisdiction for cases relating to offence of dishonour of cheques lies with the court within whose jurisdiction such offence was committed, i.e. where the cheque is dishonoured by the bank on which it is drawn. Taking into consideration practical difficulties in those cases where much headway has already been made in trial proceedings, the Hon ble Supreme Court directed that where consequent upon summoning and appearance of the accused and the recording of evidence has commenced as envisaged in section 145(2) of the said Act, proceeding will not get affected by the judgement and would therefore, continue at the place where it is continuing prior to the judgement. All other complaints shall be returned to the complainant for filing in the proper court, in accordance with the exposition of the law, laid by the Hon ble Supreme Court. Bill, Ordinance, Ordinance, Bill and Act: The passage of The Negotiable Instrument (Amendment) Bill, 2015 has not been a smooth journey. The Negotiable Instruments (Amendment) Bill, 2015 proposing a principle for determination of the place of jurisdiction for cases relating to dishonour of cheque under section 138 of the Negotiable Instruments Act, 1881 was introduced in Lok Sabha on 6th May, 2015 and considered and passed by it on 13th May, 2015. However, the said Bill could not be taken-up for consideration in Rajya Sabha, since the House was adjourned sine die on 13th May, 2015. Thereafter, The Negotiable Instrument (Amendment) Ordinance, 2015 was promulgated on 15 th June, 2015. It was indicated to have come in force at once i.e. w.e.f. 15 th June, 2015. Under Article 123 of the Constitution, the President of India is entitled to exercise Legislative powers by promulgation of Ordinance. The Ordinance is valid for six weeks from the date when the next Session of Parliament assemble. Both the Houses of Parliament assembled on 21 st July, 2015, and the Ordinance was scheduled to lapse on 31st August, 2015 i.e. 6 weeks from the re-assembly of Parliament. The bill was introduced and passed by Lok Sabha but could not be taken up by Rajya Sabha and was withdrawn. The Ordinance was re-promulgated on 22 nd Sept., 2015. The date of effect was retained as 15 th June, 2015. Accordingly, the intervening period of 22 days i.e. from 1 st Sept. to 22 nd Sept. when the bill had lapsed, stood covered by the Ordinance. The Bill has been passed by both the Houses in the winter Session of Parliament. The Presidential assent to the Bill passed; being a formality, the Negotiable Instrument (Amendment) Bill, 2015 passed by both the Houses of Parliament is effective from 15 th June, 2015. Raison d etre for The Negotiable Instrument (Amendment) Act 2015: As per the Statement of Objects and Reasons of the The Negotiable Instrument (Amendment) Act 2015, pursuant to the judgment of the Supreme Court, representations have been made to the Imperial Journal of Interdisciplinary Research (IJIR) Page 37

Central Government by various stakeholders, including industry associations and financial institutions, expressing concerns about the wide impact this judgment 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 clearnace 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 9. Statutory provisions as amended in The Negotiable Instrument (Amendment) Act 2015: Clarifying the litigious jurisdiction issue, the amended Act renumbers the existing Section 142 as Section 142 (1). Thereafter, Section 142 (2) has been inserted 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.". Illustrations explaining jurisdiction issue under amended provisions: A A ISSUES CHEQUE TO B DRAWN ON BANK OF INDIA MUMBAI 9 Statement of Objects and reasons The Negotiable Instrument (Amendment) Bill 2015. B HAS ACCOUNT IN STATE BANK OF INDIA CHANDIGARH WHERE HE PRESENTS CHEQUE CHEQUE IS RETRUNED BY STATE BANK OF INDIA AS DISHONOURED B CAN FILE CRIMINAL COMPLAINT IN CHANDIGARH ONLY Imperial Journal of Interdisciplinary Research (IJIR) Page 38 B A ISSUES CHEQUE TO B DRAWN ON BANK OF INDIA MUMBAI B HAS ACCOUNT IN STATE BANK OF INDIA CHANDIGARH BUT PRESENTS ACROSS THE COUNTER IN BANK OF INDIA DELHI CHEQUE IS RETRUNED BY STATE BANK OF INDIA DELHI AS DISHONOURED B CAN FILE CRIMINAL COMPLAINT IN MUMBAI ONLY In nutshell, when the cheque is delivered for collection through an account maintained by the payee or the holder in due course, the complaint is to be filed before the Court where the branch of the bank is situated. When the cheque is presented for payment across the counter, the complaint is to be filed before the Court where the drawer maintains his account. In the amended Act, another section 142(A) with three clauses (1), (2) & (3) has been incorporated dealing with transfer of pending cases as under: "142A. (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 or any judgment, decree, order or direction 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) Act, 2015 shall be transferred to the court having jurisdiction under sub-section (2) of section 142 as if that subsection had been in force at all material times. (2) Notwithstanding anything contained in subsection (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 subsection (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) Act, 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, the 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.". In nutshell, Section 142(A) envisages filing of cases only in the 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. The amendment takes care of the interest of the complainant. The clarification on jurisdiction clears haze around it. The clarity on jurisdictional issues of cheque bouncing would increase the credibility of the cheque as a financial instrument. However, it would take a long time before this amendment gets effectuated completely because it involves massive transfer of cases at various stages of trial. Even where evidence has started, the case would be required to be transferred to the court of appropriate jurisdiction. Although effective from 15 th June, 2015, the words used w.r.t. Section 142(2) in the amendment i.e. as if that Subsection had been in force at all material times.. gives retrospectivity to the provision. In a recent case titled Bridgstone India Pvt. Ltd. V Inderpal singh decided on 24.11.2015, the Hon ble Supreme Court applied the amended provision, existing through Ordinance at that time, in respect of cheque bounce case of 04.08.2006 on the ground of retrospectivity of the provision. The following type of cases would, therefore, be covered by the amended provisions.: a. Complaints filed on or after 15.06.2015. b. Complaints filed prior to 15.06.2015 and pending. c. Complaints pending at any stage of trial and subsequent thereto on such issue. ***** It has also been envisaged 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. Concluding remarks: Imperial Journal of Interdisciplinary Research (IJIR) Page 39