Jurisdiction in cheque bouncing cases is changed by new Ordinance, superseding SC judgment

The President of India has promulgated an Ordinance [called the “Negotiable Instruments (Amendment) Ordinance, 2015”] on 15 June 2015 as per which certain amendments have been made in the Negotiable Instruments Act, 1881. Jurisdiction to file cases of cheque bouncing has now been changed by this Ordinance superseding the judgment dated 1 August 2014 of the Supreme Court in the case of Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129, and all other similar judgments on this issue. So, now a cheque dishonour case under Section 138 of the Negotiable Instruments Act, 1881, will have to be filed in a court at a place as per the provisions of Section 142(2) of the Negotiable Instruments Act, which has been inserted by this new Ordinance, and even all pending cheque bouncing cases will also be transferred to the courts as per this new provision. I’ll explain it shortly. First, the basic background.

[Update (23 September 2015): Negotiable Instruments (Amendment) Second Ordinance issued on 22 September for cheque dishonour jurisdiction.]

[Update (16 September 2015): Cabinet approves new Negotiable Instruments (Amendment) Ordinance for jurisdiction in cheque bounce cases.]

[Update (3 September 2015): Lapsing of Negotiable Instruments (Amendment) Ordinance 2015 causes uncertainty in cheque bounce cases.]

In a recent article, I had explained as to how, on 1 August 2014, the Supreme Court had settled the issue of territorial jurisdiction in cases under Section 138 of the Negotiable Instruments Act (cheque bouncing cases) bringing uniformity and certainty on the issue where such cases can be filed [Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129]. In this case, a 3-Judge bench of the Supreme Court had 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 Mumbai, the cheque dishonour case in respect of this cheque can be filed only in a court at Mumbai 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. 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.

However, this was the position as per the aforesaid Dashrath Rupsingh Rathod judgment of the Supreme Court.

Subsequently, many people had raised difficulties about this judgment. 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 you reside at Delhi and have a bank account in Delhi, and you get a cheque from a person from his bank account at Mumbai, you’ll have to go to Mumbai to file the case, even though the fault for cheque dishonour may be that of the person who gave you the cheque.

Moreover, the above judgment of the Supreme Court was also not clear as to what will happen in the case of a cheque which is “at par payable at all branches of the bank”. This is what I had mentioned in my above article. Within one month of the above SC decision, a decision of the Bombay High Court (see here) in the case of Ramanbhai Mathurbhai Patel v. State of Maharashtra [in Criminal Writ Petition No. 2362 of 2014] had created the same uncertainty again in respect of multi-city cheques payable at par in all branches of the bank. This Bombay HC decision laid down 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! So, in respect of the multi-city cheques, the old problem of uncertainty about territorial jurisdiction of cheque bouncing cases returned merely within one month of the authoritative decision of the Supreme Court delivered on 1 August 2014.

Thereafter, in another article, I had pointed out that the above decision of the Bombay High Court was challenged in the Supreme Court vide SLP (Criminal) No. 7251 of 2014. This SLP was dismissed by the Supreme Court as withdrawn on 20 March 2015. This meant that the Bombay High Court decision had become final, though there were certain other legal implications as explained in that article.

But, now the legal position has changed with the new Ordinance:

However, now the legal position has completely changed with above new Ordinance, i.e., the Negotiable Instruments (Amendment) Ordinance, 2015, which has been promulgated by the President on 15 June 2015, and which has immediately come into force with effect from 15 June 2015. The above Supreme Court judgment and the above Bombay High Court judgment (and, also, all other judgments) are now of no consequence since this Ordinance supersedes them. Here is what is done by this new Ordinance.

Firstly, in the Negotiable Instruments Act, 1881, a new sub-section (2) has been inserted in Section 142, which now lays 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 has been inserted in the Negotiable Instruments Act, 1881, has been inserted, which lays 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.”

So, what is the change in jurisdiction for cheque bouncing cases now in view of the Ordinance?

The jurisdiction of filing cheque dishonour cases under Section 138 of the N.I. Act is now changed by the above Ordinance as under:

• Now a cheque bouncing case can be filed only in the court at the place where the bank in which the payee has account is located. For example, if you are based at Delhi and you have an account in a bank in a particular area of Delhi. You receive a cheque from someone in Mumbai. You present your cheque in Delhi in the bank where you have your account. Now, if this cheque is dishonoured, then the cheque bounce case can be filed only in Delhi in the court which has jurisdiction over the area where your bank is located.
• 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 will also have to filed in the same court (even if you present them in some bank in some other city or area). This will ensure that the drawer of cheques is not harassed by filing multiple cheque bounce cases at different locations. So, even multiple cheque bounce cases against the same party can be filed only in one court even if you present the cheques in different banks at different locations.
• Thirdly, all cheque bounce cases which are pending as on 15 June 2015 in different courts in India, will be transferred to the court which has jurisdiction to try such case in the manner mentioned above, i.e., such pending cases will be transferred to the court which has 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 will be transferred to the court where the first case has jurisdiction as per above principle.

Thus, this new Ordinance now introduces some clarity and uniformity in the matter of cheque dishonour cases. This Ordinance takes 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 is not harassed by filing multiple litigations at different locations to harass him (if more than one cheque has bounced). This Ordinance supersedes the Supreme Court decision dated 1 August 2014 [Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129] or any other judgment / decision of any court (Supreme Court or High Courts) on this issue.

See also, our earlier articles on cheque bounce cases:

• Dishonour of post-dated cheque given for Advance is not offence under S. 138 of Negotiable Instruments Act
• Jurisdiction for “at par” cheque dishonour – SLP against Bombay High Court decision dismissed by Supreme Court.
• Jurisdiction in a case of cheque bouncing – back to square one.
• Cheque bounce cases under Section 138 Negotiable Instruments Act Explained.
• Complete list of reasons for which a cheque can be returned unpaid by a bank.

UPDATE (7 July 2015): One esteemed visitor to Tilak Marg (Shri Amit Ramesh) has raised the important issue (please see in the Facebook comments below this article), which is being included in the main body of this article for the benefit of all. As per clause (a) the newly inserted Section 142(2), if the cheque is delivered for collection through an account, the jurisdiction to file case will be in court within whose area the branch of the bank is situated where the payee maintains the account. On the other hand, clause (b) of Section 142(2) says that if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the case for cheque dishonour can be filed in the court within whose jurisdiction the branch of the drawee bank where the drawer maintains the account, is situated. So, why this difference?

My answer on this issue is as follows. Broadly speaking, the cheques are basically of two types. A bearer cheque or a crossed cheque. A bearer cheque can be encashed across the counter in the bank without routing it through any bank account. On the other hand, a crossed cheque (such as with the marking “A/c Payee” or just two parallel lines used to make it a crossed cheque) cannot be encashed across the counter in a bank. A crossed cheque can be encashed only through a bank account.

Thus, clause (a) of Section 142(2) of N.I. Act (i.e., new Ordinance) basically speaks of a crossed cheque that is presented for encashment THROUGH an account. In fact, as far as I understand, even a bearer cheque may be presented for encashment through an account, in which case, the amount will be deposited in the account of the payee or the holder in due course.

On the other hand, clause (b) of Section 142(2) of N.I. Act speaks of those cheques which are encashed otherwise than through an account. Thus, it can be applicable only to a bearer cheque which can be encashed across the counter, without routing it through an account. In such a scenario, if the cheque is dishonoured, the new amendment in law requires that the cheque bounce case can be filed only at the place where the drawer maintains the account. The intention perhaps appears to be to take care of those situations where the person (such as the bearer) encashing it across the counter may not have an account in the bank and he may be directly taking cash from the bank. Therefore, in such situations, clause (1) would have been meaningless; and, this perhaps explains the object of inserting clause (2).

What I have written above is my understanding of the law and I believe it to be correct. Unfortunately, unlike a regular Bill which is presented in Parliament for enactment, there is no “Statement of Objects and Reasons” attached to an Ordinance, which could have explained the object behind the clause (2) in the case of the present Ordinance.