Jurisdiction in a case of cheque bouncing – back to square one

Jurisdiction in a case of cheque bouncing – back to square one

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Cheque bouncing decision
Cheque bouncing decision
Recently, 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. However, within one month of this decision, a recent decision of the Bombay High Court has created the same uncertainty again in respect of multi-city cheques payable at par in all branches of the bank.
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Which court has the territorial jurisdiction in an offence committed under Section 138 of the Negotiable Instruments Act, 1881, for dishonour of a cheque, commonly known as a case of cheque bouncing? Recently, on 1 August, 2014, a 3-Judge bench of the Supreme Court [in the case of Dashrath Rupsingh Rathod v. State of Maharashtra, in Criminal Appeal No. 2287 of 2009] gave its verdict in order to settle this issue (see here). The Supreme Court held that the territorial jurisdiction is restricted only to the Court within whose local jurisdiction the offence was committed, which is where the cheque is dishonoured by the bank on which it is drawn. Thus, it was held that such a case cannot be filed, for example, in a court in whose area the cheque was presented in a bank by the payee or where the notice was issued, etc. This judgment was aimed at ensuring that such cases are not filed at places other than the place where the bank account from which the cheque was issued (i.e., the branch of the bank on which the cheque was drawn) is located. Thus, an old controversy about the territorial jurisdiction in cheque bouncing cases was set to rest by the Supreme Court. However, within a month of the aforesaid judgment of the Supreme Court, a single judge bench of the Bombay High Court, vide its judgment dated 25 August 2014 (see here) in the case of Ramanbhai Mathurbhai Patel v. State of Maharashtra [in Criminal Writ Petition No. 2362 of 2014], has reignited the old controversy again and has again created the uncertainty as to where a cheque bouncing case can be filed. Before going into further details, let me briefly analyse the background. [Update (21 March 2015): Please also this article: Jurisdiction for “at par” cheque dishonour – SLP against Bombay High Court decision dismissed  by Supreme Court.]

Update [ 17 June 2015]: Please read: Jurisdiction in cheque bouncing cases is changed by new Ordinance, superseding SC judgment.

In the case of K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510 : AIR 1999 SC 3762, a 2-Judge bench of the Supreme Court had held that “(t)he locality where the Bank (which dishonoured the cheque) is situated cannot be regarded as the sole criterion to determine the place of offence”. It had further observed as under:

14. The offence under Section 138 of the Act can be completed only with the concatenation of a number of acts. The 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.

15. 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 five different localities. But a concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Code. … …”

After referring to the provisions of Section 178 of the Cr.P.C., the Supreme Court had further held that “…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, in the aforesaid Bhaskaran case, the Supreme Court had given a lot of flexibility about the place where a case under Section 138 of the Negotiable Instruments Act could be filed. This legal principle has, generally speaking, been holding the field till 2014, though there were some minor issues such as, e.g., regarding territorial jurisdiction at a place where the drawer received the notice issued by the payee of the cheque demanding payment of the cheque amount after it has been dishonoured.

The aforesaid Bhaskaran case had many unintended consequences. Suppose a cheque is issued at Mumbai, drawn on a bank located at Mumbai, in favour of a payee who resides in Delhi. The payee may have his business spread over several places and may have several bank accounts in various banks located in various cities, for example in Bangalore, Chandigarh, Lucknow, etc. He presents the cheque to his banker in Chandigarh, which is dishonoured. He issues a notice to the drawer of the cheque for payment of the cheque amount from his branch office located in Lucknow. As per the aforesaid Bhaskaran case, the cheque bouncing case can be registered either at Mumbai or Chandigarh or Lucknow. This causes hardship to the drawer of the cheque. This gives flexibility to the payee of the cheque to choose the place where he was to file the cheque bouncing case. He may deliberately do so by filing the case at a remote place to harass the payee of the cheque in order to put pressure on him. Sometimes, several cheques are issued at the same time by a person to the same payee, which are deliberately presented in different banks located at different places, and thereafter, cheque bouncing cases are filed at different places against the drawer of those cheques. Thus, a lot of hardship was caused to the drawer of the cheque in many such cases.

Vide the aforesaid recent judgment dated 1 August 2014, in the Dashrath Rupsingh Rathod case, a 3-Judges bench of the Supreme Court has overruled the aforesaid decision in the Bhaskaran case. In this latest case, the Supreme Court held that the territorial jurisdiction is restricted only to the Court within whose local jurisdiction the offence was committed, which is where the cheque is dishonoured by the bank on which it is drawn. In para 19 of this judgment, the Supreme Court held as under (per VIKRAMAJIT SEN, J., on behalf of the Court):

“We clarify that the place of the issuance or delivery of the statutory notice or where the Complainant chooses to present the cheque for encashment by his bank are not relevant for purposes of territorial jurisdiction of the Complaints even though non-compliance thereof will inexorably lead to the dismissal of the complaint. It cannot be contested that considerable confusion prevails on the interpretation of Section 138 in particular and Chapter XVII in general of the NI Act. … … We clarify that the Complainant is statutorily bound to comply with Section 177 etc. of the CrPC and therefore the place or situs where the Section 138 Complaint is to be filed is not of his choosing. The territorial jurisdiction is restricted to the Court within whose local jurisdiction the offence was committed, which in the present context is where the cheque is dishonoured by the bank on which it is drawn.”

Likewise, it was held in para 17 as under:

“17. In this analysis we hold that the place, situs or venue of judicial inquiry and trial of the offence must logically be restricted to where the drawee bank, is located. … …”

Supplementing the aforesaid decision, T.S. THAKUR, J., separately held in para 31 of his decision as under (while concurring with the main decision):

“(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.”

Thus, in the aforesaid Dashrath Rupsingh Rathod case, a larger 3-Judge bench of the Supreme Court has now 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 bouncing 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. Thus, there is no uncertainty about the place where such a case can be filed now. The payee of a cheque cannot now unnecessarily harass the drawer of the cheque by filing the cheque bouncing case at the place of his choice by deliberately choosing a different for presenting the cheque or for sending the notice, etc.

A few days after the aforesaid decision had been pronounced, during a discussion with a senior member of the Bar (who is a retired Judge of a High Court), I had expressed certain reservations about this decision, one of which related to the issue of MULTI-CITY cheques which can be presented and encashed / cleared AT PAR in all branches of the bank. Unfortunately, in the aforesaid Dashrath Rupsingh Rathod case, the issue of “multi-city at par” cheques has not been considered. It is common knowledge that, nowadays, most of the cheques are multi-city cheques that can be encashed at par in any branch of the bank on which it is drawn. The question in such a case would be: if a multi-city cheque can be presented in any branch of the bank and if it can be cleared / encashed by that branch without sending it to the local branch where the drawer of the cheque actually has his account, does it not mean 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? So where does the dishonour take place? Is it at the branch where the cheque is presented for clearing (but which cannot clear it due to non-availability of sufficient funds, etc.), or is it at the branch where the drawer has his account (though the cheque is not referred to this branch for clearing)? Ultimately, what is the purpose of issuing multi-city cheques which can be encashed at par in any branch the same bank? Moreover, if the dishonour of such a multi-city cheque can take place in a branch where it is presented, instead of the branch where the drawer has his account, then will it not lead to the same uncertainty regarding the territorial jurisdiction of the courts within whose jurisdiction the cheque bouncing case needs to be filed? This issue was not discussed in the aforesaid Dashrath Rupsingh Rathod case. Let me clarify here that I am not even referring here to the fact that nowadays the cheque may not even physically travel even to the clearing branch of the same bank (where it is presented for clearing), forget its travelling physically to the local branch where the drawer actually has his account. What happens nowadays is that only a scanned image of the cheque is generally sent electronically to the clearing branch of that bank in the city in which the cheque has presented.

As mentioned above, in view of the fact that most of the cheques being issued nowadays are multi-city cheques payable at par in all branches of the same bank, my expectation was that the aforesaid issue was likely to arise sooner or later. And, it has actually happened sooner rather than later.

As mentioned above, the issue of multi-city cheques arose in the recent case of Ramanbhai Mathurbhai Patel v. State of Maharashtra [in Criminal Writ Petition No. 2362 of 2014] before the Bombay High Court. In this case, to cheques had been issued by the petitioner from his accounts in two different banks, both located in Gandhinagar in Gujarat. Both these cheques were multi-city cheques payable at par in any of the branches of the respective banks. The payee of the cheques presented them in his bank at Mumbai, and they were sent for clearing in the respective branches of the two banks located in Kurla area of Mumbai. Both the cheques were dishonoured by the aforesaid clearing branches at Mumbai. In these circumstances, relying upon the aforesaid recent Dashrath Rupsingh Rathod case decided by the Supreme Court, a single judge bench of the Bombay High Court has now held that since a multi-city cheque is payable at par in all branches of the bank, therefore the dishonour of the cheques took place at Mumbai (and now in Gandhinagar in Gujarat). The relevant observations of the Bombay High Court are as under:

“8. It is thus clear that in the present case by issuing cheques payable at all branches, the drawer of the cheques had given an option to the banker of payee to get the cheques cleared from the nearest available branch of bank of the drawer. It, therefore, follows that the cheques have been dishonoured within the territorial jurisdiction of Court of Metropolitan Magistrate at Kurla. In view of judgment of Hon’ble Supreme Court in the matter of Dashrath v. State of Maharashtra cited (supra), the learned Metropolitan Magistrate of Kurla Court has jurisdiction to entertain and decide the complaint in question.”

In this manner, we have perhaps come back to square one again from where we started before the aforesaid recent Dashrath Rupsingh Rathod decision of the Supreme Court came to be delivered. Thus, the aforesaid Bombay High Court decision 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, 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 returns to haunt us again merely within one month of the authoritative decision of the Supreme Court delivered on 1 August 2014. Therefore, if one goes by this latest decision from the Bombay High Court, the payee again gets the choice of place where he wants to file the cheque bouncing case, if the cheque being dishonoured is a multi-city cheque payable at par in all branches of the bank.

At the cost of repetition, it may be stated again that since most of the cheques being issued nowadays are multi-city cheques, the aforesaid decision of the Supreme Court in Dashrath Rupsingh Rathod case has effectively been set at naught, reigniting the same old uncertainty. There is, perhaps, an urgent need therefore to get this issue clarified by the Supreme Court in order to remove this uncertainty.

[Update (21 March 2015): Please also this article: Jurisdiction for “at par” cheque dishonour – SLP against Bombay High Court decision dismissed  by Supreme Court.]

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  • Lavesh Jain

    The above position where the case can be filed is only applicable to Sec 138, when the cheque is bounced due to insufficient funds. What would be the position if cheque is bounced due to illegible or wrong signature. Then which court would be having jurisdiction over such cheque bounce?

  • If a cheque bounce case is to be filed for the reasons of signature mismatch, then also the jurisdiction will be decided on the same basis as for insufficient funds because even in that case the offence is under Section 138 itself, for which jurisdiction is laid down in Section 142 of the N.I. Act.

    In this regard, see the following observations of the Supreme Court in the recent case of Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375, in which it was held as to how signature mismatch may also amount to cheque bounce case:

    “There may indeed be situations where a mismatch between the signatories on the cheque drawn by the drawer and the specimen available with the bank may result in dishonour of the cheque even when the drawer never intended to invite such a dishonour. We are also conscious of the fact that an authorised signatory may in the ordinary course of business be replaced by a new signatory ending the earlier mandate to the bank. Dishonour on account of such changes that may occur in the course of ordinary business of a company, partnership or an individual may not constitute an offence by itself because such a dishonour in order to qualify for prosecution under Section 138 shall have to be preceded by a statutory notice where the drawer is called upon and has the opportunity to arrange the payment of the amount covered by the cheque. It is only when the drawer despite receipt of such a notice and despite the opportunity to make the payment within the time stipulated under the statute does not pay the amount that the dishonour would be considered a dishonour constituting an offence, hence punishable. Even in such cases, the question whether or not there was a lawfully recoverable debt or liability for discharge whereof the cheque was issued would be a matter that the trial court will examine having regard to the evidence adduced before it and keeping in view the statutory presumption that unless rebutted the cheque is presumed to have been issued for a valid consideration.”