Cheque Bouncing – Recent Legal Change
The Supreme Court, in the landmark judgment of Dashrath Rupsingh Rathore v. State of Maharashtra changed ground rule under Section 138 of Negotiable Instruments Act to prosecute a person who had presented the cheque which bounced for insufficiency of funds. Through this judgment, SC provided relief to the holders of bounced cheques under the provisions of the Negotiable Instruments Act, 1881.
The main issue of the case was court’s territorial jurisdiction regarding criminal complaints for dishonour of cheque under the Negotiable Instruments Act. The word negotiable means ‘transferable by delivery’ and the word instrument means ‘a written document by which a right is created in favour of some person’. Therefore, a negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document. It is an indebtedness to pay an amount and the negotiable instrument is an unconditional guarantee for the same. The transfer should be unrestricted and in good faith. For ex – Promissory notes, Cheques, Bills of Exchange, bearer bonds, bank notes etc.
1. Sec 20,177,178,179 of CrPC
2. Sec 138 and 142 of Negotiable Instruments Act.
Precedent Case Laws
a) K. Bhaskaran v. Sankaran Vidhyan Balan (1999) 7 SCC 510
b) Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd.,(2001) 3 SCC 609
c) Harman Electronics Pvt.Ltd. v. National Panasonic India Pvt. Ltd. (2009) 1 SCC 720
SEC 138 of the Negotiable Instruments Act
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 extend to two years, 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
- The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.
- The payee or the holder induce 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” of the receipt of information by him from the bank regarding the return of the cheques as unpaid, and
- 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 purpose of this section, debt or other liability means a legally enforceable debt or other liability.
The offence in the contemplation of Section 138 of the NI Act is the dishonour of the cheque alone, and it is in connection of the five ingredients of the Section that enable the prosecution of the offence in distinction to the commission of the offence. Section 138 of the Act read in accordance with Section 177 of Code of Criminal Procedure makes it clear that the return of the cheque by the drawee bank alone constitutes the commission of the offence and indicates the place where the offence is committed. An interpretation should not be imparted to Section 138 which will render it as a device of harassment i.e. by sending notices from a place which has no casual connection with the transaction itself, and/or by presenting the cheque(s) at any of the banks where the payee may have an account.The relief introduced by Section 138 of the NI Act is in addition to the contemplations in the Indian Penal Code. It is still open to such a payee recipient of a dishonoured cheque to lodge a First Information Report (F.I.R.) with the Police or file a Complaint directly before the concerned Magistrate rather than lodging a Complaint Under Section 138 of the NI Act. 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.Section 138 is a penal provision and must, therefore, be interpreted strictly.
In this case, the Supreme Court has changed the basic criteria under Section 138 of Negotiable Instruments Act which is to prosecute a person who had presented the cheque which had been returned due to insufficiency of funds or if the amount exceeds the amount in the bank of the payer. Earlier, a case under Section 138 could be initiated by the holder of the cheque at his place of business or residence. But, a bench of justices TS Thakur, Vikramjit Sen and C Nagappan ruled that the case has to be initiated at the place where the branch of the bank on which the cheque was drawn is located. And the judgment would apply retrospectively. This means, lakhs of cases pending in various courts across the country would witness a interstate transfer of cheque bouncing cases.
The bench said: “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”
An offence within the contemplation of Section 138 is complete with the dishonour of the cheque but taking cognizance of the same by any Court is deferred so long as the complainant does not have the cause of action to file a complaint in terms of Clause (c) of the proviso read with Section 142. 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 by the bank on which it is drawn. In cases where the offence under Section 138 is out of several offences committed in a single transaction within the meaning of Section 220(1) of the Code of Criminal Procedure then the offender may be charged with and tried at one trial for every such offence and any such inquiry or trial may be conducted by any Court competent to enquire into or try any of the offences as provided by Section 184 of the Code
Example: Mr. A who resides in Hyderabad owes Rs. 1 Lakh to Mr. B who resides in Lucknow, Mr. A issues a cheque in Nagpur in favour of Mr. B. The cheque bounces in Indore (place of bank where the cheque is given by Mr. B) for insufficiency of funds. According to the earlier law Mr. A could have chosen any of the four places. But by the recent judgment the only place for institution of case would be Indore, i.e. where the cheque has dishonored at the payee bank which is located in Indore in this example.