Territorial Jurisdictional Constraints of Cheque Bounce Cases

Sections 138 to 142 of the Negotiable Instruments Act, 1881[1] (for short, “the NI Act, 1881”) were inserted in the year 1988 by amending the principal Act of 1881 with the intent of encouraging the culture of use of cheques and credibility of the instrument. “Section 138[2]” became a mostly used common term in business, friends and family circles as majority of the financial transactions, despite the massive digitalisation post-demonetisation, still take place through issuance of cheques and in case of failure of the drawer (the one who owes money and issues the cheque) to honour the amount specified in cheque, the payee (the one to whom drawer owes money and whose name is written on the cheque) turns foe and invokes prosecution under that section. As economics is sine qua non of an individual from cradle to cremation and as Section 138 is thing closely related to economic activities, Section 138 cases have a lion’s share of dockets filed up in their name in India.

Section 138 punishes the person who fails to honour the amount specified in the cheque, which he has issued towards the discharge of his debt or liability towards another person, with up to two years of imprisonment or/and with fine up to double the cheque amount.

Unlike other statues, the Amendment Act of 1988[3] did not expressly specify territorial jurisdiction of the court in which Section 138 cases are to be filed by the aggrieved complainant. As the legislature has left fallow the area of territorial jurisdiction of cheque bounce cases, different Benches of the Supreme Court at different times started cultivation into that area by using their own divergent methods, which made the area so much infertile that when in 2015, the legislature entered into that area, it also got confused and failed to meet the object with which Sections 138 to 142 were inserted in the NI Act, 1881 and also failed to cope up the present demand casted by digitalisation and globalisation.

The first case on territorial jurisdiction aspect of cheque bounce cases was of a two-Judge Bench in K. Bhaskaran v. Sankaran Vaidhyan Balan,[4] wherein, after observing that offence under Section 138 can be completed only after concatenation of the following acts:

(1) drawing of cheque;

(2) presentation of cheque to the bank;

(3) returning the cheque unpaid by the drawee bank;

(4) giving notice to drawer by demanding payment; and

(5) failure of drawer to make payment within 15 days of receipt of notice,

the Court held that the complainant can file case in any of court having jurisdiction over any of those local areas within the territorial limits of which any one of aforesaid five acts was done. To arrive at this conclusion, the Court relied upon Sections 177 to 179 of the Code of Criminal Procedure, 1973[5] (for short, “CrPC”). Thus, a liberal, and in my opinion, substantially proper approach was adopted by the Supreme Court in K. Bhaskaran case[6].

But, in Harman Electronics (P) Ltd. v. National Panasonic (India)(P) Ltd.,[7]a 2-Judge Bench held that the court within whose limits, notice was issued cannot have territorial jurisdiction as it is the communication of notice which would give rise to a cause of action, and not issuance of notice. Thus, one of the acts laid in K. Bhaskaran case[8] was plucked out in Harman Electronics case[9]. It is to be noted that before Harman Electronics case[10], in Shamshad Begum v. B. Mohammed,[11] another 2-Judge Bench by following K. Bhaskaran case[12] held that the court from whose limits, notice was sent has jurisdiction. Shamshad Begum case[13] was not even discussed in Harman Electronics case[14].

Nonetheless, in Nishant Aggarwal v. Kailash Kumar Sharma,[15] Escorts Ltd. v. Rama Mukherjee,[16]and FIL Industries Ltd. v. Imtiyaz Ahmed Bhat,[17] the 2-Judge Bench followed K. Bhaskaran case[18] and held that the court within whose limits cheque has been presented by the payee through his account has jurisdiction.

Hence, as the ratio decided in K. Bhaskaran case[19] was shifting like pendulum from one corner to another over territorial jurisdiction of courts to deal with cheque bounce cases, a 3-Judge Bench was called upon to solve this conundrum. Therein came the judgment of a 3-Judge Bench in Dashrath Rupsingh Rathod v. State of Maharashtra,[20] which made matters worse by holding that only that court will have jurisdiction wherein the drawer maintains the bank account i.e. the drawee bank.

To overrule the ratio laid in K. Bhaskaran case[21], Dashrath Rupsingh[22] observed that the moment when cheque is dishonoured by the drawee bank (bank of the drawer), offence under Section 138 gets attracted, hence as the offence is committed at the place of drawee bank, the court situated therein will have jurisdiction. For arriving at this conclusion, it gained much of the strength from a previous judgment of a 3-Judge Bench in Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd.,[23] which held that  the word “bank” in Section 138 means only a drawee bank and the cheque has to be presented by the payee within the  limitation period of six months at such drawee bank. Although Ishar Alloy case[24] was not on the point of territorial jurisdiction, which was observed even in Dashrath Rupsingh case[25], but still it relied upon Ishar Alloy case[26] by stating that “when a court interprets any statutory provision, its opinion must apply to and be determinate in all factual and legal permutations and situations”[27]and “that Ishar Alloy[28] is only case … which was decided by a three-Judge and therefore was binding on all smaller Benches”[29] and it is “logically correct”.[30] In my opinion, reliance on Ishar Alloy case[31] was wholly untenable as firstly, Ishar Alloy[32]never discussed the point of territorial jurisdiction nor it was called to do so and it is well-settled rule that only that case can be relied by a subsequent Bench, which was decided on similar facts or atleast similar legal proposition, hence Ishar Alloy[33] interpretation of the word “bank” was purely for limitation period purposes, for which I gain strength from the 2015 Amendment which allowed jurisdiction in court where the payee maintains an account. Secondly, even assuming reasons given by Dashrath Rupsingh[34] for reliance on Ishar Alloy[35] to be correct, it should be noted that  K.T. Thomas, J.  who wrote for the 2-Judge Bench in K. Bhaskaran case[36] also part of 3-Judge Bench in Ishar Alloy case[37], the judgment of which was authored by  R.P. Sethi, J. Hence, if  K.T. Thomas, J. wanted to reverse his own opinion expressed in K. Bhaskaran case[38] or if he wanted to dissent from  R.P. Sethi, J.’s opinion, then he would have authored his own judgment, which could not be found. It is for the reason that the 3-Judge Bench in Ishar Alloy case[39] knew that it was deciding the aspect of limitation and not territorial jurisdiction. Thirdly, now for practical purposes the ratio of Ishar Alloy[40] became infructuous because in that case of 20th century, cheque was presented by the payee in his account but it did not reach the drawer’s account within six months, which now, in the 21st century, is not the case due to digitalisation of entire banking system wherein cheque reaches the drawee bank, through electronic mode, within 2 to 4 days of presenting.

Although Dashrath Rupsingh [41]is partly correct in saying that an offence is committed the moment cheque is dishonoured at the drawee bank, but it is to be noted that as per Section 142(1)(b) of the NI Act, 1881[42], prosecution can be initiated only after accrual of “cause of action” under clause (c) of the proviso to Section 138 i.e. when drawer fails to make payment within fifteen days of receipt of the notice. The whole purpose of mandatory issuance of “statutory notice” by the payee is to inform the drawer that the cheque which he gave got dishonoured and if he pays back the cheque amount, then the payee will not initiate any case against him and cause of action does not survive. This can be found from the fact that the payee can present the cheque any number of times despite dishonour within six/three months from date of issuance. But Dashrath Rupsingh[43] would take none of these and held that civil law concepts like “cause of action” cannot be applied into criminal law. In my opinion, this interpretation was wholly wrong as Section 138 of the NI Act, 1881 is a hybrid version of civil and criminal law. It is exactly for this reason, the legislature in its wisdom has used the civil law term of “cause of action” for the offence under Section 138 of the NI Act, 1881, which cannot be found in other penal statues. My views gain strength from the observations of the Supreme Court in R. Vijayan v. Baby,[44] wherein it was observed that:

  1. 16. … cases arising under Section 138 of the Act are really civil cases masquerading as criminal cases.… Chapter XVII of the Act is a unique exercise which blurs the dividing line between civil and criminal jurisdictions. It provides a single forum and single proceeding, for enforcement of criminal liability (for dishonouring the cheque) and for enforcement of the civil liability (for realisation of the cheque amount)….[45]

Also, in Harman Electronics case[46] the Court gave a go-by only to one of the principles of K. Bhaskaran case[47] i.e. place from where notice was issued does not give rise to cause of action, which was correct because under no branch of law, place from where notice is issued gives rise to cause of action,and Harman Electronics case[48] did not overrule the rest of the four principles of K. Bhaskaran case[49], which held the field till Dashrath Rupsingh[50] was decided.

Even the legislature has not accepted the Dashrath Rupsingh[51]view, that immediately within a year of the judgment, it came up with an amendment in the year 2015 stating that only that court will have jurisdiction where the payee maintains his account if he presents through his account (generally happens with cross-cheques) or where it is not presented through the payee’s account, then the court where the drawer maintains his account has jurisdiction.

Now the problem with the 2015 Amendment is that it has not been drafted as per the present practical needs. Till a decade ago, for all of the bank transactions, an individual had to physically visit the bank, therefore for his/her convenience whenever the account-holder shifted his/her residence or place of business he/she used to transfer his/her bank account from one branch to another or open a new account in the bank nearer to their locality, but, now after digitalisation, most of the banking transactions are taking place digitally and online through service providers like, PhonePe, Paytm, Google Pay, etc. Hence, people are not showing much interest in transferring or opening new bank account. For example, if A maintains an account in a bank having a branch in Chennai but due to job/business purposes he has shifted to Delhi, he can easily do banking transactions online and also, present even the cross-cheque at par in all branches of that bank without compulsorily going to his branch in Chennai. But, if the cross-cheque is dishonoured, as per the 2015 Amendment, he has to initiate Section 138 complaint only in the court where his bank branch is located in Chennai, which means he has to bear the legal expenses for the lawyers in Chennai, spend his time and money in travelling from Delhi to Chennai each time he is summoned to attend the court, which one cannot say how many times he has to attend.

Now, as the statute has conferred the territorial jurisdiction and as it is well settled that once the statute confers jurisdiction, courts cannot dilute it but are bound to follow it, hence, it is urged that Parliament comes up with an amendment to the NI Act, 1881 and confers the territorial jurisdiction on the courts trying cheque bounce cases by following the principles set out in K. Bhaskaran case[52], with only the court from where notice is issued being the exception as declared in Harman Electronics case[53]. Also, if the creditor initiates complaint against the same drawer from multiple courts just to harass him, such accused always has the remedy of transfer application  as enunciated in Chapter 31 from Sections 406 to 412 CrPC[54].


 *Advocate, Telangana High Court and co-author of Consumer Protection Act: A Commentary, (Eastern Book Company).  Author can be reached at akashbaglekar@gmail.com.

[1]http://www.scconline.com/DocumentLink/wgV2j1VM.

[2]http://www.scconline.com/DocumentLink/1g6m30k5.

[3]Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988.

[4](1999) 7 SCC 510.

[5]http://www.scconline.com/DocumentLink/onWy2d4F.

[6](1999) 7 SCC 510.

[7](2009) 1 SCC 720.

[8](1999) 7 SCC 510.

[9](2009) 1 SCC 720.

[10](2009) 1 SCC 720.

[11](2008) 13 SCC 77.

[12](1999) 7 SCC 510.

[13](2008) 13 SCC 77.

[14](2009) 1 SCC 720.

[15](2013) 10 SCC 72.

[16](2014) 2 SCC 255.

[17](2014) 2 SCC 266.

[18](1999) 7 SCC 510.

[19](1999) 7 SCC 510.

[20](2014) 9 SCC 129.

[21](1999) 7 SCC 510.

[22](2014) 9 SCC 129.

[23](2001) 3 SCC 609.

[24](2001) 3 SCC 609.

[25](2014) 9 SCC 129.

[26](2001) 3 SCC 609.

[27]Dashrath Rupsingh case, (2014) 9 SCC 129, 146, para 10.

[28](2001) 3 SCC 609.

[29](2014) 9 SCC 129, 146, para 10.

[30](2014) 9 SCC 129, 160-161, para 31.

[31](2001) 3 SCC 609.

[32](2001) 3 SCC 609.

[33](2001) 3 SCC 609.

[34](2014) 9 SCC 129.

[35](2001) 3 SCC 609.

[36](1999) 7 SCC 510.

[37](2001) 3 SCC 609.

[38](1999) 7 SCC 510.

[39](2001) 3 SCC 609.

[40](2001) 3 SCC 609.

[41](2014) 9 SCC 129.

[42]http://www.scconline.com/DocumentLink/W705Y641.

[43](2014) 9 SCC 129.

[44](2012) 1 SCC 260.

[45](2012) 1 SCC 260, 266.

[46](2009) 1 SCC 720.

[47](1999) 7 SCC 510.

[48](2009) 1 SCC 720.

[49](1999) 7 SCC 510.

[50](2014) 9 SCC 129.

[51](2014) 9 SCC 129.

[52](1999) 7 SCC 510.

[53](2009) 1 SCC 720.

[54]http://www.scconline.com/DocumentLink/72Mk5H3P.

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