.Author: Shubham Phophalia | Featured-Pic Credit: Shashwat Ashiya


Basic

A negotiable instrument is a written order or unconditional promise to pay a fixed sum of money on demand or at a certain time. A negotiable instrument can be transferred from one person to another. Once the instrument is transferred, the holder obtains full legal title to the instrument.  The transfer should be unrestricted and in good faith. 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.

Some Examples of Negotiable instruments are Promissory notes, Cheques, Bills of Exchange, bearer bonds, bank notes etc.

Introduction to Amendments
  • Negotiable Instruments are being used in commercial transactions for a handsome period of time as been one of the convenient modes of transferring money.
  • When cheques were issued as negotiable instruments, there always remains a possibility of the same being issued without sufficient amount, and with a view to protect the drawee of cheque, the need for dishonour of cheque being a criminal offence was felt.
  • And thus, Sections from 138 to 142 were inserted by Banking, Public Financial Institutions and Negotiable Instruments Amendment Act, 1988, and this was done in order to make the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds with adequate safeguards and to prevent harassment of the honest drawer.
What is Cheque?

Section 6  of Negotiable Instruments Act defines cheque as :- “Cheque”-

A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.  Explanation I.-For the purposes of this section,  the expressions-

(a)  “a  cheque in the electronic form” means a cheque which  contains  the  exact  mirror image of a paper cheque, and is generated,  written  and  signed  in a secure system ensuring the minimum safety  standards  with  the  use  of  digital  signature  (with  or  without  biometrics  signature) and asymmetric cryptosystem;

(b)  “a truncated cheque” means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

 Explanation  II.-For  the  purposes of this  section,  the  expression  “clearing  house” means the clearinghouse managed by the Reserve Bank  of India or a clearinghouse recognised as such by the Reserve Bank of  India.’

Section 138 of Negotiable Instruments Act, 1881
  • Section 138 Negotiable Instruments Act as it is at present after coming into force of The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002:
  • Dishonour of cheque for insufficiency, etc., of funds in the account:
  • “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 provision 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-
  • (a) 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;
  • (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 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.
Ingredients

The ingredients of offence as contemplated under this section are:

  • The cheque must have been drawn for discharge of existing debt or liability.
  • Cheque must be presented within 6 months or within validity period, whichever is earlier.
  • Cheque must be returned unpaid due to insufficient funds or it exceeds the amount specified.
  • Fact of dishonour be informed to the drawer by a notice within 30 days.
  • Drawer of cheque must fail to make payment within 15 days of receipt of notice.
Presumptions
  • Until the contrary is proved, the presumption is in favour of holder of cheque that it was drawn for discharge of debt or liability. In case of Goa Plast Pvt Ltd v Shri Chicho Ursula[1], relations between accused and complainant were of employee and employer. No evidence to prove the liability of accused. The honourable Bombay High Court held that complainant failed to prove that the cheque was issued for discharge of liability.
  • Many times cheque issued bearing no date or post-dated cheques, thereby subsequently inserting the date won’t amount to tampering.
  • The return of cheque is itself an indication that funds are not forthcoming. Thus, the liability of the drawer cannot be avoided if he closes the account and cheque is dishonoured.
  • An offence under Section 138 is computed only when payment is not made by drawer on expiry of 15 days after service of the notice as prescribed by proviso (c) of Sec. 138.
Jurisdiction

Considering the matter of jurisdiction, the Apex Court in K Bhaskaran v Shankaran[2], had given jurisdiction to initiate the prosecution in any of the following places:

  • Where cheque is drawn.
  • Where payment had to be made.
  • Where cheque is presented for payment.
  • Where cheque is dishonoured.
  • Where notice is served up to drawer.

However, recently in the case of Dasrath Rupsingh Rathod v State of Maharashtra[3], it was held that:

  • 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.
  • The facts constituting cause of action do not constitute the ingredients of the offence under Section 138 of the Act.
  • 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.
  • 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.
Notice

Notice must be in writing informing that cheque is returned unpaid and it should be within 30 days from receipt of information of dishonour.

The Apex Court in K Bhaskaran v Shankaran[4], observed that giving notice is not same as receipt of notice.

Who Can File Complaint

Payee or holder in due course is a competent person to file complaint. Complaint   must be made by corporeal person capable of making physical appearance in the court.

In case[5] of company and firm natural person should represent it. Complaint can be filed by   Power of Attorney Holder.

Cause of Action

It arises when notice is served on the drawer and drawer fails to make payment of the amount of cheque within 15 days. Limitation is 1 month. However, by amendment of 2002, court is empowered to take cognizance of the offence even if complaint is filed beyond 1 month by condoning, if sufficient cause is shown.

Punishment

Imprisonment extendable to 2 years- after 2002 amendment, while fine has extended to twice the amount of cheque.

In Dilip v Kotak Mahendra Company Ltd 2008 (1) Mh LJ 22, the amount of compensation sought to be imposed mustbe reasonable and not arbitrary.

Precedents Ruling

The ruling in Bhaskaran case was diluted in Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd.[6] The Court addressed the issue of whether a Delhi Court would have jurisdiction solely because the statutory notice under Section 138 of the Act was issued from Delhi. The Court held that:-

  1. It said that there was a world of difference between issue of a notice, on the one hand, and receipt, thereof, on the other. Issue of notice did not give rise to a cause of action while receipt did, it was declared by the Court.
  2. The Court held that a notice is one of the ingredients for the maintaining the complaint. It is only on receipt of the notice that the accused at his own peril may refuse to pay the amount. Clauses (b) and (c) of the proviso to Section 138, therefore, must be read together. Issuance of notice would not by itself give rise to a cause of action but communication of the notice would.
  3. The Court held that if presentation of the cheque or issue of notice was to constitute a good reason for vesting courts with jurisdiction to try offences under Section 138, it would lead to harassment of the drawer of the cheques thereby calling for the need to strike a balance between the rights of the parties to the transaction.

So the Jurisdictional perspective as given in Bhaskaran case was diluted and the logic behind vesting of jurisdiction based on the place from where the notice was issued questioned. Even presentation of the cheque as a reason for assumption of jurisdiction to take cognizance was doubted for a unilateral act of the payee of the cheque could without any further or supporting reason create jurisdiction on a Court within whose territorial limits nothing except the presentation of the cheque had happened.

The judgments in Bhaskaran and Harman case showed the liberal and the strict views, respectively, on the issue of territorial jurisdiction for trial of the offence of dishonour of cheques under Section 138 of the Act.

Thereafter the Hon’ble Supreme court decided on First of August,2014 , in the case of Dashrath Rupsingh Rathod vs. State Of Maharashtra & Anr., Bearing criminal Appeal No. 2287 of 2009 , Hon’ble Mr. Justice T.S.Thakur held that applying the general rule recognised under Section 177 of the Cr.P.C. that all offences are local, the place where the dishonour occurs is the place for commission of the offence vesting the Court exercising territorial jurisdiction over the area with the power to try the offences.

 

Justice Thakur summarized the principles as follows

  1. 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 is  returned unpaid for insufficiency of funds or for the reason that the amount is more than the arrangement made with the bank.
  2. Cognizance of any such offence is however prohibited 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.
  3. The  cause  of  action   to   file   a   complaint   accrues   to   a complainant/payee/holder of a cheque in due course if-
    1. the dishonoured cheque is given to the drawee bank within a period of six months from the date of its issue.
    2. the complainant wants payment of cheque amount within thirty days of receipt of information by him from the bank regarding the dishonour of the cheque and
    3. the drawer cannot to pay the cheque amount within fifteen days of receipt of such notice.
    4. The facts constituting cause of action do not comprise the ingredients of the offence under Section 138 of the Act.
    5. 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.
    6. Once the cause of action accrues to the complainant, the jurisdiction of the Court to try the suit will be determined by reference to the place where the cheque is dishonoured.
    7. The general rule conditioned under Section 177 of  Cr.P.C  applies to cases under Section 138 of the Negotiable Instruments Act.   Prosecution  in such suits 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.
    8. 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.

So by this case, the position of territorial jurisdiction of Negotiable Instrument 138(Cheque Bouncing Cases) changed and now a petitioner can only file a complaint with regard to dishonour of cheque in a court which has the territorial jurisdiction over the place where the cheque is dishonoured by the bank on which it is drawn.

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.

After this judgment, 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.

Conclusion

In the analysis of the above laws and the quoted Hon’ble Supreme court decisions it is crystal clear that the place, site or venue of judicial inquiry and trial of the offence u/s 138 of Negotiable Instrument Act, 1881 must logically be restricted to where the drawer bank is located and this can also be inferred from the bare reading of section 138 of N.I Act read with section 177 of Criminal Procedure Code, 1973 which leaves no iota of doubt that return of cheque by the drawee bank along constitute the commission of offence and indicates the place where the offence is committed.

While taking into consideration the territorial aspect on the same at “At Par Cheques”, the Hon’ble High Court of Bombay held that the cheques issued at par provide the complainant an option to choose the place of jurisdiction. But because this verdict is by the Hon’ble High Court of Bombay so it is not binding to all and that is why restricted within the territory of the Jurisdiction of the Hon’ble High Court Of Bombay and having no binding effect on other territories though it may be consider by them. So till now according to Art. 141 of the Constitution of India, the decision of Hon’ble Supreme Court in the case of Deshrath Rupsingh Rathod is binding to all a to all and so the jurisdiction restricted to where the drawer bank is located.


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[1] 1996 (4) All MR 40

[2] AIR 1999 SC 3762

[3] MANU/SC/0655/2014

[4] 2000 (1) Mh LJ 193.

[5] Associated Cement Company Ltd v. Keshavnand (1998) 91 Company Cases 3619 SC.

[6] Harman Electronics (P) Ltd. v. National Panasonic India (P) Ltd. (2009) 1 SCC 720.


About the Author: Shubham is a 2016-21 batch law student at Gujarat National Law University, Gandhinagar.


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