ANALYSIS OF NEGOTIABLE INSTRUMENTS ACT AMENDMENT 2015*
·
Introduction:
The Amendments to the Negotiable Instruments Act,
1881 ("The NI Act") focused on
clarifying the jurisdiction related issues for filing cases for offence
committed under section 138 of the NI Act.
The clarity on jurisdictional issues for
trying cases of cheque bouncing would increase the credibility of the cheque as
a financial instrument. This would help trade and commerce in general and allow
the lending institution, including banks, to continue to extend financing to
the economy, without the apprehension of loan default on account of bouncing of
a cheque.
In view of the urgency to create a
suitable legal framework for determination of the place of jurisdiction for
trying cases of dishonour of cheques under section 138 of the NI Act, the
Government had decided to amend the law through the Negotiable instruments
(Amendment) Ordinance, 2015.
The objective was to ensure that a fair
trial is conducted keeping in view the interests of the complainant by
clarifying the territorial jurisdiction for trying the cases for dishonour of
cheques. The Amendment states that the substantive principle for determination
of the jurisdiction of cases under section 138 of the NI Act remains the same,
except that that two distinct situations of payment of cheque (i) by submitting
the same for collection through an account or (ii) payment of a cheque
otherwise through an account, that is, when cheques are presented across the
counter of any branch of drawee bank for payment, are covered under the
Amendment.
·
Background:
Section 138 of the NI Act deals with the offence
pertaining to dishonour of cheque for insufficiency, etc., of funds in the
drawer's account on which the cheque is drawn for the discharge of any legally
enforceable debt or other liability. The object of the NI Act is to encourage
the usage of cheques and enhancing the credibility of the instrument so that
the normal business transactions and settlement of liabilities can be ensured.
Various financial institutions and industry
associations have expressed difficulties, arising out of the recent legal
interpretation of the place of jurisdiction for filing cases under Section 138
to be the place of drawers' bank by the Supreme Court. To address the
difficulties faced by the payee or the lender of the money in filing the cases
under Section 138 of the NI Act, because of which, large number of cases were
stuck, the jurisdiction for offence under Section 138 has been proposed to be
clearly defined. Accordingly, the Negotiable Instruments (Amendment) , 2015
("the Bill") in Parliament was introduced in Lok Sabha on 6th May,
2015 and considered and passed by Lok Sabha on 13th May, 2015. However, since
the Rajya Sabha was adjourned sine die on 13th May, 2015, the Bill could not be
discussed and passed by that House and the Bill could not be enacted in that
session. The Bill was finally passed in the Rajya Sabha in its next session and
received President’s Assent on 29 December 2015.
The Amendment provides for filing of cases only by a
court within whose local jurisdiction the bank branch of the payee, where the
payee delivers the cheque for payment is situated. Further, where a complaint
has been filed against the drawer of a cheque in the court having jurisdiction
under the new scheme of jurisdiction, 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 presented for payment within the
territorial jurisdiction of that court.
Further, it has been provided that if more than one
prosecution is filed against the same drawer of cheques before different
courts, upon this fact having been brought to the notice of the court, the
court shall transfer the case to the court having jurisdiction as per the new
scheme of jurisdiction.
·
Judicial
trajectory:
Section 138 of the Act
provides that an offence will be deemed to have been committed in the event of
dishonour of cheque for insufficiency, etc of funds in the account. Vide the
decision in Dashrath Rupsingh
Rathod v. State of Maharashtra and Another[1],
a three-judge bench of the Apex Court of India held that the territorial
jurisdiction qua dishonour of cheques is restricted to
the court within whose local jurisdiction the offence was committed, i.e. the
bank on which it is drawn. The observations of the Apex Court in Dashrath Rupsingh marked a departure from the Apex
Court's observations and findings in, inter
alia, K. Bhaskaran v.
Sankaran Vaidhyan Balan[2] and Harman
Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd.[3].
As a consequence, complaints under Section 138 of the Act were to be filed/
returned (in the event filed prior to the judgment and wherein proceedings had
not traversed the stage of Section 145(2) of the Act) for filing in the
"proper court", i.e. the Court within whose jurisdiction the bank on
which the cheque in question was drawn is situated.
·
Lacunae:
Consequential to the
decision of the Apex Court in Dashrath
Rupsingh, uncertainty with respect to the "proper court" in
relation to institution of complaints qua at par cheques arose. The Bombay High
Court dealt with this issue in the case of Ramanbhai
Mathurbhai Patel v State of Maharashtra[4].
The Bombay High Court considered the scenario when at par cheques are
dishonoured by a branch of the bank other than the drawee bank branch. The
issue in this regard was whether "proper court" will be the Court
within whose juridisction the cheque has been dishonoured or the Court within
whose jurisdiction the drawee bank branch is situated. Dismissing the petition,
the High Court held that the complaint will be tried by the Court within whose
jurisdiction the cheque is dishonoured. The Bombay High Court surmised that by
issuing at par cheque, the drawer has given the option to the banker of the
payee to get the cheques cleared from the nearest available branch of the bank
of the drawer.
While the Apex Court's
decision in Dashrath Rupsingh provides that the jurisdiction shall
vest with the court where the cheque is dishonoured; in the instance of at par
cheques, there could be multiple places where the cheque can be dishonoured.
Consequentially, a
Special Leave Petition[5] was filed against this decision of the
Bombay High Court. The Apex Court, vide its order dated 16.09.2014, stayed the
order of the Bombay High Court. However, vide its order dated 20.03.2015, the
Apex Court dismissed the SLP as withdrawn. Therefore, the lack of clarity
pertaining to jurisdiction qua at par cheques prevailed.
Further, the aftermath
of Dashrath Rupsingh witnessed procedural delays with
regard to continuation of proceedings under the Act. These included delays
associated with, inter alia,
transfer formalities, oppositions to transfer requests, arguments upon the
stage of evidence as envisaged in Section 145(2) of the Act. There was also
express discontent over the transfer/initiation of the complaints, pursuant to
the jurisdiction vesting with the court where the bank of the defaulter is
situated.
The aforementioned
lacunae, inter alia, led
to representations by stakeholders, industry associations to the Government of
India so as to redress the impact of the Dashrath
Rupsingh decision upon
business interests. In order to
address the existing and contemplated difficulties in filing of complaints
under Section 138 of the Act; the Government sought to introduce amendments to
the relevant provisions of the Act by means of the Bill.
·
SALIENT
FEATURES OF THE AMENDMENT
The Amendment Act
amends the NI Act in order to regulate the jurisdiction of courts qua cheque bouncing vide the below
mentioned modifications/ insertions:
- Section 142 of the Act has been amended by the
Amendment via introduction of sub-section (2), the language whereof is
reproduced hereunder for ease of reference:
"(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." - Section 142A has been inserted by means of the
Ordinance, the language whereof is reproduced hereunder for ease of
reference:
"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."
·
ANALYSIS:
Subsequent to the
Amendment, the jurisdiction to hear complaints under Section 138 of the Act now
vests with the court within whose jurisdiction the bank branch of the payee is
situated. Further, in terms of Section 142A of the Act, all subsequent
complaints under Section 138 of the Act against the same drawer shall be filed
before the same court, regardless of the place where the cheques were presented
for payment. This position is a clear departure from the position laid down by
the Apex Court in the Dashrath
Singh.
In my opinion, the position
pursuant to the Amendment; it balances
the interests of the payee and drawer. If the jurisdiction is determined by
reference to the place where the cheque is presented for payment, in the event
that the drawer issues several cheques drawn on different banks in different
locations to the payee, the payee will not have to file complaints in all the
courts within whose jurisdiction the cheques are drawn. Further, since the
court under the amended Section 142 of the Act will have jurisdiction to try
all subsequent complaints against the drawer, the interests of the drawer and
the payee are thereby sufficiently balanced. The Amendment also clarifies the
position with respect to the cheques payable at par at all branches of the
drawer bank, as the place where the bank of the accused is situated or where
the cheque is dishonoured no longer holds relevance. It is also relevant to
note that by amending Explanation I to Section 6 of the Act, the deficiencies
relating to the meaning of the expression "a cheque in the electronic
form" have been removed.
Prajval Albuquerque.
*
This article is solely based on the compilation of relevant parts from the articles
published by Singh and Associates, Luthra and Luthra and Alpha Partners which
have been subjected to certain modifications by me.
