Monday 9 January 2017

ANALYSIS OF NEGOTIABLE INSTRUMENTS ACT AMENDMENT

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.   



[1] Criminal Appeal No. 2287 of 2009
[2] (1999)7SCC510
[3] (2009) 1 SCC 720
[4] Criminal Writ Petition No. 2362 of 2014
[5] SLP (Criminal) No. 7251 of 2014

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