Introduction
In order to create a suitable legal framework for determination of the place of jurisdiction for trying cases of dishonor of cheques under section 138 of the Negotiable Instruments Act, 1881 (“Act”), the Act has been amended by the Negotiable Instruments (Amendment) Act, 2015 (“Amendment Act”). The Amendment Act was published in the Gazette of India, Extraordinary on 29th December, 2015, but made applicable with an restrospective effect from 15th June, 2015.
Evolution of the Amendment Act
The Negotiable Instruments (Amendment) Ordinance, 2015 (“First Ordinance”), was promulgated by the President of India on 15 June 2015. The Parliament assembled on 21 July 2015 for the Monsoon session, but didn’t re-promulgate the First Ordinance, on account of which the First Ordinance ceased to operate on August 31, 2015.
During the Monsoon session of the Parliament, the Negotiable Instruments (Amendment) Bill, 2015, which was based on the First Ordinance, was passed by the Lok Sabha on 6 August 2015. However, this Bill could not be passed by the Rajya Sabha.
The lapsing of the First Ordinance caused uncertainty in a large number of cheque bouncing cases pending before various courts in India and also a large number of cases that were in the process of being filed. Therefore, on 22 September 2015, the President of India promulgated a new ordinance, namely, the Negotiable Instruments (Amendment) Second Ordinance, 2015 (“Second Ordinance”), which too came into existence retrospectively from 15 June 2015.
Further, the Negotiable Instruments (Amendment) Bill, 2015 was passed by the Parliament in the recently concluded Winter Session of the Parliament and the Negotiable Instruments (Amendment) Act, 2015 replaced the Second Ordinance.
Background
In August 2014, the Honorable Supreme Court of India held in the case of Dashrath Rupsingh Rathod v/s State of Maharashtra and Anr that, in case of dishonor of a cheque, the payee could file a suit against the drawer with the Court (Magistrate) having the local jurisdiction over the bank on which it is drawn (i.e. where the drawee bank was situated).
Illustration: If a cheque is drawn by a person on his bank account at Mumbai, if the cheque is dishonoured, case in respect of this cheque can be filed only in a court at Mumbai. Such a case cannot be filed at any other place. So even if the payee of the cheque presents it for clearing at Delhi, he cannot file a suit at Delhi.
Difficulties arising out of the Supreme Court’s Judgment
Offered undue protection to defaulters at the expense of the aggrieved complainant.
Went against the general principle that a debtor must chase the creditor and not vice versa.
Prone to give rise to multiplicity of cases covering several cheques drawn on bank(s) at different places. This was so because the payee of the cheque had to file the case at the place where the drawer of the cheque has a bank account.
The Supreme Court had directed that only in those cases where post the summoning and appearance of the alleged accused, the recording of evidence has commenced as envisaged in section 145(2) of the Negotiable Instruments Act, 1881, proceeding will continue at that place. All other complaints (including those where the accused / respondent has not been properly served) shall be returned to the complainant for filing in the proper court, in consonance with exposition of the law, as determined by the Supreme Court. Therefore, lakhs of cases pending in various courts across the country witnessed an interstate transfer of cheque bouncing cases.
Changes made by the Amendment Act
The Amendment Act is focused on clarifying the jurisdiction related issues for filing cases for offence of dishonor of cheque.
In case of crossed cheques, the suit for dishonor of cheque can be instituted by the payee within whose local jurisdiction the bank branch of the payee is situated.
In case of bearer cheque, the suit for dishonor of cheque can be instituted by the payee only within whose local jurisdiction the branch of the drawee bank is situated.
Illustrations:
In case of crossed cheque – If the payee is based in Delhi, has an account in a bank in a particular area of Delhi and if he receives a crossed cheque from someone in Mumbai. Then the payee can present the cheque in Delhi in the bank where he has his account. Now, if this cheque is dishonored, then the cheque bounce case can only be filed in Delhi in the court which has jurisdiction over the area where the payee’s bank is located.
In case of bearer cheque – If the payee is based in Delhi, has an account in a bank in a particular area of Delhi and if he receives a bearer cheque from someone in Mumbai. Then the payee can present the cheque in Delhi in the bank where is has his account. Now, if this cheque is dishonored, then the cheque bounce case can only be filed in Mumbai in the court which has jurisdiction over the area where your bank is located.
If the payee has instituted a cheque bounce case in one particular court at a place in the abovementioned manner then all subsequent cheque bounce cases with respect to the same drawer has to be filed in the same court even though the payee has presented them in some bank in some other city or area. The purpose of the aforesaid provision is to ensure that the drawer of the cheque is not harassed by filling multiple check bounce cases at different locations.
If more than one cheque bouncing case is pending as on 15th June 2015 against the same drawer of cheques before different courts then, upon the said 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 i.e. the case will be transferred to the court which has jurisdiction over the place where the bank of the payee is located.
About Bulwark Solicitors
Bulwark Solicitors is a law firm pioneered by Solicitor Chirag Sancheti and Advocate Deep Shridharani. The firm has expertise in the areas of both Litigation and non-Litigation. Under the non-litigation Law practice, the firm practices in the areas of Corporate Law, Intellectual Property Law, Bankruptcy & Insolvency Law, Competition Law, Real Estate and Conveyancing and DTAA Advisory. Further, under Corporate Law area, we practice Company Law, Securities Law, Mergers and Amalgamations, Private Equity and Venture Capital Investment Transactions, Legal Due Diligence and Foreign Exchange Management Law.