Section 138 of Negotiable Instruments Act, 1881

Section 138 of the Negotiable Instruments Act, 1881 (“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. Under Section 138 of the NI Act, the dishonour of a cheque would be liable to be punished by imprisonment or fine to both.

Issue at hand

No clarity had been provided in the NI Act regarding the jurisdiction for filing of such cases of dishonor of cheques.

Supreme Court Judgement

On 1st August, 2014, Supreme Court had settled this issue of territorial jurisdiction in the case of Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129. In this case, a 3-Judge bench of the Supreme Court had held that a cheque bouncing case can be filed only in a court which has the territorial jurisdiction over the place where the cheque is dishonoured by the bank on which it is drawn.

Negotiable Instruments (Amendment) Bill, 2015

Various financial institutions and industry associations have expressed difficulties, arising to the payee out of this judgement. 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) Bill, 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.

Negotiable Instruments (Amendment) Ordinance, 2015

1. 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 decided to amend the law through the Negotiable instruments (Amendment) Ordinance, 2015 (“NI Ordinance”), which was passed on 15th June, 2015 by President Shri Pranab Mukherjee.
2. The NI Ordinance lapsed on 31 August 2015.

Negotiable Instruments (Amendment) Second Ordinance, 2015

1. The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, gave its approval for the proposal to promulgate the NI Ordinance on 16th September, 2015.
2. On 22 September 2015, the President of India Shri Pranab Mukherjee has promulgated a new ordinance, namely, the Negotiable Instruments (Amendment) Second Ordinance, 2015 (“NI Second Ordinance”)
3. To avoid uncertainty regarding the jurisdiction of Section 138 cases for the period beginning from 31st August, 2015 (when the NI Ordinance lapsed) and ending on 22nd September, 2015, NI Second Ordinance shall be deemed to have come into existence with effect from 15 June 2015, i.e., the date from which the first such Ordinance had come into effect.
4. The provisions under the NI Second Ordinance are the same as under the first NI Ordinance issued on 15 June 2015.

Change in definition of  “a cheque in electronic form”

A cheque includes “a cheque in electronic form”, which is now redefined as a cheque drawn in electronic form using any computer resource and signed in a secured system with digital signature (with or without biometric signature) and asymmetric crypto system or with electronic signature.

Jurisdiction

1. The objective of the ordinances is 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.
2. Now a cheque bouncing case can be filed only in the court at the place where the bank in which the payee has account is located. For example, if a person based at Ahmedabad receives a cheque from someone in Mumbai and presents it for encashing to its bank located in some area of Ahmedabad and if this cheque is dishonoured, then the cheque bounce case can be filed only in Ahmedabad in the court which has jurisdiction over the area where the bank is located.
3. If the cheque is presented for payment by the payee otherwise than through an account, the cheques bouncing case can be filed in a court within whose local jurisdiction the branch of the drawee bank where the drawer maintains the account is situated.
4. Once a cheque bounce case has been filed in one particular court at a place, subsequently if there is any other cheque of the same party (drawer) which has also bounced, then all such subsequent cheque bounce cases against the same drawer will also have to filed in the same court (even if they are presented in some bank in some other city or area). This will ensure that the drawer of cheques is not harassed by multiple cheque bounce cases at different locations. So, even multiple cheque bounce cases against the same party can be filed only in one court even if the cheques are presented in different banks at different locations.
5. All cheque bounce cases which are pending as on 15th June, 2015 in different courts in India, will be transferred to the court which has jurisdiction to try such case in the manner mentioned above, i.e., such pending cases will be transferred to the court which has jurisdiction over the place where the bank of the payee is located. If there are multiple cheque bounce cases pending between the same parties as on 15th June, 2015, then all such multiple cases will be transferred to the court where the first case has jurisdiction as per above principle.