JURISDICTIONAL DEVELOPMENT UNDER SECTION

138

• The jurisdiction would be explained with reference

to the Landmark cases of K.Bhaskaran Vs.
Sankaran VaidhyanBalan and Anr and the later
case of Dashrath Rupsingh Rathod v. State of
Maharashtra & Anr, while assessing the position
before and after these judgements.
• In 2015 The Negotiable Instruments ( Amendment)
Act was brought into picture which settled the
Jurisdictional Issue and had the effect of nullifying
the law as laid down by the Hon. Supreme Court in
2014, Dasrat Rathod case.
JUDMENTS BEFORE K BHASKARAN CASE

K.BHASKARAN VS. SANKARAN

VAIDHYANBALAN

DASHRATH RUPSINGH RATHOD V. STATE

OF MAHARASHTRA & ANR

THE NEGOTIABLE INSTRUMENTS

(AMENDMENT) ACT 2015
 P.K. Muraleedharan v/s C.K.Pareed and Anr

• (P. . Muraleedharan v/s C.K.Pareed and Anr 1993(1)ALT(Cri)424) Kerala

High court held that the place where the creditors resides or the place where

the debtor resides cannot be said to be the place of payment unless there is

any indication to that effect either expressly or impliedly. The cause of action

as contemplated in S. 142 of the Act arises at the place where the drawer of

the cheque fails to make payment of the money. That can be the place

where the Bank to which the cheque was issued is located. It can also be the

place where the cheque was issued or delivered. The Court within whose

jurisdiction any of the above mentioned places falls has therefore got

jurisdiction to try the offence under Section 138 of the Act.

 Sanjai Makkar and Ors.Vs.Saraswati Industrial
Syndicate Limited and Ors.

The High Court of Allahabad held "...so far as territorial

jurisdiction is concerned, the cause of action arises at a place

where the cheque was drawn, or a place where the cheque was

presented, or a place where the payee made a demand for

payment of the money by giving a notice in writing to the drawer

within the stipulated period and at a place where the drawer

failed to make the payment within 15 days of the receipt of

notice."
 SUNIL SRIVASTAVA V. SHRI ASHOK
KALRA

• It is manifest from the law laid down in the aforementioned judgment

that the cause of action for filing a complaint under Section 138 of the

Act may also be at a place where the drawer of the cheque resided or the

place where the payee resided for the place where either of them carried

on business or the place where payment was to be made. The complaint

can be filed before the court which has jurisdiction over any of these

places. In the cited case a complaint under Section 138 was filed before

a Magistrate at Adoor in Pathanamthitta District in Kerala. The accused

challenged the territorial jurisdiction of the court of try the case.

 “K. BHASKARAN” CASE
• It was held in para 12 of the said case that under Section
177 of the Code "every offence shall ordinarily be inquired
into and tried in a court within whose jurisdiction it was
committed. “The locality where the bank (which dishonored
the cheque) is situated cannot be regarded as the sole criteria
to determine the place of offence.
• NI Act and section 178(d) of the Code, held: "(1) Drawing of
the cheque, (2) Presentation of the cheque to the bank, (3)
Returning the cheque unpaid by the drawee bank, (4) Giving
notice in writing to the drawer of the cheque demanding
payment of the cheque amount, (5) failure of the drawer to
make payment within 15 days of the receipt of the notice... It
is not necessary that all the above five acts should have been
perpetrated at the same locality. But concatenation of all the
above five is a sine qua non for the completion of the offence
under Section 138 of the Code.
• Thus it is clear, if the five different acts were done in five
different localities, any one of the courts exercising
jurisdiction in one of the five local areas can become the
place of trial for the offence under Section 138 of the Act
• The aforesaid Bhaskaran case had many unintended
consequences. As per the case, the cheque bouncing case can
be registered either at locations, at the convenience of the
payee as the cheque may be drawn at Location A, presented
for payment and consequently dishonoured at Location B,
and legal notice may be issued to the drawer of the cheque
for payment of the cheque amount from his branch office
located in Location C, as he may have several bank accounts
in various places. This causes suffering to the drawer of the
cheque, although gives flexibility to the payee of the cheque
to choose the place where he was to file the cheque bouncing
case.
 NEW DIMENSIONS TO LAW DASHRATH
RUPSINGH RATHOD V. STATE OF MAHARASHTRA
&ANR. (AIR 2014 SC 3519)

• After the K. Bhaskaran judgement, it was felt at large that the law in

its wide expansive amplitude allowed the complainant to rather

rampantly abuse and misuse the law. It gave unrestricted power to the

payee to single handedly confer jurisdiction on a place of his

convenience, consequently, leading to harassment of the payer. Thus,

the new judgement by means of a strict approach sought to discourage

the payer from misusing or carelessly issuing cheques. Due sympathy

was thus shown or given to the drawer.

• It was held that:

• An offence under section 138 of the Act, will be considered

committed as soon as the cheque drawn by the accused on an

account maintained by him for the discharge of debt or liability

is returned without honored.

• 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.

• The court clearly addressed the term 'cause of action' and

held that the facts constituting cause of action do not

constitute the ingredients of the offence under Section 138 of

the Act. And, once the cause of action is triggered in favor of

the complainant, the jurisdiction of the court to try the case

will be determined by the place where the cheque was

returned dishonored.
 NEGOTIABLE INSTRUMENTS
(AMENDMENT) ACT, 2015
• On 1st August 2014, the Supreme Court had settled the issue of
territorial jurisdiction in cases under Section 138 of the Negotiable
Instruments Act (cheque bouncing cases) bringing uniformity and
certainty on the issue where such cases can be filed in Dashrath
Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129. The
Apex Court had said in this case that the territorial jurisdiction is
restricted only to the Court within whose local jurisdiction the offence
was committed, which is where the cheque is dishonoured by the bank
on which it is drawn. Many people had raised difficulties about this
judgment 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 legal
position was completely changed with promulgation of the Negotiable
Instruments (Amendment) Act, 2015, which has become effective from
15th day of June, 2015
 PROVISIONS
i. A cheque bouncing case could be filled only in the court at the
place where the bank in which the payee has account is located.

ii. Once the cheque bounce case is filed in one particular court
at a place in this manner, 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 would also have to be filed in the same court (even If
payee presents them in some bank in some other city or area)
All cheque bounce cases which were pending as on 15 June
2015 in different courts, were required to be transferred to the
court which has jurisdiction to try such case In the manner
mentioned above as per the Ordinance.
 CONCLUSIONS FROM THE AMENDMENT
Now the jurisdiction issue is settled as below:
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.
c. Also, explanation to Section 142(2) added in the
amendment Act 2015 provides that 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. This explanation
clarifies the issue of jurisdiction in case of multi-city cheques.

d. New Section 142A mandates centralisation of cases in one

court where first case is filed against the same drawer
irrespective of whether those cheques were delivered for
collection or presented for payment within the terrítorial
jurisdiction of that court,

e. This amendment has clarified on jurisdiction ambiguity and

is expected to help the trade and commerce in general and allow
the lending institution, including bank, to continue to extend
financing to the productive sectors of economy.
 ANALYSIS OF DIFFERENT SITUATIONS OF
DISHONOUR OF CHEQUE
1. NON-PAYNENT OF CHEQUE WITH ENDO-RSENENT "ACCOUNT CLOSED" IS
IT ANOFFENCE? YES.

• As mentioned earlier, section 138 of the Negotiable provides for punishing the
drawer of the cheque is dishonoured only under two eventualities. They are –

i. Instruments Act insufficiency of the amount in the account of the drawer of

the cheque to honour the cheque; and

ii. the amount covered by the cheque exceeds the amount arranged to be paid
from that account by the banker by an agreement made by the drawer with the
bank.

• The penal provisions under section 138 of the Act cannot be invoked on any
ground other than the two grounds mentioned above.

• If the drawer of the cheque closes his account with the bank on which the
cheque is drawn subsequent to the issue of the cheque is actually causing
insufficiency of money standing to the credit of his account. Thus, liable for the
penal consequences.
• The Gujarat High Court has held in Dada Silk Mills and
Others v. Indian Overseas Bank and another, (1995) 82
Comp. Cas. 35 that the endorsement "account closed"
would mean that though the account was in operation when
the cheque was issued and subsequently the account was
closed, which act prima-facie is referable to the intention of
the drawer not make payment. This would give rise to a cause
of action for criminal complaint which was not liable to be
quashed on the that it did not fulfil the ingredients of the
section because scheme of section 138 of the Act provided for
an opportunity to the drawer to explain the bankers
endorsement and he could always explain that the dishonour
of cheque was not referable to insufficiency of funds.
2. STOP PAYMENT INSTRUCTION TO BANK

After issuing the cheque, the drawer may give instructions to the bank to "stop

payment of cheque". It is known as "countermanding payment". It is difficult

to say that in all cases where payment is stopped by the drawer, the offence will

not arise. In every case of insufficiency of funds, It will be open to the drawer to

stop payment and keep the statute at bay. That is not intended. The matter will

have to be examined with reference to the facts of the case and decided upon

evidence which may be adduced by both the parties, by the trial court.

[Pappachan v. Joy (Ker.)]

3. CHEQUE DISHONOURED WITH ENDORSEMENT "REFER TO DRAWER"

Sometimes bankers may not be prepared to express to the commercial world

openly that the drawer has no funds in the account and that is perhaps the

reason for the banker finding out euphemistic expression "Refer to drawer" to

politely tell the outside world that the customer who issued the cheque is not

having "sufficient funds" to his credit for the cheque to be honoured. In T.

Kesavan v. D.Parvatham, (1995)83 Comp. Cas. 269 (Mad.)], the Madras High

Court has held that the endorsement "Refer to Drawer" would only amount to

saying in a courteous manner that there were no sufficient funds in the account

of the drawer of cheque. Hence, if a cheque is dishonoured with the

endorsement “Refer to Drawer" the payee or the holder-in-due course can file a

criminal complaint.
4. CHEQUE DISHONOURED WITH ENDORSEMENT "EXCEEDS ARRANGEMENT”

The expression "exceeds arrangement" Is used by banks to convey that the drawer of
the cheque has credit limit with the bank, but the amount of the cheque exceeds the
drawing power available in the account. Hence, if a cheque is returned by the bank
with the endorsement "exceeds arrangement”, the payee or holder as the case may
be, Is entitled to file a criminal complaint.

5. CHEQUE DİSHONOURED WITH ENDORSEMENT “EFFECTS NOT CLEARED"

The endorsement "effects not cleared" means that the customer (i.e. the drawer) has
deposited one or more cheques/drafts into his account with the bank which are in the
course of collection, but the proceeds of such cheque or cheques/drafts are not
available for meeting the cheque issued by the customer (i.e. drawer) when presented
for payment. The payee or the holder in due course can file a criminal complaint for
dishonour of the cheque. However, it would be advisable for him to present the
dishonoured cheque again for collection, as the chances of collecting such cheque are
bright.
6. CHEQUE DISHONOURED WITH ENDORSEMENT “NOT ARRANGED FOR”

The pharse “not arranged for” mans overdraft facility is not either Sanctioned
or the overdraft facility already sanctioned is not sufficient to meet the cheque
presented for payment. If a cheque is returned by the bank with remarks “not
arranged for”, the payee or the holder in due course as the case may be, is
entitled to file a criminal complaint for dishonour of the cheque which was
issued to discharge a debt or other liability.

7. CHEQUE DISHONOURED WITH REMARKS “FULL COVER NOT RECEIVED"

The expression "Full cover not received" conveys that adequate funds to
honour the cheque are not available in the customer's account. It may also
mean that the customer has not given adequate security to cover the over draft
which might be created by paying the cheque. The payee or the older-in-due
course, as the case may be, is entitled to file a criminal complaint if a cheque is
returned with remarks "Full cover not received" and if the cheque was issued to
discharge a debt or other liability.
8. CHEQUE DISHONOURED WITH THE ENDORSEMENT “SUIT FILED

AGAINST ACCOUNT”.

Where cheque was returned with the endorsement "suit led against account" the

Bombay High Court has held that it leads to the only inference that the drawer

had no funds in the account. [ Pawankumar v. Ashish Enterprises, (1993) 78

Comp. s. 346 (Bom)]. So a criminal complaint can be filed if a cheque is

returned with the bank's endorsement, "suit filed against account.

9. DISHONOUR OF ELECTRONIC FUNDS TRANSFER FOR INSUFFICIENCY

OF FUNDS IN THE BANK ACCOUNT - CLARIFICATION

As you may be aware Section 25 of the Payment and Settlement Systems

Act, 2007 accords the same rights and remedies to the payee (beneficiary)

against dishonour of electronic funds transfer instructions for insufficiency of

funds in the account of the payer (remitter), as are available to the payee under

section 138 of the Negotiable Instruments Act,1881.

The sub-section (5) of the section 25 of the Payment and
Settlement Systems Act, 2007 provides for punishment of two years
and twice the amount of electronic funds transfer instruction, or both
for dishonour of such electronic funds transfer on par with the
penalties stipulated for dishonour of cheques under the Negotiable
Instruments Act, 1881.

(R.B.I. Notification No. DPSS. CO.PD.No.497/02.12.004/2011-12

dated September 21, 2011)
POST DATED CHEQUES –
The judicial analysis of the distinction between post dated cheques and other
cheques, has again come up for consideration before the Supreme Court in Ashok
Yeshwant Badave vs. Surendra Madhavrao Nighojakar & Anr. (2001) 105 Comp
Cas.167 (SC) and the Supreme Court in the latest decision highlighted the
distinction between a post-dated cheque and a current cheque with reference to
the English and other foreign cases. After referring to English and a few Indian
cases, the Supreme Court has laid down that "From a bare perusal of section 5
and 6 of the Act it would appear that a bill of exchange is a negotiable instrument
in writing containing an instruction to a third party to pay a stated sum of money
at a designated future date or on demand. On the other hand, a 'cheque is a bill of
exchange drawn on a bank by the holder of an account payable on demand. Under
section 6 of the Act a 'cheque' is also a bill of exchange but it is drawn on a
banker and payable on demand. A bill of exchange even though drawn on a
banker, if it is not payable on demand, it is not a cheque: A 'post-dated cheque' is
not payable till the date which is shown thereon arrives and will become a cheque
on the said date and prior to that date the same remains a bill of exchange.
For prosecuting a person for an offence under section 138 of the Act, it
is inevitable that the cheque is presented to the banker within a period
of six months from the date on which it is drawn or within the period of
its validity whichever is earlier. When a post-dated cheque is written or
drawn, it is only a bill of exchange and so long as the same remains a
bill of exchange, the provisions of section 138 are not applicable to the
said instrument. The post-dated cheque becomes a cheque within the
meaning of section 138 of the Act on the date which is written thereon
and the six months period has to be reckoned for the purpose of
proviso (a) to section 138 of the Act from the said date.

The cheque having been dishonoured in spite of its presentation within

the period of its validity, action for prosecution would be valid.