Friday, June 19, 2015

Ordinance Finally Brings Clarity regarding Cheque Bounce Cases

Section 138 of the Negotiable Instruments Act, 1881 contains the offence of ‘dishonour of cheque’, commonly known as ‘cheque bouncing’. Though it is one of the most commonly used provisions of criminal law in India – in several court complexes there is a designated courtroom dealing with only section 138 cases all year round – yet there has been great confusion regarding the jurisdiction of courts in these cases which the government sought to settle once and for all by promulgating the NegotiableInstruments (Amendment) Ordinance, 2015.

Section 138 lays down that the person who receives a cheque which bounces when presented for payment can approach a magistrate for bringing criminal action against the drawer of the cheque if the cheque amount is not paid within 15 days of giving a notice to the drawer.

The Multiple jurisdictions system and its problems
For several years, the victim who received a cheque which bounced had the freedom to lodge a complaint before either the magistrate in whose jurisdiction the collecting bank (bank branch where cheque was presented for payment) is located or with the magistrate in whose jurisdiction the drawee bank (bank branch in which accused has an account and on which the cheque is drawn) is located or even the magistrate of the place from where the notice was issued. Infact the 1999 Supreme Court judgement (K Bhaskaran v. Sankaran Vaidhyan Balan) regarding jurisdiction in such matters was so broad that there could even be five possible jurisdictions based on where each of the five elements of the offence is committed. This often led to abuse of the system where complainants presented the cheques in faraway places or issued notices from cities with no link to the transaction just so that they could file the complaint from these third cities.

Supreme Court changes course
However, the Supreme Court upset the existing status quo when in Dashrath Rupsingh Rathod v. State of Maharashtra, it held that the offence was committed only when the cheque was returned by the drawee bank for the lack of funds and thus only the magistrate of the place where the drawee bank is located had the jurisdiction to hear the case. This now meant that if a cheque drawn on a bank branch in Srinagar was given to a person living in Chennai and it bounced when presented it for payment at a bank branch in Chennai, the victim shall have to travel all the way from Chennai to Srinagar to file a case. This is because the offence is committed when the bank in Srinagar returns the cheque for lack of funds and not before that.

Problems Galore
The Dashrath Rupsingh Rathod decision of the Supreme Court meant that lakhs of cases had to be transferred to other courts or withdrawn to be filed again. Further complications were added because many banks now issue cheques that are ‘payable at par’. When presented for payment, these cheques are processed not by the bank branch on which they are drawn but by the same bank’s branch closer to where the cheque is presented for payment. The Supreme Court had not clarified where exactly the offence is deemed to be committed and where the jurisdiction shall lie in such cases.

The Ordinance Fix
The ordinance promulgated by the President on Tuesday again changes the jurisdiction in cheque bounce matters by adding section 142(2) –
(2) The offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment, is situated
 As per the ordinance, the local court within whose jurisdiction the cheque is presented for payment shall have jurisdiction over the matter meaning that if you issue a cheque drawn on a bank in Srinagar and give it to someone who presents it to his bank branch in Chennai for deposit in his account, only the courts of Chennai shall have jurisdiction. In the past, in cases of multiple cheque bouncing, some complainants used to present the various cheques which they held in different places in order to harass the accused by have commencing criminal proceedings in various different cities. However, the new ordinance puts an end to such harassment by making it clear in section 142A(2) that once one cases is filed in one court, for all the future cheque bounce instances between the complainant and the accused, the same court shall have jurisdiction regardless of where the cheques are presented for payment by the complainant.

 The ordinance shall once again prompt large scale transfers of cases, however by incorporating a clause pertaining to jurisdiction within the Act itself, it eliminates the possibility of future conflicting decisions of the courts on this issue. Furthermore, by prohibiting complainants from approaching more than one court in respect of several cheques of a single person, it also adequately takes care of the interests of the accused and thus must be seen as a positive step.

 Recourse to the ordinance route was necessitated because though the Lok Sabha passed an identical Bill in the previous session of the Parliament, it could not be taken up in the Rajya Sabha due to the lack of time. It is imperative that both houses approve the Bill to replace the ordinance in the next session because allowing the ordinance to lapse would plunge the system back into a chaotic state.