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“Moving Towards Juridictional Achievment of N.I. ACT 1881 ”

Submitted to

SHREE P.M. PATEL COLLEGE

OF

HUMAN RIGHTS & LAW, ANAND

As a Doctrinal Work Report

For the Degree of

LL.M (Business) IV Semester

By: Umesh K Prajapati

Roll No:18

Shree P.M. Patel College of Human Rights & Law, Anand

Under the Navigation of

Proff.___________________

Shree P.M. Patel College of Law and Human Rights

Anand - 388001

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CERTIFICATE

This is to certify that Mr. Umesh K Prajapati, student of LL.M. Part II, Business Law Group, Faculty of law, Shree P.M. Patel College of Human Rights & Law, Anand has prepared this dissertation on the topic “Moving Toward Juridictional Achievment of N.I. ACT 1881 ” under my guidance and supervision. And he has completed his work with sincerity and to may satisfaction. This is in partial fulfillment of the Degree of Masters of Law (LL.M.) and I recommend it for submission to the Examiner.

COUNTER SIGNED: RESEARCH GUIDE:

Mr. Nilesh Shah

Principal,

Shree P.M. Patel College of

Human Rights & Law,

Anand.

Mrs. _________________

Professor,

Shree P.M. Patel College of

Human Rights & Law,

Anand.

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Index

Sr.No Particular Page No

1 Introduction 42 Why 43 What 54 History 55 Finding 66 Golden Era & Creditability 67 Evaluation in Sec-138 N.I Act 78 Major Amendment -1 79 Major Amendment -2 910 Procedure 911 Jurisdictional Development 1112 K.Bhaskaran’s Case 1213 Impact of K.Bhaskaran Case 1314 Dashrath Rupsingh Rathod Case 1415 Approval of Cabinet 1816 Effects of provision of the Ordinance to Case

that have been Transferred20

17 The Negotiable Instruments (Amendment) Ordinance, 2015

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18 The Negotiable Instruments (Amendment) Second Ordinance, 2015

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19 Press Information Bureau 2920 News Paper Information 3221 Conclusion 3322 Reference 34

INTRODUCTION

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The term "Negotiation" is a does not necessarily imply anything more than the assertion that the paper possesses the negotiable quality. Generally speaking, it applies to any written statement given as security, usually for the payment of money, which may be transferred by endorsement or delivery, vesting in the party to whom it is transferred a legal title on which he can support a suit in his name. The term signifies that the note or paper writing to which it is applied, possesses the requisites of negotiability.

A negotiable instrument is one, therefore, which when transferred by delivery or by endorsement and delivery, passes to the transferee a good title to payment according to its tenor and irrespective of the title of the transferor, provided he is bona fide holder for value without notice of any defect attaching to the instrument or in the title of the transferor; It is the element of negotiability that make a contract founded upon paper thus adopted for circulation different in many particulars from other contracts.

WHY?

The early origin of these instruments is a matter of speculation among text writers. In primitive societies, the system of bills of exchange could not, of course, have existed; for firstly, money which it represents was not invented till long after. Secondly, the art of writing was a thing unknown to them. When the system of bartering became inconvenient, a common medium of exchange and an instrument of an easily convertible character was found necessary, and money came into use. It might have had its humble origin, but when once the utility of money was found, it was never lost sight of.

WHAT

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Negotiable instruments are merely instruments of credit, readily convertible into money and easily passable from one hand to another. With expanding commerce, growing demand for money could not be met by mere supply of coins and the instrument of credit took function of money which they represented aid thus became by degrees, articles of traffic. A man dared not dishonour his own acceptance of bill of exchange, lest his credit be shaken in the commercial world.

HISTORY

We are neither going to in depth for negotiable instrument nor Banking.

But as above we have found here some interesting examples of negotiable instrument. above,. A bill of exchange or draft drawn by John Hunter on Thomlinson and Hanbury, - London merchants, and made payable to Benjamin Franklin.

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Note: Franklin's endorsement on the reverse side of the bill can be seen through the paper.

FINDING

This doctrinal report attempts to determine various aspects of Section 138 of the Negotiable Instruments Act 1881 Section 138 is the principal section dealing with dishonour of cheques. It delves into the history of its establishment, with the reason for its necessary enactment and moves to explain the procedures and process as laid out by the statute Seeking to set out clarity on the points of law on relevant territorial jurisdiction for filing a complaint under Section 138 various decisions of the Courts are set out, finally concluding with the latest development in law, The Negotiable Instruments (Amendment) Ordinance, 2015 with Press information Bureau’s discussion dated 05-01-2016.

Golden Era & Creditability

Negotiable Instruments have been used in commercial world for a long period of time as one of the convenient modes of transferring money. Development in banking sector and with the opening of new branches, cheque became one of the favourite Negotiable Instrument.

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A cheque is an acknowledged bill of exchange that is readily accepted in lieu of payment of money and it is negotiable. However, by the fall of moral standards, even these Negotiable Instruments like cheques issued, started losing their credibility by not being honoured on presentment. It was found that an action in the civil court for collection of the proceeds of negotiable instrument like a cheque tarried, thus defeating the very purpose of recognizing a negotiable instrument as a speedy vehicle of commerce.

EVOLUTION IN N.I.ACT 1881

The offence under section 138 is not a natural crime like hurt or murder. It is an offence created by a legal fiction in the statute. It is a civil liability transformed into a criminal liability, under restricted conditions by way of an amendment to the Act, which is brought into force only in 1989. Till then, the offending acts referred to in section 138 constituted only a pure civil liability. Legitimately, the legislature thought it fit to provide for adequate safeguards in the Act to protect honest drawers from unnecessary harassment.

MAJOR AMENDMEN - 1

Section 4 of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, inserted Chapter XVII in the Negotiable Instruments Act, 1881 (hereinafter the "NI Act"). The statement of object and reasons attached to the Bill explaining the provisions of the added chapter read as follows:

This clause [clause (4) of The Bill] inserts a new Chapter XVII in the Negotiable Instruments Act, 1881. The provisions contained in the new chapter provide that where a cheque drawn by a person for the discharge of any liability

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is returned by the bank unpaid for the insufficiency of funds standing to the credit of the account on which he cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the cheque with the bankers for that account, the drawer of the cheque shall be deemed to have committed an offence. In that case, the drawer without prejudice to the other provisions of the said Act, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.

The provisions have also been made that to constitute the said offence –

a. such cheque should not have been presented to the bank within a period of six months of the date of its drawl or within the period of its validity, whichever is earlier

b. the payee or the holder in due course of such cheque should have made a demand for the payment of the said amount of money by giving a notice, in writing to the drawer of the cheque within fifteen days of the receipt of the information by him from the bank regarding the return of the cheque unpaid;

c. The drawer of such cheque should have failed to make the payment of the said amount of money to the payee or the holder in due course of the cheque within fifteen days of the receipt of the said notice.

It has also been provided that it shall be presumed, unless the contrary is proved, that the holder of such cheque received the cheque in discharge of a liability.

SAFEGUARDS

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The Bill provided certain considerable safeguards to ensure that genuine and honest customers of the bank were not harassed. These safeguards included-

a. that no court shall take cognizance of such offence except on a complaint, in writing made to the payee or the holder in due course of the cheque;

b. that such complaint is made within one month of the date on which the cause of action arises; and

c. that no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any such offence.

MAJOR AMENDMEN - 2

However, the sections 138 to 142 of the said Act were found deficient in dealing with dishonour of cheques. Thereby, the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, inter alia, amended sections 138, 141 and 142 and inserted new sections 143 to 147 in the said Act. These sections aimed at speedy disposal of cases relating to dishonour of cheque through their summary trial as well as making them compoundable. Punishment provided under section 138 too was enhanced from one year to two years. These legislative reforms aimed at encouraging the usage of cheque and enhancing the credibility of the instrument so that the normal business transactions and settlement of liabilities could be ensured.6

What came into the forefront of all the disputed regarding section 138, was essentially with regard to the appropriate court in which the complaint could be filed by the payee in case a cheque has been dishonoured. This jurisdiction issue has been interpreted by the courts from time to time and the law has witnessed a considerable number of changes throughout. The developments in the law

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relating to the dishonour of cheques have been traced further in the paper.

PROCEDURE

The Section 143 of the Negotiable Act, post amendment by the legislature in the year 2001, specifically provides for all offences under the Chapter are to be tried by Judicial Magistrate of First Class or Metropolitan Magistrate (hereinafter "MM") in accordance with the Summary Trial provisions of sections 262 to 265 of CrPC. It has been provided for that in a case under the section 138 of the Act, the Magistrate is empowered to pass a sentence of imprisonment upto one year and fine exceeding Rs. 5000/-. It further provides that if at the commencement or during the course of summary trial, MM finds that nature of case was such that a sentence of imprisonment exceeding one year may have to be passed or for some other reason MM comes to conclusion that case should not be tried summarily, the Magistrate has to pass an order after hearing the parties, giving reasons as to why he would like to try the case not in a summarily manner but as a summon trial and he could recall witnesses who may have been examined and proceed with the case to hear it as a summon trial case.7 However, the procedure so prescribed could not resolve the issues arising from the adversities to adopt the summary procedure. The absence of the parties for the hearing or the absence of the respective advocates, were highly detrimental to the objective behind prescribing a summary procedure to be followed in cases of dishonour of cheques. Subsequently, in the case of Rajesh Agarwal v. State and Others, the Hon'ble Delhi High Court prescribed certain guidelines with respect to the summary trial procedure which would be followed with respect to offences under section 138. The summary trial procedure to be followed for offences under section 138, would thus be as under:

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Step I: On the day complaint is presented, if the complaint is accompanied by affidavit of complainant, the concerned MM shall scrutinize the complaint & documents and if commission of offence is made out, take cognizance & direct issuance of summons of accused, against which case is made out.

Step II: If the accused appears, the MM shall ask him to furnish bail bond to ensure his appearance during trial and ask him to take notice u/s 251 Cr. P.C. and enter his plea of defence and fix the case for defence evidence, unless an application is made by an accused under section 145(2) of NI Act for recalling a witness for cross examination on plea of defence.

Step III: If there is an application u/s 145(2) of NI Act for recalling a witness of complainant, the court shall decide the same, otherwise, it shall proceed to take defence evidence on record and allow cross examination of defence witnesses by complainant.

Step IV: To hear arguments of both sides.

Step V: To pass order/judgment.

JURISDICTIONAL DEVELOPMENT

The Act is silent on the matter pertaining to the relevant jurisdiction with respect to filing of criminal complaint in case the offence of Dishonour of the cheque is committed under Section 138. Since the Criminal courts are approached, the issue needs to be examined from the point of view of the Criminal Procedure Code, 1973. Section 177 of CrPC provides that "Every offence shall ordinarily be inquired into and tried by a Court within whose local jurisdiction it was committed". Section 178 provides that "(a) When it is uncertain in which of several local areas an

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offence was committed, or (b) Where an offence is committed partly in one local area and party in another, or (c) Where an offence is a continuing one, and continues to be committed in more local area has one, or (d) Where it consists of several acts done in different local areas, It may be inquired to or tried by a court having jurisdiction over any of such local areas."

Thus, in all the above situations, the court having jurisdiction over any of such local areas may try the offence.

The jurisdiction is 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.

Position Before "K.BHASKARAN" Case

Jugal Kishore Arun v. V.A. Neelakandan

Bellie, J. observed, that a prosecution for issuing of a cheque without sufficient funds in the Bank, will have to be instituted before the Court within whose jurisdiction the cheque was issued.

'K.BHASKARAN' Case

K.BhaskaranVs.SankaranVaidhyanBalan and Anr

It was held in paragraph 12 of the judgment 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........A place, for that purpose,

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would depend upon a variety of factors. It can either be at the place where the drawer resides or at the place where the payee resides or at the place where either of them carries on business. Hence, the difficulty to fix up any particular locality as the place of occurrence for the offence under Section 138 of the Act."

Considering and reproducing the constituents of section 138 of 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. It is possible that each of those five acts could be done at 5 different localities. But concatenation of all the above five is a sine qua non for the completion of the offence under Section 138 of the Code. In this context a reference to Section 178(d) of the Code is useful......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. In other words, the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done".

Impact of K. Bhaskaran Case

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

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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. Sometimes, several cheques are issued at the same time by a person to the same payee, which are deliberately presented in different banks located at different places, and thereafter, cheque bouncing cases are filed at different places against the drawer of those cheques.

Dashrath Rupsingh Rathod v/s

State of Maharashtra &Anr

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 to result in hardship and adversity to the drawer, with relative ease. It gave the payee unrestricted power to the payee to singlehandedly confer jurisdiction on a place of his convenience, consequently, leading to harassment as the payer had, at times, no concern or relation with the distant places where the cheque was issued or which had no link to the transaction or drawer. The alteration in the law was thus welcomed as a much required change in prevalent laws as laid down by K.Bhaskaran. The leniency thus, was the cause of much upheaval. 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.

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In fact the Supreme Court in Dashrat Rathod case has observed rightly that "Courts are enjoined to interpret the law so as to eradicate ambiguity or nebulousness, and to ensure that legal proceedings are not used as a device for harassment, even of an apparent transgressor of the law. Law's endeavour is to bring the culprit to book and to provide succour for the aggrieved party but not to harass the former through vexatious proceedings."

The court held that, the territorial jurisdiction acc. to section 138 or under the act should exclusively be determined and considered by place/location of the offence. The return of the cheque by the drawer bank only constitutes commission of offence under section 138. Hence, the courts within which drawer bank is located will only have the jurisdiction to try the case.

1) An offence under section 138 of the Act, will be considered commtted 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 honoured, either due to insufficiency of funds of the said drawer's account or the amount exceeds the drawer's arrangement with the bank. But, the the cause of action could be derived or triggered only when

a) If the dishonored cheque is presented to the drawee bank within 6 months from its issue.

b) if the complainant demands for the questioned amount within 30 days of receipt of his intimation from the concerned bank.(bank which dishonored)

c) if the drawer or the payer of the cheque has failed to pay the amount in question within 15 days of notice given by the complainant, payee or due holder of cheque.

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2) 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 except in situations where the offence of dishonour of the cheque punishable under Section 138 is committed along with other offences in a single transaction within the meaning of Section 220(1) read with Section 184 of the Code of Criminal Procedure or is covered by the provisions of Section 182(1) read with Sections 184 and 220 thereof.

3.) 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 favour of the complainant, the jurisdiction of the court to try the case will be determined by the place where the cheque was returned dishonoured.

4.) In respect of pending cases it distinguished them into following categories and suggested actions as follows: a. Cases in which trial has commenced: Cases in which summoning and appearance of the accused has taken place and recording of evidence has commenced will continue at the same court. These cases will be deemed to have been transferred from the court which had jurisdiction to the court where they are tried, as per the relaxation provided in public interest. b. Cases pending at the pre summoning stage: All other complaints including those where the accused/respondent has not been properly served, cases in which summons have not been issued will be maintainable only at the place where the cheque stands dishonored.

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Position after Dasrath Rathod Case

Subsequently, many people had raised difficulties about this judgment. This is 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. Thus, if you reside in Delhi and have a bank account in Delhi, and you get a cheque from a person from his bank account in Mumbai, you’ll have to go to Mumbai to file the case, even though the fault for cheque dishonour may be that of the person who gave you the cheque.

Ramanbhai Mathurbhai Patel v/s

State of Maharashtra

In a case before the Bombay High Court, two cheques were issued, one before the Gandhinagar branch of the State Bank of India and one before the Bank of Maharashtra. The cheques being 'At par',i.e. multi-city cheques payable at par in all branches of the bank, were payable at all branches the abovementioned banks. Factually, the cheque deposited by the complainant in the branches of the banks at Kurla, Mumbai, the nearest available branch of the banks and were dishonored. So, the isse raised was that whether the complaint should be filed at Kurla or at Gandhinagar, as the cheques were payable at par across all the branches. It was held that by issuing cheques payable at all branches, the drawer is giving

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an option to get the cheques cleared from the nearest available branch of the bank and therefore the cause of action has arisen in the jurisdiction of the Metropolitan Magistrate, Kurla Court. The courts in Mumbai will have the jurisdiction to try the offence as the cheques were dishonoured in Mumbai. However, the above decision of the Bombay High Court was challenged in the Supreme Court vide SLP (Criminal) No. 7251 of 2014. This SLP was dismissed by the Supreme Court as withdrawn on 20 March 2015.

Regarding this matter further more next step is attached the negotiable instrument (Amendment) Bill, 2015 to be present in Lok Sabha by Arun Jaitley on 28th April 2015.

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Cabinet approves new Negotiable Instruments (Amendment) Ordinance for jurisdiction in cheque bounce cases

Today, on 16 September 2015, the Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval for the proposal to promulgate the Negotiable Instruments (Amendment) Ordinance, 2015. It is pertinent to mention that previously on 15 June 2015, the Negotiable Instruments (Amendment) Ordinance, 2015, was passed, which lapsed on 31 August 2015. I had mentioned in detail the consequences of lapsing of Negotiable Instruments (Amendment) Ordinance 2015 which led to uncertainty of territorial jurisdiction in cheque bounce cases. Now, after a gap of about 2 weeks, the Government of India has again approved promulgation of Negotiable Instruments (Amendment) Ordinance, 2015. This will have to be formally approved by the President of India and thereafter it will be published in the official gazette. At the time of this writing, the new Ordinance was yet to be published in the official gazette. In view of this, it is still not clear as to whether this new Ordinance will be a mere reproduction of the previous Ordinance that was promulgated on 15 June 2015 or there are some further changes

A press release issued by the Press Information Bureau after the cabinet meeting shows that the new Ordinance is focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the NI Act, which also was the subject matter of the previous Ordinance of 15 June 2015.

However, there appear to be certain errors in the said press release, since it appears to have been mechanically

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copied from the previous press release issued at the time of the previous Ordinance, forgetting that there are certain changes on the ground after the last Ordinance (e.g., passing of the a new Amendment Bill on 6th August by Lok Sabha). Press release still refers to passing of an Amendment Bill in May 2015, when in fact that Bill was subsequently withdrawn. Mechanical copying of the previous press release has apparently led to these errors; due to which one will have to wait for the new Ordinance becoming available in public domain, before commenting on its contents.

The Government has stated that 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.

It has been clarified that the Bill 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.

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Effects of Provision of the ordinance to case that have been transferred.

This is also an important issue. What happens to cases that have already been transferred in accordance with the provisions of the said Ordinance? Well, there will be some amount of uncertainty, but I may offer some solace in this regard.

There is a legal principle that even if an Ordinance comes to an end for whatever reasons, the Ordinance does not become void ab initio. It is valid when promulgated and whatever transactions have been completed under the provisions of the Ordinance cannot generally be reopened when the Ordinance comes to an end.

In this regard, let me firstly point out that as per clause (c) of Section 6 of the General Clauses Act, 1897, the repeal of a Central Act shall not “affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed”, unless a different intention appears from the repealing Act. In the present case, there is no repealing Act. So, there is no different intention. Therefore, any right, privilege, obligation or liability acquired, accrued or incurred under the said Ordinance which stands “repealed” shall not be affected due to the coming to end of the said Ordinance. To remove doubts in the minds of some readers, let me point out that clause (2) of Article 123 of the Constitution clearly lays down that an Ordinance shall have the same force and effect as an Act of Parliament; therefore, Section 6 of the General Clauses Act, which is applicable for “Central Acts”, shall apply equally to an Ordinance.

If at all there is any further doubt in this regard, it is resolved by the decisions of the Supreme Court in the cases

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of T. Venkata Reddy v. State of A.P., (1985) 3 SCC 198 and State of Orissa v. Bhupendra Kumar Bose, 1962 Supp (2) SCR 380 : AIR 1962 SC 945, as per which the action already taken under the Ordinance that has lapsed will continue to be valid. Of course, the Supreme Court has also held that the Parliament is not powerless to bring into existence the same state of affairs as they existed before an Ordinance was passed even though they may be completed and closed matters under the Ordinance, and that can be achieved by passing an express law operating retrospectively to the said effect, of course, subject to the other constitutional limitations. But, no such further power has been exercised in the present case.

This would be for the cases that have already been transferred under the provisions of the Ordinance. However, in so far as the fresh cases are concerned, they may have to be filed in accordance with the legal position as it existed prior to 15 June 2015.

In the end, I only want to add that the Government has created unnecessary confusion by first promulgating the said Ordinance and then allowing it to lapse instead of re-promulgating it. This has created further confusion and uncertainty in the jurisdiction of cheque bounce cases, when already there was a lot of confusion. Either the Government should not have promulgated the Ordinance in the first place, and if it had done so, it should have taken it to logical end by getting the corresponding Amendment Bill enacted from the Parliament well in time (i.e., within 6 weeks) or else, it should have at least re-promulgated the Ordinance. This strange behaviour of the Government has led to uncertainty that is bothering lakhs of complainants / accused persons in cheque bounce cases, many of whom had to change the courts and engage new advocates at the places where their cases were transferred. I am writing so since I

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can feel the difficulties being faced by litigants, as is evident from a very large number of messages that I have received from the litigants, requesting for guidance in this matter.

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NEGOTIABLE INSTRUMENTS (AMENDMENT) ORDINANCE, 2015

NO. 6 OF 2015

Promulgated by the President in the Sixty-sixth Year of the Republic of India. An Ordinance further to amend the Negotiable Instruments Act, 1881. WHEREAS the Negotiable Instruments (Amendment) Bill, 2015 has been passed by the House of the People and is pending in the Council of States; AND WHEREAS, Parliament is not in session and the President is satisfied that Circumstances exist which render it necesary for him to take immediate action; NOW THEREFORE, in exercise of the powers conferred by clause (1) of article 123 of the Constitution, the President is pleased to promulgate the following Ordinance:—1. (1) This Ordinance may be called the Negotiable Instruments (Amendment) Ordinance, 2015.(2) It shall come into force at once

2. In the Negotiable Instruments Act,1881 (hereinafter referred to as the principal Act), in section 6,—(i) in Explanation I, for clause (a), the following clause shall be substituted, namely:—‘(a) ‘‘a cheque in the electronic form” means a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature (with or without biometrics signature) and asymmetric crypto system or with electronic signature, as the case may be;’;(ii) after Explanation II, the following Explanation shall be inserted, namely:—‘Explanation III.—For the purposes of this section, the expressions “asymmetric crypto system”, “computer resource”, “digital signature”, “electronic form” and “electronic signature” shall have the same meanings

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respectively assigned to them in the Information Technology Act, 2000.’.3. In the principal Act, section 142 shall be numbered as sub-section (1) thereof and after sub-section (1) as so numbered, the following sub-section shall be inserted, namely:—“(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.”.4. In the principal Act, after section 142, the following section shall be inserted, namely:—‘‘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

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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.’’.

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Press Information Bureau Government of IndiaMinistry of Finance

05-January-2016 17:44 IST

The Negotiable Instruments (Amendment) Bill, 2015 notified; Focus on clarifying the jurisdiction related issues for filing cases for offence committed under Section 138 of the Act

The Negotiable Instruments (Amendment) Bill, 2015 was passed by the Parliament in the recently concluded Winter Session of the Parliament. The Negotiable Instruments (Amendment) Act, 2015 received the assent of the President on the 26th December, 2015 and has been published in the Gazette of India, Extraordinary on 29th December, 2015. The provisions of the Negotiable Instruments (Amendment) Act, 2015 shall be deemed to have come into force on the 15th Day of June, 2015, the day on which the Negotiable Instruments (Amendment) Ordinance, 2015 was promulgated to further amend the Negotiable Instruments Act, 1881.

The Negotiable Instruments (Amendment) Act, 2015 is focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the Negotiable Instruments Act, 1881. The Negotiable Instruments (Amendment) Act, 2015, facilitates filing of cases only in a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment through his account, is situated, except in case of bearer cheques, which are presented to the branch of the drawee bank and in that case the local court of that branch would get jurisdiction. The Negotiable Instruments (Amendment) Act, 2015 provides for retrospective validation for the new scheme of determining the jurisdiction of a court to try a case under section 138 of the Negotiable Instruments Act, 1881. The Negotiable

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Instruments (Amendment) Act, 2015 also mandates centralisation of cases against the same drawer.

The clarification of jurisdictional issues may be desirable from the equity point of view as this would be in the interests of the complainant and would also ensure a fair trial. Further, the clarity on jurisdictional issue for trying the cases of cheque bouncing would increase the credibility of the cheque as a financial instrument. This is expected to help the trade and commerce in general and allow the lending institutions, including banks, to continue to extend financing to the productive sectors of economy, as the process of pursuing the cheque bouncing cases relating to loan default has been made simpler and efficient through the proposed amendments to the Negotiable Instruments Act,1881.

The Negotiable Instruments Act, 1881 was enacted to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques. The object of the Negotiable Instruments Act, 1881 is to encourage the usage of cheque and enhance the credibility of the instrument so that the normal business transactions and settlement of liabilities could be ensured. Section 138 of the Negotiable Instruments Act, 1881 deals with the offence pertaining to dishonor of cheque, drawn for discharge of any debt or other liability, on account of insufficiency of funds in the drawer’s account or on account of the fact that the cheque amount is more than the amount agreed to be paid by the bank, and provides for penalties for such dishonour.

Earlier, the Hon’ble Supreme Court, in its judgment dated 1st August, 2014, in the case of Dashrath Rupsingh Rathod versus State of Maharashtra and another (Criminal Appeal No. 2287 of 2009) held that the territorial jurisdiction for cases relating to offence of dishonour of cheques is restricted to the court within whose local

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jurisdiction such offence was committed, which in the present context is where the cheque is dishonoured by the bank on which it is drawn. 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.

Various financial institutions and industry associations had expressed difficulties, arising out of the legal interpretation by the Supreme Court about the jurisdiction of filing cases under section 138 of the Negotiable Instruments Act, 1881. 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 Negotiable Instruments Act, 1881, it was decided by the Government to introduce suitable amendments to the Negotiable Instruments Act, 1881.

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Regional Newspaper Sandesh Vadodara unit (Dated 07-01-2016 page no:8) published News regarding Negotiable instrument Act-1881.

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CONCLUSION

As we trace the history and establishment of the Negotiable Instruments Act,1881 and focus on the jurisdictional debate under Section 138, which deals with dishonor of cheques, we analyse the necessities which forced the Courts and the Government to adopt landmark changes in the law. The latest change and the present prevalent law being the 2015 Ordinance, has the effect of nullifying the law as laid down by the Supreme Court in 2014, DasratRathod case. The legal effect of the Ordinance is that, so as to institute a complaint under Section 138, the same must be instituted as per: If the cheque is delivered for collection through an account, the branch of the bank where the payee or holder, maintains the account, is situated; or If the cheque is presented for payment by the payee or holder otherwise through his account, the branch of the drawee bank where the drawer maintains the account, is situated. This law comes with a promise to solve and aid in not only the speedy disposal of the pending cases pertaining to complaints under 138, but also to bring a sanctity to the system by seeking to clamp down on defaults in payments. It clarifies the legal position as to jurisdiction and also seeks to keep up with the modern banking system.

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REFERENCES

Articles & Journals

1. Anjana Dave, An Analytical Study of the Provisons relating to Dishonour of Cheques under Chapter XVII of the Negotiable Instruments Act, 1881, Vol. 7 Issue 5, Pacific Business Review International,2014

2. Negotiable instruments act amendment 2015 gazette notification3. E –gazette, government of India

Books & Case Law

1. The Negotiable Instruments Act, 1881, (2015 Ed.), Case Laws2. DashrathRupsinghRathod v. State of Maharashtra &Anr AIR 2014

SC35193 Jugal Kishore Arun v. V.A. Neelakandan 1990 L.W. (Cri.) 4924. K. Bhaskaran Vs. SankaranVaidhyanBalan and Anr (1999) 7 SCC

5105. Universal’s Guide to judicial Service Examination

Statutes

1. The Code of Criminal Procedure, 19732. The Negotiable Instruments Act, 18813. The Negotiable Instruments (Amendment) Bill, 2015

Website

1. http://tilakmarg.com/news/jurisdiction-in-cheque-bouncing-cases-is-changed-by-new-ordinance-superseding-sc-judgment/

2. https://en.wikipedia.org/wiki/Negotiable_instrument3. https://en.wikipedia.org/wiki/Negotiable_Instruments_Act,_18814. http://www2.onu.edu/~s-veltri/NL/NegIs.html5. http://tilakmarg.com/opinion/lapsing-of-negotiable-instruments-

amendment-ordinance-2015-causes-uncertainty-in-cheque-bounce-cases/

6. http://pib.nic.in/newsite/PrintRelease.aspx?relid=134187