JURISDICTION AND CRIMINALITY IN CHEQUE BOUNCE CASES

Abstract - 

This article deals with the cheque bouncing cases and the place of suing in such cases after the 2015 amendment act. The author raises the question of transfer of cases in the interest of justice and points out that in case of dishonor of cheque, the exclusive jurisdiction clause cannot restrict the place of jurisdiction. Further, the author analyses the extent of criminal complaints and summary proceedings in cheque-bouncing cases and points out that there can be no arrest incase of dishonor of cheques. It is pointed out that the imposition of criminal punishment provided under Section 138 does not preclude the offender from the liability to pay the dishonored amount. This article analyzes the provisions and details of the offence under the Negotiable Instrument Act and various judgments and amendments in the Act made towards effective and quick disposal of cases and examines whether decriminalization of 138 can serve as an alternative to the fast-track courts. 

1. INTRODUCTION 

Everyone might be aware of the hefty number of pending civil and criminal cases in our courts. But what one might not know is the fact that more than 20 per cent of these cases filed insubordinate courts deal with cheque bounce. The study conducted by the 213 Law Commission,1indicated that there was an urgent need to restore the credibility of the instruments and in the fundamental right to a speedy trial. The commission recommended setting up fast-track courts in order to ensure that honest citizens and the community of traders suffer no harm in this era of millions of global commercial transactions happening every minute. Despite the seriousness of this issue, no solid relief has come to the rescue of the deeply distressed trading community in the country. The Ministry of Finance in 2020 proposed the decriminalization of offence under section

* Mr. Priyanshu Agarwal, Advocate and Research Assistant, Centre for Research and Planning, Supreme Court of India. B.A.LL.B (Hons.) ; L.L.M. from Jamia Millia Islamia University.138 of the Negotiable Instruments Act (hereinafter referred to as NI Act).2 The outcome of decriminalizing the offence is expected to be twofold, firstly, to protect those people and companies who have committed the offence without any guilty intention or due to technical error and secondly to provide ease of doing business in order to boost the economy. 

2. SCOPE OF SECTION 138 OF THE NEGOTIABLE INSTRUMENT ACT 

The term cheque is defined as a bill of exchange drawn on a banker specified and not expressed to be payable other than on request. 3 To understand this definition clearly, it is important that we also consider how an exchange bill is defined.4 Bill of Exchange is defines as a written instrument containing an unconditional order signed by the manufacturer that directs a certain person to paya certain amount of money only to, or to, a certain person or to the instrument holder. So, on perusal of both the definitions we can say that a cheque is a peculiar type of bill of exchange. A cheque is an instrument in which the payor is the bank. A cheque is always payable on demand as laid down in Section 19. This means that the liability in the case of a promissory note or a bill of exchange starts from the day they are made but technically in the case of cheque, it would only be there when the cheque is actually deposited. A person that signed the cheque would be a drawer. The drawee would be the bank and the payee is one whose name is written on the cheque.

 Under the Negotiable Instrument Act, 1882 cheque is a bill of exchange drawn on a specified banker payable on demand and includes a truncated cheque. The Explanation attached to Section6 of NI Act, 1882 explains that the cheque in electronic form is a cheque that can be seen on a computer and is generally signed by electronic signature. Further, a Truncated cheque is the scanned copy of the cheque and is basically an image of the cheque sent to the clearing house thereby avoiding the physical movement of the cheque. So, a cheque is not outside the purview of the IT Act but other negotiable instruments are outside the purview of the Information and Technology Act, 2000 (IT Act). Clause (a) and (b) of section 6 of the NI Act says that cheques include an electronic form cheque which is generally signed by digital signatures. It also includes3 Section 6 Negotiable Instrument Act,1881.4 Section 5 Negotiable Instrument Act, of 1881.a truncated cheque which is basically an image of the cheque sent to the clearing authority there by avoiding the physical movement of the cheque. 

The essentials of Section 138 of the NI Act is as follows- 

• Cheque 
• Drawn by a person
• Discharge of any debt - Explanation attached to Section 138 provides that the debt or liability here refers to legally enforceable debt 
• Other liability - other liability here refers to security cheque or liability of guarantor etc. 
• Is returned - bank memo 
• Because of insufficiency of funds or exceeds the arrangement with the bank. 

Section 138 not only covers the offences relating to the physical form of cheques but also the dishonouring of these electronic instruments aimed at the payment of any loan or debt. An example of this can be most commonly witnessed in cases of EMI-based payments for a transaction. If the bank account of the drawer lacks sufficient balance on the due date of deduction, the payment is likely to get dishonoured. Such dishonouring is directly an offence as provided under Section 25 of the Payments and Settlement System Act,2007. However, Sec. 25(2) says that such offences would be dealt with by the procedure available under the Negotiable Instruments Act. Therefore, we can conclude that NIA indirectly covers the dishonouring of these electronic instruments also.

According to section 7 of the Act5 “The maker of a bill of exchange or cheque is called the drawer”. In a recent supreme court judgement, it was held that even in case of joint liability, in case of individual persons, a person other than a person who has drawn the cheque on an account maintained by him cannot be prosecuted for the offence under Section 138 of the Negotiable Instruments Act.65 Section 7, Negotiable Instrument Act,1881.6 Alka Khandu Avhad v. Amar Syamprasad Mishra, LL 2021 SC 146.

3. GROUNDS OF DISHONOUR OF CHEQUE AND CAUSE OF ACTION UNDERSECTION 

138Cause of Action refers to a set of facts or allegations that make up the grounds for filing a lawsuit. A Cause of Action is therefore by its very nature essential to a Civil Suit, since without a Cause of Action a Civil Suit cannot arise.7 While dealing with offence section 138 of NIA, the case is essentially of a civil nature, and therefore, we first analyse the cause of action. Merely a cheque bouncing would not amount to an offence under the NIA, and certain other ingredients should also be fulfilled to constitute an offence. They are mentioned below:

• Presentation of the cheque to the bank within 3 months

.• The Bank Memo was issued after the dishonoured.

• Notice within 30 days should be given to the drawer from the date of receipt of the Bankmemo, showing the cause of the check bounce.

• The failure on the part of the drawer to pay within 15 days from the receipt of the noticefrom Drawee or the payee.

It is when the drawer of the instrument fails to pay the amount stated in the instrument within 15days from the receipt of the notice from the drawee or the payee the cause of action arose in the case of offence of the Negotiable Instrument Act.

Section 138 broadly enlists only two basic grounds for constituting an offence and is not exhaustive as to other acts which would also fall into the ambit of constituting an offence. The grounds listed expressly are, First, insufficiency of funds in the bank and, secondly, when the amount in the cheque exceeds the arrangement with the bank. However, the grounds are not exhaustive and there are few other grounds which are provided impliedly under this Act. The other grounds include:

• Signatures mismatch: i.e. if the check receiving bank raises the objection in the memorandum that the signatures of the drawer do not match.

• Closure of the bank account by the drawer.

7 The Importance of 'Cause of Action' in Civil Suits, available at https://www.lawteacher.net/free-law-essays/civil-law/cause-of-action-in-a-civil-suit.php

• Guarantor’s cheque : a situation when a third party gives a guarantee to the payee that incase of failure of payment by the drawer, the guaranteeing party may be made liable under138

.• Blank cheque : if a person issues a cheque without his name or amount and only with the signature, the person can be made liable under 138 if this cheque bounces and the drawer fails to pay within 15 days of receipt of notice from the payee.

• Security Cheques: Where the parties have entered into an enforceable contract and either of them deposits the cheque as a security for consideration, there will be a ground for the offence if the cheque bounces.

• Even a post-dated cheque, which, if given as a security for the loan, gets dishonored, there is a ground for offence under section 138.

This clearly specifies that the grounds of dishonour of cheques are not exhaustive.

4. PUNISHABILITY AND COMPUNDABITLITY OF THE OFFENCE UNDER 138OF THE NEGOTIABLE INSTRUMENTS ACT

The act of dishonorment of a cheque is also an offence as per the Negotiable Instrument Act. Section 138 of the NI Act provides that the offence is punishable with two years of simple imprisonment or a fine amounting to twice the amount stated in the cheque which was dishonoured or the person would be punishable with 2 years of imprisonment and a fine both.

Section 147 provides that the offence is compoundable. Compundabitity refers to the compromise between the accused and victim with the permission of the court in simple words. In the case of an offence under the Negotiable Instrument Act, it refers to the compromise between the creditor or the debtor on payment of all or part of the amount to the satisfaction of both parties with the permission of the court. Section 147 of the Act, vehemently declares expressly that the offence under Section 138 is compoundable at any stage and is not affected by Section 320 of The Criminal Procedure Code, 1973 (hereinafter referred to as CrPC for brevity).

The unique feature of this section is that the offence can be compounded at any stage, meaning thereby, that the compounding could be done before the magistrate in the Sessions Court, the High Court, or even in the Supreme Court. This liberal approach was extensively abused, and the accused was not willing to compromise till the last available opportunity. So the provision of “at any stage” was basically frustrating the intent of compoundability itself.

In order to resolve this issue, Hon'ble Justice KG Balakrishnan laid down certain guidelines in Damodar S. Prabhu v. Sayyed Babalal.8 They are as follows:

1. If the parties settle the matter in the first few dates before the magistrate, i.e. before the stage of arguments, then it will be allowed. If the parties decide to settle at a later stage, they have to pay 10 percent of the cheque amount as the cost.

2. If this compromise is reached before the Session Court or before the High Court. The costimposed will be 15 percent of the cheque amount.

3. If the parties want to settle before the Supreme Court, they have to pay 20 percent of the cheque amount as a cost.

These guidelines impliedly or indirectly mandated compounding at an early stage. Further, in the case of J/K Industries v. Amarlal Jamani,9 it was held that for the purpose of compounding, the consent of both parties was required. 

However, there were instances when the accused himself offered to settle the case and also agreed to pay the entire cheque amount, the interest incurred, the lawyer’s fees, or any other costs, yet the complainant would not want to settle. 

Finally, in the case of Meters and Instruments v. Kanchan Mehta,10 the Hon'ble Supreme Court held that one must not forget that the nature of section 138 is civil, and the loss is only in terms of money, which can be compensated. So, if the complainant agrees to settle the case and is ready and willing to pay the amount of cheque, the interest, and the cost, then the magistrate can, undersection 258 of the CrPC order to stop the proceeding, and the complainant would not be left with any other remedy. This judgment is in line with the principles of natural justice and for the purpose of ensuring speedy trial.8 AIR 2010 SC 1907.9 (2012) 3 SCC 255.10 2018 SCC 560.

5. THE APPARENT CONFLICT IN JURISDICTION IN CASE OF DISHONOR OFCHEQUE UNDER THE NEGOTIABLE INSTRUMENT ACT AND CRIMINALPROCEDURE CODE.

For understanding the concept of jurisdiction under sec. 138, we should know how an offence under sec. 138 is made out because as per the provisions of CrPC, the jurisdiction would be at the place where the offence has been committed so if the offence is not complete it would be difficult to find out the jurisdiction of the courts. The broad jurisdiction provided by the CrPC was unscrupulously used by the advocates, giving jurisdiction to try the case by mere notice. It was observed that the courts in Delhi were overburdened by cheque bouncing cases as by providing notice in Delhi, it was considered that cause of action arose in Delhi and courts proceeded to try the case. 

In K. Bhaskaran v. Sankaran Vaidhyan Balan,11 it was held that any place where any of the ingredients would take would have jurisdiction. The court relied upon Section 189 of the Crpc. The highlight of this judgment is that even if a notice is given from a place but the cheque has not bounced there still just by the issuance of notice we have the jurisdiction. This interpretation led to the abuse wherein a cheque may have bounced in a particular area of Punjab but since notice has been given from Delhi, the Delhi courts would be getting the jurisdiction. This is also called “Forum shopping''. 

This caused undue hardship on the accused of a cheque-bouncing case and was against the principle of justice, equity, and good conscience. This was also against the balance of convenience and could cause a failure of justice against the defendant. The defendant had to go to the place from where the notice was served, and sometimes this place was far away and the defendant in such a case was unable to take an effective defense which is against the fair trial. 

The petitioner in a cheque-bouncing case had a juridical advantage but equity requires that mere juridical advantage of the petitioner cannot be allowed to defeat the ends of justice for the defendant. It is the cardinal principle of law that the benefit of one person cannot be used for the11 AIR 1999 SC 372.detriment of the other. The defendant in such cases can apply for the transfer of cases the court where burdened with transfer petitions. 

But the question of jurisdiction again came to the Supreme Court in the case of Harman Electronics. National Panasonic,12 where the Supreme Court held that the concept of cause of action, which is available in civil matters, can also be applied in criminal matters and the notice would not give jurisdiction and the cause of action would arise at the place where the cheque has bounced. 

But now, after this judgment, the new cases would be governed by Harman Electronics but the problem of pending cases which were there due to K. Bhaskaran Judgment13 as because once the magistrate has taken cognizance and said that the Delhi courts have jurisdiction then afterward she cannot recall this order. This is because of the judgment of Adalat Prasad v. Rooplal Jindal,14so the pendency was continuing and the judgment of Harman Electronics was of no help as regard spending cases. Then in the case of Delhi Legal Services Authority v. Government of NCT Delhi,15by Delhi High Court directed that all the matters pending in the Delhi courts should be transferred in the light of the case of Harman Electronics. This case was challenged in the case of Vinay Kumar Shailandra v. Delhi High Court Legal Services Authority16, but ultimately on 4 December 2014this case was decided as per the case of Dashrath Roop Singh Rathore v. State of Maharashtra.17

In the case of Dashrath Roop Singh Rathore v. State of Maharashtra,18 the question of jurisdiction was again taken up by a three-judge bench and tried to almost agree with the case of Harman Electronics. But they gave a different interpretation to the word ‘cause of action.’ According to this judgment, if a cheque is received from Delhi and is deposited at Chandigarh and bounces then Chandigarh would not have jurisdiction as no cause of action has arisen there. According to the SC, when the cheque is deposited it is sent to the bank of the drawer for clearance. The drawee bank after checking the status would inform the bank of the payee that there is no money in the account. So logically, when the cheque is deposited in Chandigarh which was from Delhi and therefore the cause of action would be arising in Delhi. This judgment created some practical12 2009 1 SCC 720.13 AIR 1999 SC 372.14 2004 7 SCC 337.15 MANU/DE/4815/2009.16 2014 AIR SCW 587217 AIR 2014 SC 1514.18 AIR 2014 SC 1514problems because before this judgment the accused was brought at the place of the complainant. But after the judgment, the complainant would be chasing the accused for the recovery of money. This judgment was not welcomed by the business circle

Immediately an ordinance was brought which added a new concept of jurisdiction under Section142. Now, according to Section 142, the jurisdiction is now based on the nature of the cheque which is-

1) Account payee

2) Otherwise through an account

Now, if the cheque is an account payee cheque then the jurisdiction would lie where the branch of the payee bank is situated. For eg, if a cheque from Mumbai is presented at Chandigarh then the jurisdiction would lie in Chandigarh.

 But, if the cheque is otherwise through an account then the jurisdiction would lie at the place where the branch of the drawer or Drawee bank is situated so if a cheque from Mumbai is presented to Chandigarh then the jurisdiction would lie at Mumbai. 

Now, with the advent of technology and a developed banking system. Now, we have the concept of a multicity of cheques. One thing should be kept in mind that even if we are transacting at any branch it would be deemed as if we are transacting in the branch itself where the account was opened.

 When two or more courts have jurisdiction then under the exclusive jurisdiction clause, the jurisdiction can be restricted to any one of those courts having jurisdiction in the civil cases. However, the proceedings under Section 138 are criminal in nature and such exclusive jurisdiction clause will be against public policy under Section 23 of the Indian Contract Act, 1872, and will also be in restraint of legal proceedings.1919 Refer section 28 of the Indian Contract Act, 1872.6. 

CONCLUSION

The cheque-bouncing cases should be dealt with as expeditiously as possible and the court should try not to imply the strict rule of procedure of the Civil procedure code, 1908. That a purposive interpretation of the sections should be made in order to ensure that commercial and financialdisputes related to cheque-bouncing cases should be disposed of expeditiously, keeping in viewthe overall economic regime of the country towards ease of doing business. It is also important tointerpret the provisions of the Negotiable Instrument Act in the larger principle of the Act. It ispertinent to mention that the act is not criminal legislation to punish the offender but rather toensure that the business relations of the parties flow smoothly and efficiently. Further, the courthas effectively resolved the dichotomy between the Negotiable Act and the Criminal ProcedureCode regarding the place of suing in the case of an offence of dishonour of cheque.