Synopsis When a cheque issued to a creditor is dishonoured, where does the creditor file a suit against the debtor – in the Court which has jurisdiction over the creditor or in a Court which has jurisdiction over the debtor? This one issue has been oscillating back and forth with several Supreme Court decisions giving their view one way or the other. There now seems to be some finality on the matter …. … … … or is it?
Introduction
According to a 2008 Report of the Law Commission of India, over 38 lakh cheque bouncing cases were pending at the Magistrate Level as of October 2008. Over six years have passed since that Report and this figure is expected to have leapfrogged! The Magistrate is the first Court in the hierarchy of criminal justice in India and if this entry level forum itself is clogged, one can very well understand why justice in India often takes so long.
Section138 of the Negotiable Instruments Act, 1881 (“the Act”) is one of the few provisions which is equally well known both by lawmen and laymen. The section imposes a criminal liability in case of a dishonoured or bounced cheque. One of the most litigious issues in relation to a bounced cheque has been which Court has jurisdiction over a case? Say a debtor which has its registered office in Ranchi, Jharkhand issued a cheque drawn on a Ranchi bank to a creditor based in Mumbai and the cheque bounces, should the suit be filed in Mumbai or in Ranchi? This answer could make a big difference since the ease of filing a case in one’s own city or State is manifold as compared to a remote location. This issue has recently seen several Supreme Court and High Court decisions leading to a see-saw, one way and the other. A slew of decisions have come out strongly in favour of the accused unlike the earlier decisions which were procomplainant. Let us look at the history and the current position on this very important aspect which has made several creditors and banks jittery.
The Law: Section 138 of the Negotiable Instruments Act
Before we plunge into the issue on hand, let us pause for a moment and examine the impugned section. Section138 of the Act provides that if any cheque is drawn by a person to another person, and if the cheque is dishonoured because of insufficient funds in the drawer’s bank accounts, then such person shall be deemed to have committed an offence. The penalty for this offence is imprisonment for a term which may be extended to two years and/or with a fine which may extend to twice the amount of the cheque. In order to invoke the provisions of section138, the following three steps are necessary:
(a) the cheque must be presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) once the payee is informed by the bank about the dishonour of the cheque, then he must, within 30 days of such information, make a demand for the payment of the said account of money by giving a notice in writing, to the drawer of the cheque; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee of the cheque, within 15 days of the receipt of the said notice.
A fourth step is specified u/s.142 of the Act which provides that a complaint must be made to the Court within 30 days from the date from which the cause of action arises (i.e., the notice period).
Where to file the case – Bhaskaran sets the stage!
A two-member bench of the Supreme Court in K. Bhaskaran vs. Sankaran Vaidhyan Balan (1999) 7 SCC 510 laid down five important components for filing a compliant u/s. 138 of the Act:
(1) D rawing 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, and
(5) Failure of the drawer to make payment within 15 days of the receipt of the notice.
The Apex Court finally concluded that since an offence could pertain to any of the above five acts there could be five offences which could be committed at five different locations and hence, the suit could be filed in any Court having jurisdiction over these locations. Thus, the complainant can select any of the five Courts for filing his complaint within whose jurisdiction the five acts were done.
To continue our example above, the creditor could file his case against the Ranchi Company before the Magistrate Court in Mumbai (or Ranchi) and save himself a lot of trouble and effort, not to mention money! Suppose further, that the creditor has operations in all major cities and also bank accounts in all these cities. He deposits the cheque in his Ahmedabad branch which bounces. He issues the Notice from his Hyderabad office. As per Bhaskaran’s decision, not only can he file the suit in Mumbai or Ranchi but even from Ahmedabad and Hyderabad. Thus, the payee has full freedom to decide where to sue the drawer from. At times, this can also be used as a tool for harassment and as a pressure tactic.
Subsequent Cases Queer the Pitch
There have been several subsequent decisions but two noteworthy cases stand out. In Harman Electronics P. Ltd. vs. National Panasonic India (2009) 1 SCC 720, another two-member Bench held that the correct Court would be the one where the Notice for the bounced cheque was received and not where the Notice was sent. It also observed that section138 is being rampantly misused for territorial jurisdiction.
A subsequent three-member Bench in Shri Ishar Alloy Steels vs. Jayaswals Neco Ltd. (2001) 3 SCC 609 clarified that to be able to file a case u/s. 138 the cheque must be presented within six months on the bank of the drawer and not to the bank of the payer. The place where the complainant presented the cheque would not be relevant. Thus, the decisions of Harman and Ishar Alloy suggest that the Court of the accused should be the place where the suit should be filed. To continue our example above, the creditor could file his case against the Ranchi Company before the Jharkhand Courts.
Interestingly in Nishant Aggarwal vs. Kailash Kumar Sharma (2013) 10 SCC 72 the Supreme Court held that the ratio laid down by these two decisions in the case of Harman and Ishar Alloy did not dilute the principle stated in Bhaskaran’s case. This view was followed by the Supreme
Court in FIL Industries Ltd. vs. Imtiyaz Ahmad Bhat (2014) 2 SCC 266 and in Escorts Ltd. vs. Rama Mukherjee (2014) 2 SCC 255 all of which followed Bhaskaran.
Dashrath Rathod’s case – Cat amongst the Pigeons?
A recent decision of the three-member Supreme Court decision in the case of Dashrath Rupsingh Rathod vs. State of Maharashtra, Cr. A. No. 2287 /2009 Order dated 1st August, 2014 has led to debtors across the Country celebrating and creditors panicking. The decision of the Apex Court was as follows:
(a) T he offence contemplated u/s. 138 stands committed on the dishonour of the cheque, and accordingly the Magistrate at the place where this occurs is ordinarily where the Complaint must be filed, entertained and tried. The place, situs or venue of judicial inquiry and trial of the offence must logically be restricted to where the drawee bank, is located. The law should not be warped for commercial exigencies.
(b) T he place of the issuance or delivery of the statutory notice or where the Complainant chooses to present the cheque for encashment by his bank are not relevant for purposes of territorial jurisdiction of the complaints.
(c) It is also now manifest that traders and businessmen have become reckless and incautious in extending credit where they would heretofore have been ex- tremely hesitant, solely because of the availability of redress by way of criminal proceedings.
(d) Every magistrate is inundated with prosecutions u/s. 138 NI act, so much so that the burden is becoming unbearable and detrimental to the disposal of other equally pressing litigation.
(e) Courts are not required to twist the law to give relief to incautious or impetuous persons and hence, the territorial jurisdiction is restricted to the Court within whose local jurisdiction the offence was committed, which in the present context is where the cheque is dishonoured by the bank on which it is drawn.
(f) Bhaskaran’s case permitting prosecution at any one of the five places has resulted in hardship and inconvenience to the accused. Thus, it overruled Bhaskaran’s case and all subsequent decisions which followed it. Consequently, it endorsed the views expressed in the cases of harman and Ishar alloy.
(g) Courts must avoid an interpretation which can be used as an instrument of oppression by the complainant.
The Supreme Court also observed as follows in respect to the problem this order would create for Creditors:
(a) It is always open to the creditor to insist that the cheques in question be made payable at a place of the creditor’s convenience.
(b) the relief introduced by section 138 of the act is in ad- dition to the contemplations in the Indian Penal Code. It is still open to such a payee recipient of a dishon- oured cheque to lodge a First Information report (FLR) with the Police or file a Complaint directly before the concerned magistrate. If the payee succeeds in establishing that the inducement for accepting a cheque which subsequently bounced had occurred where he resides or ordinarily transacts business, he will not have to suffer the travails of journeying to the place where the cheque has been dishonoured.
Coming back to our example, the case must now deffnitely be filed before the Courts in Ranchi. Thus, it is the creditor who now would have to travel to ranchi every time there is a hearing and appoint local lawyers. this substantially pushes up the cost of litigation.
Decision Retrospective or Prospective?
Is this decision retrospective or prospective? the Supreme Court in Dashrath’s case held that this decision applied retrospectively and not just to complaints filed after the date of the Order!
The Court however held that this decision would not apply in those pending cases where the accused has been summoned to give evidence u/s. 145(2) of the act. Section 145(2) requires that the complainant has given evidence under an Affidavit and he has been summoned and examined.
All other cases where evidence recording has not commenced would be bound by this order and shall be returned to the proper jurisdictional Court in accordance with the Order laid down by the Court. If they are refiled within 30 days of their return then they shall be deemed to have been filed in time else they would be treated as being filed late. This decision would cause a series of transfer of cases in Courts across India.
Section 145(2) – a gaTeway? Considering the gateway given u/s.145(2), a series of cases have come up before the Courts as to whether they are exempt from the decision of Dashrath’s case. Some of the important principles laid down by the Bombay high Court in this respect are as follows:
(a) Peter David Pinto vs. Dinesh Ranawat, Cr. WP No. 4421 /2013 dated 9th September 2014 – Mere filing of an affidavit cannot take the case out of the princi- ples laid down by the Supreme Court. Section 145(2) would apply only when the complainant has been ex- amined/cross-examined.
(b) Suresh K. K. vs. Mansingaram, Cr. WP No. 923/2013 dated 9th September, 2014 and Sanjay Ramchandra Shrikande, Cr. WP No. 3619/2013 dated 19th Septem- ber, 2014 – even in a case which has travelled beyond section 145(2), the gateway provided by Dashrath’s case would not be available where the challenge of territorial jurisdiction has been given before the Supreme Court Order. Thus, the Supreme Court’s gateway is only applicable to cases where an objection to jurisdiction has been raised on the basis of the judgment. the Bombay high Court held that the Supreme Court order was retrospective in nature. Thus, Courts are loath to allow the gateway very easily.
Back to square one?
Can the decision in Dashrath’s case be distinguished in those cases where the cheque has been issued at par? thus, can it be said that for all cheques which are pay- able at par, the place where the cheques are deposited would have jurisdiction? this was the issue before the Bombay high Court in the case of Ramanbhai Mathurbhai Patel vs. State of Maharashtra, Cr. WP No. 2362/2014 dated 25th August, 2014. the Bombay high Court was faced with a case where “at par cheques” drawn on an ahmedabad Branch were dishonoured. They were deposited at a branch in mumbai. The Court held that by issuing cheques payable at all branches, the drawer of the cheques had given an option to the banker of payee to get the cheques cleared from the nearest available branch of bank of the drawer. It, therefore, held that the cheques were dishonoured within the territorial jurisdiction of the Court were they bounced. the Bombay high Court took this view based on its interpretation of Dashrath’s case.
It may be noted that the delhi high Court in similar facts in GVPR Engineers Ltd. vs. A. K. Tiwari, Cr. MC 3689/2009 dated 31st January, 2011 has held that the mere fact that a cheque is payable does not confer territorial jurisdiction on the place where the cheque is dishonoured. this decision was not considered by the Bombay high Court.
Stay
The Supreme Court vide its order dated 16th September, 2014 in SLP (Crl.) No. 7251/2014 has granted an interim stay to the Bombay High Court’s Order in Raman-bhai Mathurbhai Patel vs. State of Maharashtra. A final decision of the Supreme Court on this issue of cheques payable at par is expected soon.
Conclusion
One hopes that a judicial see-saw of this type where the complainants are in the dark over where to file suits is resolved soon. A reading of Dashrath’s decision shows that the question of cheques “payable at par” was not an issue before the apex Court. Since a majority of cheques are payable at par, based on this Bombay high Court decision, the suit could be filed at the place where they were deposited. the view endorsed by the Bombay high Court merits consideration considering centralised processing and clearing systems/electronic fund transfers. In today’s day and age the cheque does not physically travel to the drawer’s branch. In fact, even within a bank after centralised processing, it is the centralised unit which clears all cheques without physically receiving a cheque. One would have to wait and watch how the Supreme Court deals with these interesting arguments while finally deciding the issue!
