DASHRATH RUPSINGH RATHORE Vs. STATE OF MAHARASHTRA

Citation: MANU/SC/0655/2014

Decided On: August 1, 2014

Key Words: Territorial Jurisdiction, Section 138, Negotiable Instruments Act, Dishonour of Cheque, Cheque Bouncing

Issue: Court’s territorial jurisdiction regarding criminal complaints for dishonour of cheque under the Negotiable Instruments Act (“Act“).

Significance: The present case strikes a discordant note on certain aspects of territorial jurisdiction which have for long been considered settled by earlier decisions of the Supreme Court.

Precedents:

K. Bhaskaran v. Sankaran Vidhyan Balan (1999) 7 SCC 510

For an offence to be constituted under Section 138 of the Act, following five ingredients must be satisfied, viz. (1) Drawing of the cheque; (2) Presentation of the cheque to the bank; (3) Return of the cheque unpaid by the drawee bank; (4) Serving notice in writing to the drawer of the cheque demanding payment of the cheque amount, and lastly (5) failure of the drawer to make payment within 15 days of the receipt of the notice”.

The Court in K. Bhaskaran Case held that the jurisdiction to try an offence under Section 138 cannot be determined only by reference to the place where the cheque is dishonoured because dishonour of the cheque is not by itself an offence Under Section
138. The offence is complete only when the drawer fails to pay the cheque amount within the period of fifteen days stipulated
under Clause (c) of the proviso to Section 138 of the Act. Referring to Sections 178 and 179 of the Code of Criminal Procedure, the Supreme Court  in this case held that since an offence under Section 138 can be completed only with the concatenation of five acts that constituted the components of the offence any Court within whose jurisdiction any one of those acts was committed would have the jurisdiction to try the offence.

Bhaskaran, construed the proviso of Section 138 as prescribing the ingredients of the offence instead of treating it as an exception to the generality of the enacting part by stipulating further conditions before a competent Court may take cognizance of the same.

Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd., (2001) 3 SCC 609

A three-Judge Bench in this case held that a combined reading of Sections 3, 72 and 138 of the NI Act mandates the cheque must be
presented at the bank on which it is drawn if the drawer is to be held criminally liable. The decision in Ishar Alloy clarified that the place where a complainant may present the cheque for encashment would not confer or create territorial jurisdiction and in this respect this runs counter to the essence of Bhaskaran Case.

A payee can present the cheque to any bank for collection from the drawee bank, but such presentation will be valid only if the drawee bank receives the cheque for payment within the period of six months from the date of issue. However, a payee, merely by depositing his/her cheque in any bank of his choice at any place, cannot confer jurisdiction on a Court of his choice.

Harman Electronics Pvt.Ltd. v. National Panasonic India Pvt. Ltd. (2009) 1 SCC 720

In this case, the complaint under Section 138 was filed in a Delhi Court, only because the statutory notice required to be issued under the proviso to Section 138 was issued from Delhi. In Harman’s case this Court, emphasized three crucial and distinct aspects of the issue. Firstly, it said that there is a stark difference between issuance of a notice, on the one hand, and the receipt, thereof, on the other because issuing notice does give rise to a cause of action while receipt does. Secondly, it noted that the proviso appended to Section 138 simply imposed certain further conditions which must be fulfilled for taking cognizance of the offence can be taken. Thirdly, the Court held that if presentation of the cheque or issue of notice was to constitute a good reason for vesting courts with jurisdiction to try offences Under Section 138, it would lead to harassment of the drawer of the cheques.

Background:

The approach of Supreme Court in Bhaskaran Case was majorly influenced by curial compassion towards the unpaid payee/holder. However, later in Harman Case, the Court highlighted the reality of Section 138 being rampantly misused for applicability of territorial jurisdiction for trial of the complaints regarding dishonour of cheque. It is remarkable to note that there are a number of decisions by two-Judge Benches on Section 138 of the Act, the majority of which apply Bhaskaran without noting or distinguishing on facts of Ishar Alloy which was the only three-Judge Bench decision on the issue and thus binding on smaller benches.

The Apex Court in the present case observed that inasmuch as the three-Judge Bench in Ishar Alloy has categorically stated that for criminal liability to be attracted, the subject cheque has to be presented to the bank on which it is drawn within the prescribed period, Bhaskaran Case has now been significantly watered down, if not overruled. Accordingly, the situs of the notice, one of the so-called five ingredients of Section 138, has now been held not to clothe that Court with territorial competency.

The Supreme Court also noted that manipulative abuse of territorial jurisdiction has become a recurring and piquant factor and the liberal approach taken in Bhaskaran needs a stricter interpretation of the statute, precisely because of its misemployment so far as choice of place of suing is concerned.

Relevant Provisions:

• Section 20 of Civil Procedure Code – a suit must be instituted in a court within the local limits of whose jurisdiction the Defendant actually and voluntarily resides, or carries on business, or personally works for gain, or where the cause of action wholly or in part arises. (The general approach of the Court has been to locate the place where the cause of action has substantially arisen and reject others where it may have incidentally arisen.)
• Section 177 of Code of Criminal Procedure – Every offence shall ordinarily be inquired into and tried by a Court within whose local jurisdiction it was committed.
• Section 142 of Negotiable Instruments Act, 1881
• Section 178 and 179 of Code of Criminal Procedure, 1973

Major Observations

• The offence in the contemplation of Section 138 of the NI Act is the dishonour of the cheque alone, and it is the concatenation of the five concomitants of that Section that enable the prosecution of the offence in contradistinction to the completion/commission of the offence.
• Section 138 of the Act read in conjunction with Section 177 of Code of Criminal Procedure makes it clear that the return of the cheque by the drawee bank alone constitutes the commission of the offence and indicates the place where the offence is committed.
• An interpretation should not be imparted to Section 138 which will render it as a device of harassment i.e. by sending notices from a place which has no casual connection with the transaction itself, and/or by presenting the cheque(s) at any of the banks where the payee may have an account.
• The relief introduced by Section 138 of the NI Act is in addition to the contemplations in the Indian Penal Code. It is still open to such a payee recipient of a dishonoured cheque to lodge a First Information Report (F.I.R.) with the Police or file a Complaint directly before the concerned Magistrate rather than lodging a Complaint Under Section 138 of the NI Act.
• The 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 even though non-compliance thereof will inexorably lead to the dismissal of the complaint.
• Section 138 is a penal provision and must, therefore, be interpreted strictly.

Held:

An offence within the contemplation of Section 138 is complete with the dishonour of the cheque but taking cognizance of the same by any Court is deferred so long as the complainant does not have the cause of action to file a complaint in terms of Clause (c) of the proviso read with Section 142.

Once the cause of action accrues to the complainant, the jurisdiction of the Court to try the case will be determined by reference to the place where the cheque is dishonoured by the bank on which it is drawn.

In cases where the offence under Section 138 is out of several offences committed in a single transaction within the meaning of Section 220(1) of the Code of Criminal Procedure then the offender may be charged with and tried at one trial for every such offence and any such inquiry or trial may be conducted by any Court competent to enquire into or try any of the offences as provided by Section 184 of the Code.