Assignment 1

Continuous Assessment 1

(Assignment towards fulfilment of assessment in the subject of Banking and Finance)

Submitted By

Shalini Wunnava

LL.M. (Banking & Finance)

National Law University, Jodhpur

Summer Session

(July to November 2014)

JURISDICTION MATTER IN CASES OF DISHONOUR OF CHEQUE

The matter related to dishonour of cheques is governed under the criminal justice system in

India, one has to see both the Negotiable Instrument Act (hereinafter referred as ‘NI Act’)

and the Criminal Procedure Code (hereinafter referred as ‘CrPC’). The procedure to file and

jurisdiction was governed under K. Bhaskaran v. Sankaran Vidhyan Balan1. In the aforesaid

case the Supreme Court laid down the following criteria for territorial jurisdiction of any

court –

1) Drawing of cheques

2) Presentation of cheque in a bank

3) Returning of cheques unpaid by the drawee bank

4) Giving notice in writing to the drawee of the cheque, demanding payment of cheque

amount

5) Failure of the drawee to make payment within 15 days of receipt of the notice.

The abovementioned was a law stands altered with the Supreme Court decision in Dashrath

Rupsingh Rathod v. State of Maharashtra2 which is clubbed with 9 other SLP’s pending

before the Supreme Court. This decision was taken by a division bench of three judges they

laid that the jurisdiction of the court for trying matters relating to dishonour is restricted to

where the dishonour has taken place, that is, where the drawee bank is situated. Justice

Thakur distinguished the in his judgement that Bhaskaran’s Case laid the components of the

offence covered under Section 138 of NI Act, the case did not lay down the jurisdictional

aspect, rather Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd.3 while

applying the decision of Bhaskaran’s Case the court allowed all the five possible places is

valid jurisdiction. The decision of Bhaskaran’s cases with regards to application of Section

179 CrPC was been now reversed to application of Section 177 of CrPC. In Section 138 is

out of the offences committed in a single transaction within the meaning of Section 220 (1) of

the Cr.P.C. 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 CrPC. The court made it

clear that the decision of shall have retrospective application only for cases currently pending

with in the Indian courts, but those cases where recording of evidence has started after

issuance of summons to the accused, would continue to be tried at the place they were 1 [1999]7 SCC 510.2 Criminal Appeal 2287 of 2009.3 (2009) 1 SCC 720

instituted. The court in its decision distinguished the ‘cause of action’ from the place for the

jurisdiction of the court is same as the criminal trials wherein “cause of action”, being the

bundle of facts required to be proved in a suit and accordingly also being relevant for the

place of suing, is not pertinent or germane for determining territorial jurisdiction of criminal

Trials.

The court allowed the levy for the payee to pursue the matter elsewhere if he 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.

The decision of the Supreme Court has not only made physical difficulty for the current

pending cases which as be the 213th Report of the Law Commission is said to be 38 Lacs. The

case has not only made procedural havoc but also has titled the law towards the respondent.

The court has failed to appreciate the legislative uptake of Section 138 of NI Act, which to

protect the interest of the drawer, the provision of law had enough safeguards and caution

valves to avoid the dishonour of the cheque, which the drawee failed to meet. The object of

bringing section 138 on the statute is to inculcate faith in the efficacy of banking operations

and credibility in transacting business on negotiable instruments. It is to enhance the

acceptability of cheque in settlement of liabilities by making the drawer liable for penalties in

case of bouncing of cheques due to insufficient arrangements made by the drawer, with

adequate safeguards to prevent harassment of honest drawers.4 The application of Section 177

of CrPC has added to further difficulty for the person who has failed to receive the money

consideration. The court has failed to appreciate the fact that the dishonour of cheques a

combination of the civil and criminal liability on the drawee, which is levied by the payee.

These additions procedurals safeguards shall add to the delay in the disposal procedure of the

dishonour cases. This decision may make it convenient for the banks as the party to the case

but shall put the payee in a disadvantageous position.

Issuing a cheque which is dishonoured is criminal offence in India. People are dissuaded to

trust bank cheques due to non-payment. This all because courts in India are awefully

overburdened with dishonoured cheque cases. A speedy trial is not only required to give

quick justice but it is also an integral part of the fundamental right of life and liberty, as

4 213th Report of the Law Commission of India, p 18 (2008).

envisaged in Article 21 of the Constitution of India. But this shall effect the further in

deterrence of the legal enforcement of the dishonour of cases.

RELIED UPON:

1. Dishonour of Cheques: Liability-Civil & Criminal by S.N. Gupta, Universal Law

Publishing.

2. 213th Report of the Law Commission of India (2008).

3. Tannan’s Banking Law and Practice, ML Tannan, LexisNexis Butterworth.