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Cheque Bouncing: Recent Legal Changes

In the groundbreaking case of Dashrath Rupsingh Rathore v. State of Maharashtra, the Supreme Court altered the underlying principle of Section 138 of the Negotiable Instruments Act. This change enabled the prosecution of individuals who presented cheques that bounced due to insufficient funds. As a result, the Supreme Court's decision brought relief to those holding bounced cheques under the provisions of the Negotiable Instruments Act, 1881.

The primary concern in the case was the court's jurisdiction when it came to criminal complaints related to dishonored cheques under the Negotiable Instruments Act. The term "negotiable" refers to something that can be transferred through delivery, while "instrument" refers to a written document that establishes a right for someone.

Therefore, a negotiable instrument is a document that guarantees the payment of a specific amount of money, either immediately or at a specified time, with the payer's name indicated on it. It represents an obligation to pay, and the negotiable instrument provides an unconditional assurance for the same. The transfer should be unrestricted and conducted in good faith. Examples of negotiable instruments include promissory notes, cheques, bills of exchange, bearer bonds, and banknotes.

Relevant provisions:
The relevant provisions in this case include Section 20, 177, 178, and 179 of the Code of Criminal Procedure (CrPC) and Sections 138 and 142 of the Negotiable Instruments Act. These provisions outline the jurisdiction of the court and the legal framework for prosecuting cases related to dishonored cheques. They provide guidelines for filing complaints, conducting investigations, and ensuring the proper legal process is followed.

Precedent Case Laws:
  1. In the case of K. Bhaskaran v. Sankaran Vidhyan Balan (1999) 7 SCC 510, the Supreme Court provided important guidance on the legal aspects of dishonored cheques under Section 138 of the Negotiable Instruments Act.
  2. Another significant case is Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd., (2001) 3 SCC 609. This case addressed various issues related to the liability of parties involved in dishonored cheques and provided valuable insights into the interpretation of Section 138.
  3. Additionally, the case of Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd. (2009) 1 SCC 720 is noteworthy. It dealt with the concept of territorial jurisdiction in cases of dishonored cheques and clarified the legal principles concerning the filing of complaints under Section 138.

Section 138 of negotiable instrument Act:
If a person writes a check from their bank account to pay someone else, but the check is returned unpaid because there isn't enough money in the account or it exceeds the agreed-upon amount, it is considered an offense. The person can face up to two years of imprisonment, a fine of up to twice the amount of the check, or both, as per the provisions of the Act.

Provided that nothing contained in this section shall apply unless:
The cheque must be presented to the bank within six months from the date it is drawn or within its validity period, whichever is earlier.

The payee or holder of the cheque needs to send a written notice to the drawer demanding payment within thirty days of receiving information from the bank about the cheque being returned unpaid.

If the drawer of the cheque doesn't make the payment within fifteen days of receiving the notice, it is considered a violation. As per the provisions of the law, the drawer may be subject to legal consequences for non-payment.

Explanation: for the purpose of this section, "debt or other liability" refers to a legally enforceable debt or obligation. It means that the amount owed must be a valid and legally binding obligation.

Major observation:
Section 138 of the NI Act focuses on the dishonour of the cheque as the offence. The return of the cheque by the drawee bank alone constitutes the commission of the offence. Sending notices from unrelated places or presenting the cheque at any bank where the payee has an account can be seen as harassment. The relief provided by Section 138 is in addition to the provisions of the Indian Penal Code.

The payee can choose to file an FIR with the police or directly file a complaint with the magistrate. The location of issuing the notice or presenting the cheque does not affect the territorial jurisdiction of the complaint, although non-compliance may result in dismissal. Section 138 of the NI Act provides an additional avenue for relief, apart from the Indian Penal Code.

The payee can choose to file an FIR with the police or directly file a complaint with the magistrate. The location of issuing the notice or presenting the cheque does not affect the territorial jurisdiction of the complaint, although non-compliance may result in dismissal. It's important to interpret Section 138 strictly as it is a penal provision.

In this case, The Supreme Court has altered the fundamental criteria under Section 138 of the Negotiable Instruments Act, which pertains to prosecuting individuals who present bounced cheques due to insufficient funds or exceeding the payer's bank balance. Previously, the case could be initiated by the cheque holder at their place of business or residence. However, a bench of justices TS Thakur, Vikramjit Sen, and C Nagappan ruled that the case must now be initiated at the location of the bank branch where the cheque was drawn. This ruling applies retrospectively and will result in the transfer of numerous pending cheque bouncing cases across different states. It's a significant development in the legal landscape.

According to the bench's analysis, they determined that the judicial inquiry and trial of the offense must be limited to the location where the drawee bank is situated. This restriction ensures a logical and appropriate venue for handling such cases.

The offense under Section 138 is considered complete when the cheque is dishonored. However, the court's ability to take action is postponed until the complainant has a valid reason to file a complaint. Once the complainant has a cause of action, the court's jurisdiction to handle the case will be determined based on the location where the bank dishonor the cheque. If the offense under Section 138 is part of multiple offenses committed in a single transaction, the offender can be charged and tried for each offense in one trial. Any court competent to handle any of the offenses can conduct the inquiry or trial, as stated in Section 184 of the Code.

Example; Mr. A from Hyderabad owes Rs. 1 Lakh to Mr. B in Lucknow. Mr. A issues a cheque in Nagpur to Mr. B. Unfortunately, the cheque bounces in Indore, where the bank is located, due to insufficient funds. According to the recent judgment, the case can only be filed in Indore, the place where the cheque was dishonored at the payee bank.

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