Final Verdict on Dishonour of a Cheque and Jurisdiction of the Court

Jan 27, 2015 | 02:10 PM IST

1.INTRODUCTION : It will not be incorrect to say that almost every monetary payments in business are made through Cheques. 2.Dishonor of a Cheque and approach of Hon. Apex Court on Territorial Jurisdiction of the Court. : Previously, if a cheque gets dishonored then the Payee after performing legal formalities had option of filing the Complaint in any of the court amongst five options and this principle was being followed in the law field over a period of 15 years. Thanks to the Judgment delivered by Hon. Apex Court in the case of K. Bhaskaran V/s. Sankaran Vaidhyan Balan , wherein two Judges Bench was pleased to hold that, the Offense under Sec.138 of the Negotiable Instruments Act, (the Act) can be completed only with the concatenation of a number of acts and which includes following components. 1) Drawing 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 of the Cheque to make payment within 15 days (now 30 days) of the receipt of the notice. It was further held that mere giving or receipt of the notice does not make the offense, but failure to make the payment within stipulated period of 15 days (now 30 days) makes the offense on the 16th day (now 31st day). The above referred five components could happen in 5 different places e.g. “A” business man carrying his business in Pune gives a cheque to “B” who carries business in Surat and when the Cheque is Dishonored, “B” issues notice to “A’ through his Advocate having office in “Mumbai”. In this case B had option of filing case in Pune, Surat and Mumbai. However, this principle has been overruled by the recent 3 Judges Bench Judgment of Hon’ apex Court in the Judgment delivered in the case of Dashrath Rathod & ors. V/s. State of Maharashtra & ors. The Hon. Apex court observed that the judgment of K. Bhaskaran’s case (Supra) was widely abused and misused. 3) Law of Cheque Bouncing : Before moving further, we must have a short look at the provisions in Sec.138 of the N.I.Act, 1881. As per the said provision, if the Cheque is Dishonored for the reasons mentioned therein, then the Complaint would be maintainable only if it is filed when : a)The Cheque was presented to the Bank within a period of 6 months (now 3 months) from the date on which it was drawn or within a period of its validity, whichever is earlier. b)The payee or holder in due course issues a notice in writing to the drawer of the cheque thereby demanding the amount of dishonored cheque, within a period of 30 days from the date of receipt of intimation of dishonor of the cheque from the Bank. c)After receipt of the notice, the Drawer fails to make the payment of amount so demanded in the notice within a period of 30 days from the receipt of the said notice. 4) Finality to the issue of Territorial Jurisdiction : It is interesting to know that the Judgment of K. Bhaskaran’s case was widely followed till recently by Hon. Apex Court in the cases of Nishant Aggarwal V/s. Kailas Sharma , Escorts Ltd. V/s. Rama Mukharjee . The other side of the coin states that K. Bhaskaran was criticised and not followed by some benches of Hon. Apex Court in the cases of Ishar alloy Steels Ltd. V/s. Jayaswals Neco Ltd , Harman Electronics Pvt. Ltd. V/s. National Panasnoic India Pvt. Ltd. Therefore it certainly required a larger bench judgment to put the controversy to an end and finally in Dahasrath Rathod’s case, the Hon’Ble Apex court by overruling the judgment in K. Bhaskaran’s case has held that “ Presentation of cheques at any place cannot confer jurisdiction upon Court within whose territorial limit such presentation may have taken place. Dishonor of cheque would be localized at place where the drawee Bank is situated”. It has been further observed by their Lordships in their 87 pages Judgment that once the cheque is dishonored, the Offense is committed, and not when the drawee fails to make the payment as per the demand notice within stipulated period. The factors such as Where the Drawer / Complaint resides or carries on business, place of Bank of the Complainant, have no role to play in deciding the Jurisdiction of the Court and it shall be wholly depending upon where the Branch of the Bank of the drawer situates… It has also given a big blow to concept of “At Par” Banking. Their Lordships have further observed that this Decision does not take away other remedies available Complainant viz. Complaint U/Sec.420 of the IPC, Cr.P.C., to file a Civil suit for recovery. 5) Effect on the Pending Cases : The effect of this judgment will be tremendous on pending cases which are more than 40 lacks and such cases, with some exceptions, will require to be transferred to its appropriate Court as per this Judgment !! This Judgment was delivered on 1st August, 2014. However, it will be also applicable to all the cases which have been filed prior to the decision of the said case. Their Lordships in their Wisdom has decided to keep this judgment always from the Doctrine of Prospective Overruling i.e. the decision shall be applicable from the date of its judgment and not to earlier cases. However their lordships have observed that the alleged accused/respondents are suffering great hardship who may require to travel from one place to another for defending their case. However only distinction is made by their lordships that in those cases in which the stage as contemplated in Sec.145(2) of the N.I. Act has reached i.e. the further evidence of the Accused has started, only those cases will not be transferred. Rest all the cases in which whether the Accused has appeared or whether the complainant has filed his/her Evidence affidavit shall be transferred to the Court in whose jurisdiction, the Drawee Bank (Branch) situates and for this purpose the Complainant is required to file the case in the appropriate Court within a period of 30 days from the date of its return by the earlier court. However there are two opinions on the point as to whether in new Court the trial shall be conducted De-novo or not !!. 6) Conclusion : The Three Judges Bench Ruling has come heavily on the complainant and it’s a blessing for the Accused, mostly for those Accused whose cases were pending when this Judgment was delivered. I feel this Judgment has practically cracked down the concept of “At Par Banking” concept. Thus now people will be very cautious in accepting the Cheques or they may switch to RTGS/NEFT or Demand Drafts or in alternative it may give rise to Cash Transactions also!! Ultimately in any business, “trust” plays an important role…. Adv. Rohit U. Erande Pune. 9823370028.



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