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The Negotiable Instruments

(Amendment) Bill, 2015


M J Antony August 9, 2015 Last Updated at 21:34 IST

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What was the need for the amendment?


This is the third major amendment in recent times to the Negotiable Instruments Act 1881,
prompted by dishonour of cheques in lakhs, shaking the credibility of the instrument,
confidence of business community and choking courts. The 1988 amendment introduced
penalty for issuing cheques which get dishonoured for want of fund in the bank. Since that
provision, Section 138, was found insufficient to deal with the menace, the penalty was
increased from one to two years imprisonment after a summary trial. Even this has not
resolved the problem and at present 1.8 million criminal cases are before magistrates'
courts and appellate courts. One of the devices employed by dishonest drawers is to
challenge the jurisdiction of the courts, stalling the proceedings. This was tried to be
resolved by the Supreme Court in its 2009 judgment in Dashrath Rupsingh case.
What does the present amendment do?
The amendment adopts the basic principles laid down by the Supreme Court in the above
case regarding jurisdiction of courts and improves upon it in the light of the representations
made by various stakeholders, including industry associations and financial institutions.
Complications had arisen because a cheque was issued in one place on one bank, and
presented in another place to another bank. The payer company might be in one corner of
the country and the payee might be in another. The payee therefore had to chase the
accused in distant places and even if he won, appeals would be filed in another court and
arguments will continue for years. The Supreme Court found that even high courts had

differed on the question of the choice of courts which should try the case. The present
amendment removes such legal bottlenecks and speeds up the trial. Now the question of
jurisdiction cannot be raised as the law is clear.
What is the procedure laid down by the amendment?
The new provision states that the holder of the cheque can file a criminal complaint before a
magistrate where he resides and tendered the cheque. He need not go to the place where
the cheque was issued or other courts. After this clarification, there is a single place to file
the complaint. Litigation expenses will come down, and the drawers of cheques, including
company directors will be more careful while signing such cheques. The government feels
that these procedural changes will be fair to both parties.
What happens to cases already pending?
According to the newly introduced Section 142A, all cases which were pending in any court,
whether filed before it or transferred to it shall go before the court having jurisdiction under
the new procedure.
What is the other important proposed change in the Bill?
The new law also cures a deficiency in the definition of "a cheque in the electronic form".
The law as it stood presumed drawing of a physical cheque and signature. With the
advance in technology it needed to be updated. Therefore, it is explains that "a cheque in
the electronic form" means a cheque drawn in electronic form by using any computer
resource and signed in a secure system with digital signature (with or without biometrics
signature) and asymmetric crypto system or with electronic signature. The Negotiable
Instruments Act borrows definitions of technical expressions from the Information
Technology Act 2000.

The Repealing and Amending (Fourth) Bill, 2015, passed by Lok Sabha last week, seeks to repeal
295 obsolete and redundant laws that clog the statute book. Here are some key economic laws that
the bill proposes to do away with

The Excise (Spirits) Act, 1863

The Excise (Malt Liquors) Act, 1890

The Indian Tramways Act, 1902

The Children (Pledging of Labour) Act, 1933

The Indian Companies (Amendment) Act, 1936

The Employers' Liability Act, 1938.

The Income-tax Law Amendment Act, 1940

The Indian Income-tax (Amendment) Act, 1941

The Excess Profits Tax (Second Amendment) Act, 1941

The Railways (Local Authorities' Taxation) Act, 1941

The Income-tax and Business Profits Tax (Amendment) Act, 1947

The Delhi Hotels (Control of Accommodation) Act, 1949

The Indian Merchant Shipping (Amendment) Act, 1949

Clearing the statute books of obsolete laws is an on-going process. A two-member governmentappointed committee has identified 1,741 obsolete central Acts. These include 777 central Acts, 83
central Acts relating to state subjects, to be repealed by state legislatures, 624 central Appropriation
Acts, and 257 Appropriation Acts enacted by Parliament for states under Presidents Rule. The Law
Commission through several reports has recommended repeal of 289 obsolete Acts. Till now 125
central Acts have been repealed by the government over the past six months

Landmark Supreme Court Judgment on Sec 138 of Negotiable


Instruments Act
Supreme Court Changes ground rule under Section 138 of Negotiable Instruments Act
to prosecute a person who had presented the cheque which bounced for insufficiency
of funds. Through this judgment, SC provides relief to the holders of bounced cheques
under the provisions of the Negotiable Instruments Act

What is a Negotiable Instrument?


The word negotiable means transferable by delivery and the word instrument means a written
document by which a right is created in favour of some person. The transfer should be unrestricted
and in good faith.
Therefore, a negotiable instrument is a document guaranteeing the payment of a specific amount of
money, either on demand, or at a set time, with the payer named on the document. It is an
indebtedness to pay an amount and the negotiable instrument is an unconditional guarantee for the
same.
Some Examples of Negotiable instruments are Promissory notes, Cheques, Bills of Exchange, bearer
bonds, bank notes etc.
The Indian law on Negotiable instruments is governed by the Negotiable Instruments Act of 1881.
About the Act
The Negotiable Instruments Act 1881 was passed in 1882 and was amended in 1989 and 2002,
Before 1988 there was no provision to restrain the person issuing the Cheque without having
sufficient funds in his account. The only remedy against a Dishonoured cheque was a civil liability
accrued. In order to ensure promptitude and remedy against the defaulters of the Negotiable
Instrument a criminal remedy of penalty was inserted in Negotiable Instruments Act, 1881 by
amending it with Negotiable Instruments Act, 1988. The second noteworthy amendment was when
the parliament enacted the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act,
2002 which is intended to plug the loopholes. This amendment Act inserts five new sections from
143 to 147 touching various limbs of the parent Act. This act is applicable to the whole of India
including the state of Jammu and Kashmir, which was brought under the purview of the act in 1956.
Objective
The objective of the act is to define the various negotiable instruments such a, promissory notes, bills
of exchange, cheque etc. Also to prescribe the liability in case of a failure of the instrument to fulfill
its debt due to the default on the part of the payer or to curb scrupulous practices adopted to escape
liability in respect of negotiable instruments. However, Section 138 in regard to dishonor of cheque
attracts criminal liability.
Law on Negotiable Instrument, Section 138
It is manifest that to constitute an offense under Section 138 of the Act; the following ingredients are
required to be fulfilled[1]
1.

a person must have drawn a cheque on an account maintained by him in a bank for payment
of a certain amount of money to another person from out of that account

2.

the cheque should have been issued for the discharge, in whole or in part, of any debt or
other liability;

3.

that cheque has been presented to bank within a period of three months from the date on
which it is drawn or within the period of its validity whichever is earlier;

4.

that cheque is returned by the bank unpaid, either because of the amount of money standing
to the credit of the account is insufficient to honour the cheque or that it exceeds the amount
arranged to be paid from that account by an agreement made with the bank;

5.

the payee or the holder in due course of the cheque makes a demand for the payment of the
said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days
of the receipt of information by him from the bank regarding the return of the cheque as
unpaid;

6.

the drawer of such cheque fails to make payment of the said amount of money to the payee or
the holder in due course of the cheque within 15 days of the receipt of the said notice;

To put it in simpler terms the law stated that the person must owe some amount of money to another
and draws a cheque in that regard to fulfil that liability, the cheque be drawn on an account in a bank
by him. The cheque was then presented to the bank within 3 months of the date on which it is drawn.
However due to insufficiency of funds the cheque is returned by the bank unpaid. The payee (the
bank) makes a demand for payment of said amount which the person owed within 30 days of the
information received by him (the person who owed the money) that the cheque was returned unpaid;
and thereafter the person fails to pay the amount within 15 days of the notice by the bank.
Latest Law
By a landmark judgment, Dashrath Roopsingh Rathod Vs. Stae of Maharashtra & Anr.
In this case, the Supreme Court has changed the basic criteria under Section 138 of Negotiable
Instruments Act which is to prosecute a person who had presented the cheque which had been
returned due to insufficiency of funds or if the amount exceeds the amount in the bank of the payer.
Earlier, a case under Section 138 could be initiated by the holder of the cheque at his place of
business or residence. But, a bench of justices TS Thakur, Vikramjit Sen and C Nagappan ruled that
the case has to be initiated at the place where the branch of the bank on which the cheque was drawn
is located.
And the judgment would apply retrospectively. This means, lakhs of cases pending in various courts
across the country would witness a interstate transfer of cheque bouncing cases.
The bench said: In this analysis, we hold that the place, situs or venue of judicial inquiry and trial of
the offence must logically be restricted to where the drawee bank is located.

Example: Mr. X who resides in Chennai owes Rs. 1 Lakh to Mr. B who resides in Chandigarh, Mr. X
issues a cheque in delhi in favour of Mr. B. The cheque bounces in Ludhiana (place of bank where the
cheque is given by Mr. B) for insufficiency of funds.
According to the earlier law Mr. X could have chosen any of the four places. But by the recent
judgment the only place for institution of case would be Ludhiana, i.e. where the cheque has
dishonored at the payee bank which is located in Ludhiana in this example.
Reasons for passing the new law
The rationale behind this change is that the payers majority being businessmen and traders were
using extending credit recklessly and due to the leniency in the provision of Section 138, it was being
misused in regards to the place of institution, as sometime the payer had no concern with the place
where the cheque was issued and to unnecessarily harass the payee cause hardship of place of
institution of case according to their convenience. To curb this practice this judgment aims to get to
the root of the issue and resolve it by a strict approach so as to discourage the payer from misusing or
carelessly issuing cheques. The hardship of traveling to the location of drawee bank is now on the
payer.
The change in the existing law shifts the inconvenience and hardship on the payer because now he
would have to travel to the place of the drawee bank where the cheque gets dishonored due to
insufficiency of funds. Hence, guaranteeing more precaution by the payer at the time of issuing the
cheque.
By Shweta Kaushik, Advocate Punjab & Haryana High Court

The President of India has promulgated the Negotiable Instruments


(Amendment) Ordinance, 2015 (6 of 2015) on 15th June 2015. The
amendments to the Negotiable Instruments Act, 1881 (The NI Act) are
focused on clarifying the jurisdiction related issues for filing cases for offence
committed u/s 138 of the NI Act.
A three Judge Bench of the Honble Supreme Court in Dashrath Rupsingh
Rathod vs. State of Maharashtra[1] held that a Complaint of dishonour of
cheque can be filed only to the Court within whose local jurisdiction where the
cheque is dishonoured by the bank on which it is drawn. This judgment

overruled the earlier two Judge Bench Judgment of the Honble Supreme
Court in K. Bhaskaran v. Sankaran Vaidhyan Balan[2].
The Honble Supreme Court in the matter of Dashrath, directed that the
complaints u/s 138 NI Act should be returned to the Complainant to
presented within 30 days from the date of such return before the Court having
jurisdiction where the cheque is dishonoured by the bank on which it is
drawn.
The amendment of 2015 inserted Section 142(2) in the Principal Act. The
amendment reads as follows:
(2) The offence under Section 138 shall be inquired into and tried only by a
court within whose local jurisdiction
(a) If the cheque is delivered for collection through an account, the
branch of the bank where the payee or holder in due course, as the case may
be, maintains the account, is situated; or
(b) If the cheque is presented for payment by the payee or holder in due
course otherwise through his account, the branch of the drawee bank where
the drawer maintains the account, is situate.
Explanation For the purpose of clause (a), where the cheque is delivered
for collection at any branch of the bank of the payee or holder in due course,
then, the cheque shall be deemed to have been delivered to the branch of the
bank in which the payee or holder in due course, as the case may be,
maintains the account.

To cite examples to understand the jurisdiction as per the


amendment:

1. A holds an account with Fort Branch, Mumbai of XYZ Bank, issues a


cheque payable at par in favour of B. B holds an account with M.G.
Road Branch, Pune of PQR Bank, deposits the said cheque at Nagpur
Branch of PQR Bank and the cheque is dishonoured. The Complaint
will have be filed before the Court having local jurisdiction where M.G.
Road Branch, Pune of PQR Bank is situated.
2. A holds an account with Fort Branch, Mumbai of XYZ Bank, issues a
cheque payable at par in favour of B. B presents the said cheque at
Nagpur Branch of XYZ Bank, (but B does not hold account in any
branch of XYZ Bank) and the cheque is dishonoured. The Complaint
will have be filed before the Court having local jurisdiction where Fort
Branch, Mumbai of XYZ Bank is situated.
Therefore, to summarise, firstly, when the cheque is delivered for collection
through an account the complaint is to be filed before the Court where the
branch of the bank is situated, where the payee or the holder in due course
maintains his account and secondly when the cheque is presented for
payment over the counter the complaint is to be filed before the Court where
the drawer maintains his account.

In addition to the aforesaid amendment, Section 142A is inserted which


reads as follows:

(1) Notwithstanding anything contained in the Code of Criminal Procedure,


1973 or any judgment, decree, order or directions of any court, all cases
arising out of section 138 which were pending in any court, whether filed
before it, or transferred to it, before the commencement of the Negotiable
Instruments (Amendment) Act, 2015, shall be transferred to the court having

jurisdiction under sub-section (2) of section 142 as if that sub-section had


been in force at all material times.

(2) Notwithstanding anything contained in sub-section (2) of section 142 or


sub-section (1), where the payee or the holder in due course, as the case may
be, has filed a complaint against the drawer of a cheque in the court having
jurisdiction under sub-section (2) of section 142 or the case has been
transferred to that court under sub-section (1), all subsequent complaints
arising out of section 138 against the same drawer shall be filed before the
same court irrespective of whether those cheques were presented for
payment within the territorial jurisdiction of that court.

(3) If, on the date of commencement of the Negotiable Instruments


(Amendment) Act, 2015, more than one prosecution filed by the same person
against the same drawer of cheques is pending before different courts, upon
the said fact having been brought to the notice of the court, such court shall
transfer the case to the court having jurisdiction under sub-section 142(2)
before which the first case was filed as if that sub-section had been in force at
all material times.

Sec. 142A can be summed up as under:

All cases pending before any Court, whether filed before it or


transferred to it pending before 15th June 2015, shall be transferred to the

Court having jurisdiction as per Sec. 142 (2).

If a complaint is filed by the payee or the holder in due course against a


drawer before the Court having jurisdiction u/s 142(2), all further complaints
against that drawer shall be filed before the same Court where the first

complaint is filed, irrespective of whether the cheque is presented or delivered


for collection to the bank/ branch within the local limits of Court having
jurisdiction where that bank/branch is situated.

If on 15th June 2015, there are more than one cases u/s 138 NI Act
pending between the same parties in different Courts, then the cases should
be transferred to the Court having jurisdiction u/s 142 (2) and all subsequent
complaints between the same parties should be filed before the same Court.
In view of this amendment, all cases transferred pursuant to the judgment in
the matter of Dashrath and all other pending cases would have to be
transferred as per Sec. 142A

President of India has promulgated Negotiable Instruments (Amendment) Ordinance, 2015 (6 of


2015) . Last week the Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, had
given its approval for the proposal to promulgate the Negotiable Instruments (Amendment)
Ordinance, 2015.
The amendments to the Negotiable Instruments Act, 1881 (The NI Act) are focused on
clarifying the jurisdiction related issues for filing cases for offence committed under section 138
of the NI Act.
The clarification of jurisdictional issues may be desirable from the equity point of view as this
would be in the interests of the complainant and would also ensure a fair trial.
The clarity on jurisdictional issue for trying the cases of cheque bouncing would increase the
credibility of the cheque as a financial instrument. This would help the trade and commerce in
general and allow the lending institution, including banks, to continue to extend financing to the
economy, without the apprehension of the loan default on account of bouncing of a cheque.
The Ordinance inserted Section 142(2) in the Principal Act. It reads as follows:

(2) The offence under Section 138 shall be inquired into and tried only by a court within whose
local jurisdiction
(a)

If the cheque is delivered for collection through an account, the branch of the bank

where the payee or holder in due course, as the case may be, maintains the account, is situated;
or
(b)

If the cheque is presented for payment by the payee or holder in due course otherwise

through his account, the branch of the drawee bank where the drawer maintains the account, is
situate.
Explanation For the purpose of clause (a), where the cheque is delivered for collection at any
branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to
have been delivered to the branch of the bank in which the payee or holder in due course, as the
case may be, maintains the account.
The Bill also introduces a new Section [142A] in the N.I Act. It reads as follows;
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 or any other
judgment, decree, order or directions of any court, all cases arising out of section 138 which
were pending in any court, whether filed before it, or transferred to it, before the commencement
of the Negotiable Instruments (Amendment) Act, 2015, shall be transferred to the court having
jurisdiction under sub-section (2) of section 142 as if that sub-section had been in force at all
material times.
(2) Notwithstanding anything contained in sub-section (2) of section 142 of sub-section (1),
where the payee or the holder in due course, as the case may be, has filed a complaint against
the drawer of a cheque in the court having jurisdiction under sub-section (2) of section 142 or
the case has been transferred to that court under sub-section (1), all subsequent complaints
arising out of section 138 against the same drawer shall be filed before the same court
irrespective of whether those cheques were presented for payment within the territorial
jurisdiction of that court.

(3) If, on the date of commencement of the Negotiable Instruments (Amendment) Act, 2015, more
than one prosecution filed by the same person against the same drawer of cheques is pending
before different courts, upon the said fact having been brought to the notice of the court, such
court shall transfer the case to the court having jurisdiction under sub-section 142(2) before
which the first case was filed as if that sub-section had been in force at all material times.
It was in Dashrath Rupsingh Rathod vs. State of Maharashtra a three Judge Bench of the
Supreme Court held that a Complaint of Dis-honour of Cheque can be filed only 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. The Court clarified that the
Complainant is statutorily bound to comply with Section 177 etc. of the CrPC and therefore
the place or situs where the Section 138 Complaint is to be filed is not of his choosing.
Supreme Court in Dashrath Rupsingh Rathod Vs. State of Maharashtra & Anr. Overruled the two
Judge Bench Judgment in K. Bhaskaran v. Sankaran Vaidhyan Balan (1999) 7 SCC 510
wherein it was held that the offence under Section 138 of the Act can be completed only with
the concatenation of a number of acts.
A two Judge Bench of the Supreme Court recently dismissed the Special Leave Petition as
withdrawn, filed against the Bombay High Court Judgment which held that dis-honour of AT
PAR Cheque cases can be filed to the Court within whose local jurisdiction the nearest available
branch of bank of the drawer situated explaining the Apex Court Judgment in Dashrath
Rupsingh Rathod vs. State of Maharashtra. Earlier Supreme Court had stayed the Bombay High
Court Judgment. It was in Ramanbhai Mathurbhai Patel vs State of Maharashtra, Justice
M.L.Tahalyani explained the dictum in Dashrath vs. State of Maharashtra in which a three
Judge Bench of the Supreme Court held that dis-honour of Cheque cases can be filed only to the
Court within whose local jurisdiction, the offence was Committed; ie, where the cheque is
dishonoured by the bank on which it is drawn.
Background
The Section 138 of the NI Act deals with the offence pertaining to dishonour of cheque for
insufficiency, etc., of funds in the drawers account on which the cheque is drawn for the
discharge of any legally enforceable debt or other liability. The section 138 of the NI Act

provides for penalties in case of dishonour of cheques due to insufficiency of funds in the
account of the drawer of the cheque. The object of the NI Act is to encourage the usage of
cheque and enhancing the credibility of the instrument so that the normal business transactions
and settlement of liabilities could be ensured.
Various financial institutions and industry associations have expressed difficulties, arising out of
the recent legal interpretation of the place of jurisdiction for filing cases under Section 138 to be
the place of drawers bank by the Supreme Court. To address the difficulties faced by the payee
or the lender of the money in filing the cases under Section 138 of the NI Act, because of which,
large number of cases were stuck, the jurisdiction for offence under Section 138 has been
proposed to be clearly defined. Accordingly, the Negotiable Instruments (Amendment) Bill, 2015
(the Bill) in Parliament was introduced in Lok Sabha on 6th May, 2015 and considered and
passed by Lok Sabha on 13th May, 2015. However, since the Rajya Sabha was adjourned sine
die on 13th May, 2015, the Bill could not be discussed and passed by that House and the Bill
could not be enacted.
The Bill provides for filing of cases only by a court within whose local jurisdiction the bank
branch of the payee, where the payee delivers the cheque for payment is situated. Further, where
a complaint has been filed against the drawer of a cheque in the court having jurisdiction under
the new scheme of jurisdiction, all subsequent complaints arising out of section 138 against the
same drawer shall be filed before the same court, irrespective of whether those cheques were
presented for payment within the territorial jurisdiction of that court.
Further, it has been provided that if more than one prosecution is filed against the same drawer of
cheques before different courts, upon the said fact having been brought to the notice of the court,
the court shall transfer the case to the court having jurisdiction as per the new scheme of
jurisdiction.
In view of the urgency to create a suitable legal framework for determination of the place of
jurisdiction for trying cases of dishonour of cheques under section 138 of the NI Act, the
Government has decided to amend the law through the Negotiable instruments (Amendment)
Ordinance, 2015.

The objective is to ensure that a fair trial is conducted keeping in view the interests of the
complainant by clarifying the territorial jurisdiction for trying the cases for dishonour of cheques.
The Ordinance is similar to the Bill in the sense that the substantive principle for determination
of the jurisdiction of the cases under section 138 of the NI Act remains the same, except that that
two distinct situations of payment of cheque (i) by submitting the same for collection through an
account or (ii) payment of a cheque otherwise through an account, that is, when cheques are
presented across the counter of any branch of drawee bank for payment, are covered under the
Ordinance.