Introduction

Negotiable instruments are unconditional orders or promise to pay, and include checks, drafts,
bearer bonds, some certificates of deposit, promissory notes, and bank notes (currency). The
word “negotiable” means transferable from one person to another in return for consideration;
however, the word “instrument” means, a written document by virtue of which a right is created
in favour of some person. Thus, every document which entitles a person to a sum of money and
which is transferable (like cash) by delivery, is permitted to be called a “negotiable instrument”.
Thus, negotiable instrument means, a document transferable by delivery. The term “negotiable
instrument”, as such, has not been defined in the Negotiable Instruments Act, 1881, for at the
most, Section 13 of the Negotiable Instruments Act, 1881 states that, a negotiable instrument
means a promissory note, bill of exchange or cheque payable either to order or to bearer. Since
cheque plays an important role in business transaction, dishonour of cheque threatens the
credibility in transacting business through cheque. Section 6 of Negotiable instrument Act
defines Cheque as- A “cheque” is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand and it includes the electronic image of a
truncated cheque and a cheque in the electronic form.

A cheque is a type of bill of exchange and is a negotiable instrument. It is used for making
payments without any need to carry cash. A Dishonoured Cheque is a Cheque that is not credited
by the Bank for numerous reasons. In India Bank is the only institution which honours the
cheque.

This project deals with the dishonor of the cheque under the Section 138 of Negotiable
Instrument Act, This section deals with the dishonour of cheques as a result of insufficiency of
funds in the account of a drawer. The Act does not define the offence contemplated under section
138. It is a special offence not covered by the Indian Penal Code. However, the Act describes
precisely the nature and conditions precedent for constituting an offence within the meaning of
Section 138.1

Jurisdiction

Jurisdiction can be defined as the limit of a judicial authority or the extent to which a court of
law can exercise its authority over suits, cases, appeals etc. The rationale behind introducing the
concept of jurisdiction in law is that a court should be able to try and adjudicate only in those

1
Naveen Thakur. Dishonour of Cheque on Instructions to
Stop Payment - Offence u/s 138, N. I. Act, when made out?
CrLJ. 1998; 104:113.
matters with which it has some connection or which fall within the geographical or political or
pecuniary limits of its authority.

Originally the Act was silent on the matter pertaining to the relevant jurisdiction with respect to
filing of criminal complaint in case the offence of dishonour of the cheque is committed under
Section 138.2 Since the Criminal courts are approached for filing of such complaints, the issue
needs to be examined from the point of view of the Criminal Procedure Code, 1973. Section 177
of CrPC provides that–

"Every offence shall ordinarily be inquired into and tried by a Court within whose local
jurisdiction it was committed".

Section 178 provides that-

"(a) When it is uncertain in which of several local areas an offence was committed, or (b) Where
an offence is committed partly in one local area and party in another, or (c) Where an offence is a
continuing one, and continues to be committed in more local area has one, or (d) Where it
consists of several acts done in different local areas, It may be inquired to or tried by a court
having jurisdiction over any of such local areas."

Legal position after 'K.Bhaskaran' Case

Hon'ble Apex Court in case of K. Bhaskaran vs. Shankara, had given jurisdiction to initiate the
prosecution at any of the following places.3

1. Where cheque is drawn.

2. Where payment had to be made.

3. Where cheque is presented for payment

4. Where cheque is dishonoured.

5. Where notice is served upto drawer.

However, in its recent decision in Dashrath Rupsingh Rathod v. State of Maharashtra & Anr.,
the Supreme Court held that in cases of dishonour of cheque, only those courts within whose
territorial limits the drawee bank is situated would have the jurisdiction to try the case.4

Legal position after the Amendment Act, 2015

2
3rd article
3
AIR 1999, SC 3762
4
(2014)9 SCC 129
However, now the legal position has completely changed after amendment, i.e., the Negotiable
Instruments (Amendment) Act, 2015. The above Supreme Court judgment is now of no
consequence since this Ordinance supersedes it, clarifying jurisdiction related issues for filing
cases of offence committed under Sec 138.The main amendment included in this is the
stipulation that the offence of rejection/return of cheque u/s 138 of NI Act will be enquired into
and tried only by a Court within whose local jurisdiction the bank branch of the payee, where the
payee presents the cheque for payment is situated.5

The jurisdiction of filing cheque dishonour cases under Section 138 of the N.I. Act is now
changed by the above Ordinance as under:

 Now a cheque bouncing case can be filed only in the court at the place where the bank in
which the payee has account is located.
 Secondly, once a cheque bounce case has been filed in one particular court at a place in
this manner, subsequently if there is any other cheque of the same party (drawer) which
has also bounced, then all such subsequent cheque bounce cases against the same drawer
will also have to filed in the same court (even if the payee present them in some bank in
some other city or area). This will ensure that the drawer of cheques is not harassed by
filing multiple cheque bounce cases at different locations. So, even multiple cheque
bounce cases against the same party can be filed only in one court even if payee presents
the cheques in different banks at different locations.
 Thirdly, all cheque bounce cases which are pending as on 15 June 2015 in different
courts in India, will be transferred to the court which has jurisdiction to try such case in
the manner mentioned above, i.e., such pending cases will be transferred to the court
which has jurisdiction over the place where the bank of the payee is located. If there are
multiple cheque bounce cases pending between the same parties as on 15 June 2015, then
all such multiple cases will be transferred to the court where the first case has jurisdiction
as per above principle.6

Cognizance

The complaint filed before the Magistrate should set out the allegations, which prima facie make
out an offence under the Act stated therein. It should further be accompanied by a prayer therein
to take cognizance of the said offence and t o compel the accused by legal process to stand his
trial under law. Under the statutory provisions of Section 138 of the Negotiable Instruments Act,
the Court is empowered to take cognizance of such offence only if the complaint is preferred by
the payee o r the holder in due course of the cheque. In case of Company or Firm it will be filed
by its authorized officer or representative.

5
2nd article
6
The Negotiable Instruments (Amendment) Act, 2015,
On non-payment of the amount due on a dishonoured cheque within fifteen days of the receipt of
notice by the drawer, the complaint should have been filed within one month from the date of
expiry with the grace time of fifteen days, before a Metropolitan Magistrate or someone not
below the rank of a Judicial Magistrate, First Class. The cognizance of a complaint may be taken
by the court after the prescribed period, if the complaint satisfies the court that he had sufficient
case for not making a complaint within the specified period. The Offence under this Act is
compoundable (A compoundable offence is one which can be settled privately).

Non-Cognizable Offence

The offence under Section 138 of the Act is a non –cognizable offence by virtue of Section 142
of the Act. On account of the non obstante clause as comprised in Section 142 of the Act, the
Magistrate receiving the complaint has to proceed straightway to take cognizance of the offence
of a complaint being made to him in writing and that he cannot sent the same for investigation to
the police. It has been held by the Court that in a complaint case alleging commission of a non
cognizable offence made in writing to a Magistrate or received in his Court, under Section 192 of
the Code, it is incumbent upon him to immediately take cognizance and proceed to examine
upon oath the complainant and his witnesses, if any, and a Magistrate cannot straightaway such a
procedure is not warranted by law. In the present case, therefore, it has to be held that the
concerned Magistrate erred in sending the copy of the complaint to the SHO for further
investigation or enquiry and in not straightaway taking cognizance of the complaint and his
witnesses.

Summons

Mode of service of summons- Notwithstanding anything contained in the Code of Criminal

Procedure, 1973 (2 of 1974), and for the purposes of this Chapter, a Magistrate issuing a
summons to an accused or a witness may direct a copy of summons to be served at the place
where such accused or witness ordinarily resides or carries on business or personally works; for
gain, by speed post or by such courier services as are approved by a Court of Session.

Where an acknowledgment purporting to be signed by the accused or the witness or an

endorsement purported to be made by any person authorised by the postal department or the
courier services that the accused or the witness refused to take delivery of summons has been
received, the Court issuing the summons may declare that the summons has been duly served.7

Summary Trial

The Negotiable Instruments Act, post amendment by the legislature in the year 2001, specifically
provides for all offences under the Chapter to be tried by Judicial Magistrate of First Class or
Metropolitan Magistrate in accordance with the Summary Trial provisions of sections 262 to 265

7
Section 144, Negotiable Instrument Act, 1881.
of CrPC. It further provides that if at the commencement or during the course of summary trial,
the Magistrate finds that nature of case was such that a sentence of imprisonment exceeding one
year may have to be passed or for some other reason the Magistrate comes to conclusion that
case should not be tried summarily, the Magistrate has to pass an order after hearing the parties,
giving reasons as to why he wishes to try the case not in a summary manner but as a normal
summon case. He shall recall witnesses who may have been examined and proceed with the case
to hear it as a summon trial case.8

Conviction

In Suman Sethi v. Ajay K. Churiwal, case it was held that, in Section 138 of the Negotiable
Instruments Act, 1881, the legislature has clearly stated that for the dishonoured cheque the
drawer shall be liable for conviction if the demand is not met within 15 days of the receipt of the
statutory notice but this is without prejudice to any other provision of the 1881 Act.9

In Rangappa v. Sri Mohan, case it was held that, failure of the drawer of the cheque to put up a
“probable” defence for rebutting the presumption that arises under Section 139 of the Negotiable
Instruments Act, 1881 would justify conviction even when the appellant drawer may have
alleged that the cheque in question had been lost and was being misused by the complainant.10

Punishment

Bouncing of a cheque invites criminal prosecution under section 138 of the Negotiable
Instruments Act, 1881. Punishment for the offence under Section 138 of NI Act is imprisonment
up to two years or fine which may extend to twice the cheque amount or both. The offence is
bailable, compoundable and non-cognizable.11

8
Section 143, Negotiable Instrument Act, 1881.
9
AIR 2000 SC 828
10
(2010) 11 SCC 441
11
Section 138, N.I. Act, 1881