India: Section 138 Cases For Dishonour Of Cheques - Supreme Court Clarifies On The Jurisdiction

Last Updated: 14 January 2015
Article by Mansukhlal Hiralal & Company

A three judge bench of the Hon`ble Supreme Court of India (Supreme Court) in its very recent judgment (Dashrath Case) has now held that all the criminal matters relating to dishonour of cheques under Section 138 of the Negotiable Instrument Act, 1881 (Act) would only be entertained by the court which has the territorial jurisdiction on the location of the drawee bank or in simple words where the cheque was dishonoured. This judgement will have far reaching consequences for all the pending criminal matters and the new matters filed under Section 138 of the Act. This update endeavours to analyse the consequences of the Dashrath Case.

Earlier Position in relation to an Offence under Section 138

A division bench of Supreme Court in the Bhaskaran Case had held that the offence under Section 138 of the Act is based on the completion of the `chain of command` as explained below:

  • Drawing of the Cheque and presentation to the bank;
  • Return of the cheque unpaid by the bank where it was dishonoured;
  • Issue of a notice in writing is given to the drawee and demanding the unpaid payment;
  • Inability to pay of the drawee to pay within a 15 (fifteen) day period of the receipt of notice;

This, all together would amount to offence of `dishonour of cheque` under Section 138 of the Act. In other words the court would have the jurisdiction to entertain the offence at any place where one of the following causes of action took place.

New Position in relation to an Offence under Section 138

  • The three judge bench of the Supreme Court in Dashrath Case has overruled the division bench judgment in Bhaskaran Case holding that any one of the above acts could not decide the Court that shall have jurisdiction and as especially the place where the issue was noticed by the drawer could not decide the Court that shall have jurisdiction. The reason for the same given by the Supreme Court is that the earlier position increases the hassles of the drawer for no reason;
  • With regard to commission of an offence under Section 138 of the Act, the Supreme Court has held that when dealing with criminal offences the Code of Criminal Procedure (CrPC) and the Indian Penal Code, 1860 should be followed. The CrPC clearly states that the offence should be tried where it occurred. Therefore, in Section 138 cases, the jurisdiction of the court to try the offence should be based on where the cheque was dishonoured and not where the notice was issued as it would not be the location of the offence;
  • Supreme Court further has provided the following approach should be followed for pending Section 138 Cases:

* All the cases which have reached a crucial stage of recording of evidence should be continued to be entertained under the said courts where they are being entertained at present;

* All other cases, including wherein the accused has not been served properly, the complaint will now be returned. The complainant will be allowed to file a new complaint within 30 days of return in the court having territorial jurisdiction of the drawee bank and the same will be deemed to be filed within limitation period.

MHCO COMMENT

This decision of the Supreme Court is a gift to the accused as even after not being able to pay the amount due to the complainant, he can enjoy the benefits of the court jurisdiction within his territorial limits and have a hassle free process as compared to the complainant for recovering his money.

Further, there will be transfer of several cases for territorial jurisdiction where the recording of evidence has not yet began. This would make the complainant look for other remedies or settlement to recover his dues. However we believe over a long term, this decision may reduce multiple proceedings for the same action generally filed by the complainant to harass the accused.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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