Ending the bounced cheque debate
15 Aug 2014 1:51 AM GMT
The recent judgment of the Supreme Court in Dashrath Rupsingh Rathod vs State of Maharashtra and Anr has restricted the territorial jurisdiction of the court where the criminal complaint can be filed for the offence committed under section 138 of The Negotiable Instrument Act 1881. The judgment has envisaged the interest and grabbed the attention of common man on the street. The judgment is debated in the echelons of financial institutions and industry federation and each side is trying to put its argument with full justification and reasoning.
The Parliament in its wisdom, in order to inculcate faith in the efficiency of banking operations and credibility in transacting business on negotiable instruments inserted sections 138 to 142 into The Negotiable Instruments Act, 1881 by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988). The object of the amendment was to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficient arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. If the cheque is dishonored for insufficiency of funds in the drawer’s account or if it exceeds the amount arranged to be paid from that account, the drawer is to be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both. What must be remembered is that the dishonour of a cheque can be best described as a regulatory offence that has been created to serve the public interest in ensuring the reliability of these instruments.
But over the years the law was distorted for commercial exigencies. The Apex court in its judgment held that ‘as it is Section 138 of the NI Act has introduced a deeming fiction of culpability, even though, Section 420 is still available in case the payee finds it advantageous or convenient to proceed under that provision.
An interpretation should not be imparted to Section 138 which will render it as a device of harassment i.e. by sending notices from a place which has no casual connection with the transaction itself, and/or by presenting the cheque(s) at any of the banks where the payee may have an account. In our discernment, it is also now manifested that traders and businessmen have become reckless and incautious in extending credit where they would heretofore have been extremely hesitant, solely because of the availability of redress by way of criminal proceedings. It is always open to the creditor to insist that the cheques in question be made payable at a place of the creditor’s convenience. Today reality is that the every magistracy is inundated with prosecutions under Section 138 NI Act, so much so that the burden is becoming unbearable and detrimental to the disposal of other equally pressing litigations. We think that Courts are not required to twist the law to give relief to incautious or impetuous persons; beyond Section 138 of the NI Act.
Because of the provision of a strong criminal remedy, encouraged the institution of a large number of cases that are relatable to the offence contemplated by Section 138 of the Negotiable Instruments Act 1881. So much so, that at present a disproportionately large number of cases involving the dishonor of cheques is choking our criminal justice system, especially at the level of Magistrates’ Courts.
As per the 213th Report of the Law Commission of India, more than 38 lakh cheque bouncing cases were pending before various courts in the country as of October 2008. This has put an unprecedented strain on our judicial system. Courts in the four metropolitan cities and other commercially important centres are particularly burdened as the filing of such cases is in very large numbers. More than five lakh such cases were pending in criminal courts in Delhi alone as of 1st June 2008. The position is no different in other cities where large number of complaints are filed under section 138 not necessarily because the offence is committed in such cities but because multinational and other companies and commercial entities and agencies choose these places for filing the complaints for no better reason than the fact that notices demanding payment of cheque amounts were issued from such cities or the cheques were deposited for collection in their banks in those cities.
It is not uncommon to find complaints filed in different jurisdiction for cheques dishonoured in the same transaction and at the same place. This procedure is more often than not intended to use such oppressive litigation to achieve the collateral purpose of extracting money from the accused by denying him a fair opportunity to contest the claim by dragging him to a distant place.
Therefore the apex court held that cases under Section 138 of the Negotiable Instruments Act, prosecution in such cases can, therefore, be launched against the drawer of the cheque only before the Court within whose jurisdiction the dishonor takes place except in situations where the offence of dishonor of the cheque punishable under Section 138 is committed along with other offences in a single transaction.
The judgment has far reaching consequences and ramifications in terms of the dispensation of justice guaranteed under the constitution where the rights of the accused are protected for a fair trial and not drag him to a distant place and arm twist him to surrender to pressure tactics of the complainant.
The author is an advocate
The Parliament in its wisdom, in order to inculcate faith in the efficiency of banking operations and credibility in transacting business on negotiable instruments inserted sections 138 to 142 into The Negotiable Instruments Act, 1881 by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988). The object of the amendment was to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficient arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. If the cheque is dishonored for insufficiency of funds in the drawer’s account or if it exceeds the amount arranged to be paid from that account, the drawer is to be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both. What must be remembered is that the dishonour of a cheque can be best described as a regulatory offence that has been created to serve the public interest in ensuring the reliability of these instruments.
But over the years the law was distorted for commercial exigencies. The Apex court in its judgment held that ‘as it is Section 138 of the NI Act has introduced a deeming fiction of culpability, even though, Section 420 is still available in case the payee finds it advantageous or convenient to proceed under that provision.
An interpretation should not be imparted to Section 138 which will render it as a device of harassment i.e. by sending notices from a place which has no casual connection with the transaction itself, and/or by presenting the cheque(s) at any of the banks where the payee may have an account. In our discernment, it is also now manifested that traders and businessmen have become reckless and incautious in extending credit where they would heretofore have been extremely hesitant, solely because of the availability of redress by way of criminal proceedings. It is always open to the creditor to insist that the cheques in question be made payable at a place of the creditor’s convenience. Today reality is that the every magistracy is inundated with prosecutions under Section 138 NI Act, so much so that the burden is becoming unbearable and detrimental to the disposal of other equally pressing litigations. We think that Courts are not required to twist the law to give relief to incautious or impetuous persons; beyond Section 138 of the NI Act.
Because of the provision of a strong criminal remedy, encouraged the institution of a large number of cases that are relatable to the offence contemplated by Section 138 of the Negotiable Instruments Act 1881. So much so, that at present a disproportionately large number of cases involving the dishonor of cheques is choking our criminal justice system, especially at the level of Magistrates’ Courts.
As per the 213th Report of the Law Commission of India, more than 38 lakh cheque bouncing cases were pending before various courts in the country as of October 2008. This has put an unprecedented strain on our judicial system. Courts in the four metropolitan cities and other commercially important centres are particularly burdened as the filing of such cases is in very large numbers. More than five lakh such cases were pending in criminal courts in Delhi alone as of 1st June 2008. The position is no different in other cities where large number of complaints are filed under section 138 not necessarily because the offence is committed in such cities but because multinational and other companies and commercial entities and agencies choose these places for filing the complaints for no better reason than the fact that notices demanding payment of cheque amounts were issued from such cities or the cheques were deposited for collection in their banks in those cities.
It is not uncommon to find complaints filed in different jurisdiction for cheques dishonoured in the same transaction and at the same place. This procedure is more often than not intended to use such oppressive litigation to achieve the collateral purpose of extracting money from the accused by denying him a fair opportunity to contest the claim by dragging him to a distant place.
Therefore the apex court held that cases under Section 138 of the Negotiable Instruments Act, prosecution in such cases can, therefore, be launched against the drawer of the cheque only before the Court within whose jurisdiction the dishonor takes place except in situations where the offence of dishonor of the cheque punishable under Section 138 is committed along with other offences in a single transaction.
The judgment has far reaching consequences and ramifications in terms of the dispensation of justice guaranteed under the constitution where the rights of the accused are protected for a fair trial and not drag him to a distant place and arm twist him to surrender to pressure tactics of the complainant.
The author is an advocate
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