Supreme Court of India changes the Law relating to Dishonour of Cheques

On 1 August 2014, the Supreme Court of India delivered a landmark judgment in the case of Dashrath  Rupsingh Rathore vs. State of Maharashtra reported at 2014 (9) SCALE 97 changing the law relating to place of instituting a complaint under Section 138 of the  Negotiable Instrument Act, 1881 (hereinafter referred to as the “Act”) for dishonour of cheque.

The present case deals with a dissenting annotation on the territorial jurisdiction of courts  regarding criminal complaints for dishonour of cheque under Act, which has for long been considered  settled by earlier decisions of the Supreme Court.

A Three Judge Bench of the Supreme Court in this case has held that a complaint under section 138  of the Act for dishonour of cheque, can be filed only in the court within whose local jurisdiction  the bank that dishonoured the cheque (where the offence is committed) is situated. The Court clarified that the Complainant is statutorily bound to comply with provisions of the Code of  Criminal Procedure and therefore, the place or situs where the Section 138 Complaint is to be filed  is not of his choice.

While delivering this judgment, the Supreme Court has overruled its own Two Judge Bench Judgment  passed earlier in K.Bhaskaran v. Sankaran Vaidhyan Balan reported at (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. Following are the acts which are components of the said offence:

  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
  5. Failure of the drawer to make payment within 15 days of the receipt of the notice.”

The position of law, as settled by the Supreme Court in K. Bhaskaran (supra) was that a complainant could choose any one of those courts having  jurisdiction over any one of the local areas within the territorial limits of which any one of the  aforesaid five acts was done.

Consequences of the Judgment

This decision of the Supreme Court shall have a far reaching impact on Banking and Non-Banking  Financial Institutions. The Supreme Court has clearly mentioned in its judgment in Dashrath (supra)  that they were aware of the magnitude of the impact of the judgment on lakhs of cases pending in  different courts across the country. Keeping in mind the hardship that was being caused to the  alleged accused/Respondents, who had to travel long distances to defend themselves, the Supreme Court did not declare this judgment to have only  prospective application.

In view of the specific observations made by the Supreme Court, the position in so far as  territorial jurisdiction of courts qua complaints u/s 138 is as follows:

  1. Prosecution can be launched against the drawer of the cheque only before the court within whose  jurisdiction the dishonour takes place
  2. The cases where the complaint is not filed within  the jurisdiction of the court where the bank  that dishonoured the cheque is situated, the same will be returned to the complainant for filing a fresh complaint.
  3. All those cases where, the proceedings have reached to the stage of recording evidences as u/s  145(2) of the Act will continue in the courts where they are pending now

The way forward

Following the law settled in Dashrath (supra), the Bombay High Court in its recent judgment dated  August 25, 2014 titled Ramanbhai Mathurbhai Patel vs. State of Maharashtra & Another bearing Criminal Writ Petition no. 2362 of 2014, has held that a complaint under Sec. 138  of the Act for dishonour of cheque, can be filed only in the court within whose local jurisdiction  the dishonoured took place.

Sumeet Lall