Negotiable Instruments Amendment Ordinance Promulgated

In May, the Government proposed the
Negotiable Instruments (Amendment) Bill, 2015 with a view to amending the
Negotiable Instruments Act, 1882 (the “NI Act”). This was necessary due to
jurisdictional issues pertaining to cases brought under section 138 of the NI
Act for dishonour of cheques.
The background and rationale for
the amendment has been stated explicitly in the Statement of Objects and
Reasons as follows:
3. The Supreme
Court, in its judgment dated 1st August, 2014, in the case of Dashrath Rupsingh
Rathod versus State of Maharashtra and another (Criminal Appeal No. 2287 of
2009), held that the territorial jurisdiction for dishonour of cheques is
restricted 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 Supreme Court has directed that only those
cases where, post the summoning and appearance of the alleged accused, the
recording of evidence has commenced as envisaged in section 145(2) of the
Negotiable Instruments Act, 1881, will proceeding continue at that place. All
other complaints (including those where the accused/respondent has not been
properly served) shall be returned to the complainant for filing in the proper
court, in consonance with exposition of the law, as determined by the Supreme
4. Pursuant to the
judgment of the Supreme Court, representations have been made to the Government
by various stakeholders, including industry associations and financial
institutions, expressing concerns about the wide impact this judgment would
have on the business interests as it will offer undue protection to defaulters
at the expense of the aggrieved complainant; will give a complete go-by to the
practice /concept of ‘Payable at Par cheques’ and would ignore the current
realities of cheque clearing with the introduction of CTS (Cheque Truncation
System) where cheque clearance happens only through scanned image in electronic
form and cheques are not physically required to be presented to the issuing
branch (drawee bank branch) but are settled between the service branches of the
drawee and payee banks; will give rise to multiplicity of cases covering
several cheques drawn on bank(s) at different places; and adhering to it is
impracticable for a single window agency with customers spread all over India.
Although the Bill was passed by the
Lok Sabha, the Rajya Sabha was adjourned and hence the President has now
promulgated the Negotiable
Instruments (Amendment) Ordinance, 2015
By way of amendments to section 142
and the introduction of section 142A of the NI Act, the Ordinance specifies the
jurisdiction within which cheque dishonour cases can be brought. This is the
jurisdiction where the payee or holder in due course delivers the cheque to the
branch of a bank for collection through an account. If the cheque is presented
for payment otherwise than through an account, the jurisdiction would be of the
bank branch where the drawer of the cheque maintains an account. The Ordinance
also provides for transfer of pending cases to such jurisdiction. Also,
subsequent complaints arising against the same drawer shall be filed before the
same court irrespective of where the cheques were delivered for collection or
presented for payment within the territorial jurisdiction of the court.
By clarifying the territorial
jurisdiction of the courts, the Ordinance is expected to ensure a fair trial, especially
for complainants, and hence facilitate banking and financial transactions
premised on the credibility of the system premised on the honouring of cheques.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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