Wednesday, June 17, 2015

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 Court.

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.

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