Jaipur National University

Seedling School of Law and Governance

Subject: Banking Law

Topic- Case study on Dashrath Rupsingh Rathod v. State of

Maharashtra and Anr. 2014

Submitted To: Submitted By:

Mr. Suresh Kumar Dotania Ritik Yadav
Asst. Prof. BBA LLB(H.)
SSLG 8TH Semester
Name of the Case – Dashrath Rupsingh Rathod v. State of Maharashtra and Anr.
2014

Citation- MANU/SC/0655/2014

Date of Judgment – August 1, 2014

Subjects and Sections Involved – Section 138 of Negotiable Instruments Act,

1881

Facts of the Case

The present judgment has arose out of 8 Special Leave Petitions filed before the
Supreme Court of India, with respect to dishonour of cheques in an area falling
under jurisdictions of certain courts, however issued to the drawee/complainant at
some other place. The facts of these appeals remain substantially the same as to the
issue of jurisdiction.

In a certain appeal, the court reiterated the findings of the High court of Bombay,
Nagpur Bench that the complaint must not be rejected since it was filed at a place
other than where the cheque was presented to the complainant, it merely be
presented to the appropriate court for filing. The appeal was rightly dismissed. In
Crl. Appeal No. 1593 of 2014, the appeal was allowed calling for further action by
the complainant for action according to law, where the respondent-accused who
had purchased certain electronic items from the appellant company, issued cheques
which were later dishonoured at a different place. The other appeals were
accordingly dismissed by the court.

The case however, involved a substantial question of law, which could pose
difficulty for future litigants. It was referred to the then, Chief Justice of India,
after a proposed draft order. The draft order had analysed the precedents leading to
the case by referring to several judgments and the comparison of their positions,
whether advantageous or perverse.

The case of K. Bhaskaran v. Sankaran Vaidhyan Balan, (hereinafter, Bhaskaran

case) formed the crux of the precedents that operated in this regard, it was asserted
that the judgment held Section 138 to be a judicial mix of certain events that could
lead up to the offence as suggested by the provision. Section 138, as per the
judgment of the said precedent consisted of several components which together led
to the commission of the offence, these were:

Drawing of the cheque in name of the drawee,

Presentation of the cheque to the bank by the drawee,

Return of the unpaid cheque by the bank to the drawee,

Presentation of notice in writing to the drawer of the cheque to pay the amount of
the cheque,

Failure of the drawer to pay the amount demanded, within 15 days of such notice.

It is stated that the offence under Section 138 is completed upon satisfaction of the
above string of events. The judgment in Bhaskaran allowed for complaints to be
filed at any place other than where the drawee’s bank is located.

Issue of the Case

Court’s territorial jurisdiction regarding criminal complaints for dishonour of

cheque under the Negotiable Instruments Act (“Act“).

Argument

The court had to investigate the components of Section 138, which were the
essentials of the offence. The court analysed the concatenation of the ingredients of
the section. The issue before the courts was to create a settlement between the
various precedents based on similar circumstances and dilemmas. The analysis of
precedents on the issue of jurisdiction led to the discovery of glaring lacunae
among them.
The components of Section 138 were elucidated at length in the Bhaskaran case
which furthered the need for distinction between the serving of notice, and receipt
of the same by the drawer. The issue as to the circumstances of the notice were
further a main issue in the case of Harman Electronics Pvt. Ltd. v. National
Panasonic India Pvt. Ltd., (hereinafter, Harman case). Here, the court laid
emphasis on the receipt of the notice and pronounced that  a cause of action did not
lie on a mere omission on part of the accused, since the question before the court
was whether a cause of action arose when the notice was issued from a place
distinct from the place where the cheque was issued. This led the court to ponder
upon the proviso to Section 138 of the NI Act. The decision clearly distinguished
between the jurisprudential aspect of cognizance of an offence and its actual
commission, which points to the discrepancy in the present case, that is jurisdiction
to try the offence.

The present bench was faced with the question of interpretation of the proviso to
section 138, its jurisprudential value while consolidation of the requirements
offered by the body of the section. It was also faced with an issue of giving a
paraphrased and novel interpretation to the precedents in the area. This was
because, the court took into realisation the ratio in Bhaskaran case, which was
unexpectedly set in favour of the complainant and afforded major complication and
unjustified hardship to the accused, as in the complaint.

Since a co-ordinate is required to uphold previous decisions, it was urgent that new
precedential views be added in the present circumstance. The co-ordinate bench
found it compelling to refer it to the larger bench comprising of the Chief Justice,
in the best interests of justice.

Section 20 of the Code of Civil Procedure was also judicially interpreted to take a
diverging view from its ordinary meaning. The Explanation appended to the
section was of great relevance here. The section states that the suit must be
instituted at a place, where the Defendant ordinarily resides. The Explanation
however, considers the operations of a corporation or a company to be going on in
its principal offices, and all suits shall be instituted accordingly. Therefore, the
plaintiff is precluded from instituting a suit at any other place, where the cause of
action may have arisen.
The court also took into view, the extrapolation of the concepts of criminal law
onto civil law, where the concept of cause of action and its arousal has been
applied to commission of crimes.

The order was referred to the larger bench, for an opinion by the Chief Justice.

Major observation

The offence in the contemplation of Section 138 of the NI Act is the dishonour of

the cheque alone, and it is the concatenation of the five concomitants of that
Section that enable the prosecution of the offence in contradistinction to the
completion/commission of the offence.

Section 138 of the Act read in conjunction with Section 177 of Code of Criminal
Procedure makes it clear that the return of the cheque by the drawee bank alone
constitutes the commission of the offence and indicates the place where the offence
is committed.

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.

The relief introduced by Section 138 of the NI Act is in addition to the

contemplations in the Indian Penal Code. It is still open to such a payee recipient
of a dishonoured cheque to lodge a First Information Report (F.I.R.) with the
Police or file a Complaint directly before the concerned Magistrate rather than
lodging a Complaint Under Section 138 of the NI Act.

The place of the issuance or delivery of the statutory notice or where the

Complainant chooses to present the cheque for encashment by his bank are not
relevant for purposes of territorial jurisdiction of the Complaints even though non-
compliance thereof will inexorably lead to the dismissal of the complaint.

Section 138 is a penal provision and must, therefore, be interpreted strictly.

Judgment of the Case

An offence within the contemplation of Section 138 is complete with the dishonour
of the cheque but taking cognizance of the same by any Court is deferred so long
as the complainant does not have the cause of action to file a complaint in terms of
Clause (c) of the proviso read with Section 142.

Once the cause of action accrues to the complainant, the jurisdiction of the Court to
try the case will be determined by reference to the place where the cheque is
dishonoured by the bank on which it is drawn.

In cases where the offence under Section 138 is out of several offences committed
in a single transaction within the meaning of Section 220(1) of the Code of
Criminal Procedure then the offender may be charged with and tried at one trial for
every such offence and any such inquiry or trial may be conducted by any Court
competent to enquire into or try any of the offences as provided by Section 184 of
the Code.

Current Position of Law:

The current position of law with regard to cheque dishonour cases in India is that
dishonour of a cheque due to insufficient funds or other reasons specified under
Section 138 of the Negotiable Instruments Act, 1881 is a criminal offence. If a
cheque is dishonoured, the payee can initiate criminal proceedings against the
drawer by issuing a notice of demand for payment within 30 days of the receipt of
the information from the bank regarding the dishonour of the cheque. If the drawer
fails to make the payment within 15 days of receipt of the notice, the payee can file
a complaint before the appropriate court under Section 138 of the Act.
In such cases, the court can impose punishment of imprisonment for a term which
may extend to two years or with a fine which may extend to twice the amount of
the cheque or with both. The court can also order the drawer to pay compensation
to the payee for any loss or injury caused as a result of the dishonour of the cheque.

It is important to note that the law relating to cheque dishonour cases has been
amended several times in recent years to make it more effective and to provide
relief to the payee in cases of cheque dishonour. For example, the Negotiable
Instruments (Amendment) Act, 2018 provides for the interim compensation to be
paid to the complainant by the drawer of the cheque during the pendency of the
case, and also provides for the summary trial of such cases. These amendments
have helped to make the law more responsive and effective in dealing with cheque
dishonour cases in India.