Negotiable Instruments Act, 1881 defines bills of exchange, promissory notes, cheques and creates penalties for issues such as bouncing of cheques. It also specifies circumstances under which complaints for cheque bouncing can be filed.
The Lok Sabha passed the Negotiable Instruments (Amendment) Bill, 2015, to ensure a fair trial in cheque bounce cases.
The Bill, which will replace an existing Ordinance promulgated in mid-June, was passed by the Lower House through a voice vote.
The Bill has significant implications for the functioning of a market economy (like India) and will further enable enforcement of contracts.
The Negotiable Instruments (amendment) Bill 2015 seeks to provide a place of jurisdiction that is fair to both the complainant and the accused (in cases filed for dishonour of cheques).
The objective is to ensure a fair trial in cheque bounce cases.
The NDA government had to issue an Ordinance to fast-track resolution of cheque-bounce cases by removing the ambiguity on territorial jurisdiction over dishonoured cheques.
According to the Ordinance, all cheque-bounce cases can be filed only in a court within whose local jurisdiction the bank branch of the payee is situated, and where the payee presents the cheque for payment.
This was the 14th Ordinance issued by the Narendra Modi government since it assumed office late last May.
The amendments are focused on clarifying jurisdiction related issues for filing cases of offence committed under Section 138 the Negotiable Instruments Act,1881 Act.
The main amendment included in this is the stipulation that the offence of rejection/return of cheque u/s 138 of NI Act will be enquired into and tried only by a Court within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment is situated.
Section 138 of the NI Act deals with the offence pertaining to dishonour of cheque for insufficiency, etc., of funds in the drawer’s account on which the cheque is drawn for the discharge of any legally enforceable debt or other liability.
Section 138 provides for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque.
The object of the NI Act is to encourage the usage of the cheque and enhancing the credibility of the instrument so that normal business transactions and settlement of liabilities could be ensured.
The clarification of jurisdictional issues may be desirable from the equity point of view as this would be in the interests of the complainant and would also ensure a fair trial.
The clarity on jurisdictional issue for trying cases of cheque bouncing would increase the credibility of the cheque as a financial instrument.
This would help trade and commerce in general and allow lending institutions, including banks, to continue to extend financing to the economy, without the apprehension of the loan default on account of bouncing of a cheque.
Various financial institutions and industry associations have expressed difficulties, arising out of the recent legal interpretation of the place of jurisdiction for filing cases under Section 138 to be the place of drawers’ bank by the Supreme Court.
To address the difficulties faced by the payee or the lender of the money in filing the case under Section 138 of the NI Act, because of which, large number of cases were stuck, the jurisdiction for offence under Section 138 has been clearly defined.
The Bill provides for filing of cases only by a court within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment, is situated.
Further, where a complaint has been filed against the drawer of a cheque in the court having jurisdiction under the new scheme of jurisdiction, all subsequent complaints arising out of Section 138 against the same drawer shall be filed before the same court, irrespective of whether those cheques were presented for payment within the territorial jurisdiction of that court.
Further, it has been provided that if more than one prosecution is filed against the same drawer of cheques before different courts, when this fact is brought to the notice of the court, the court shall transfer the case to the court having jurisdiction as per the new scheme of jurisdiction.