CHAPTER- FIVE JURISDICTION OF COURTS AND INITIATION …shodhganga.inflibnet.ac.in/bitstream/10603/7935/13/13_chapter 5.pdf · CHAPTER- FIVE JURISDICTION OF COURTS AND INITIATION OF

CHAPTER- FIVE

JURISDICTION OF COURTS AND

INITIATION OF TRIAL

I. JURISDICTION

So far as jurisdiction of the Area is concerned, the complainant can choose

any one of those courts having jurisdiction over any of the local areas within the

territorial limits of which any one of the following acts took place :

i) Drawing of the cheque.

ii) Presentation of the cheque

iii) Returning of the cheque by drawee bank

iv) Giving of notice in writing to the drawer of the cheque demanding payment

of cheque and failure of the drawer to make payments within 15 days of

receipt of notice.1

If the drawer of cheque is a company, a criminal complaint could be filed

against the M.D. of the company, Chairman, Directors and also for against the

company for filing complaint on behalf of a Company section 291 of the Companies

Act, has vested the general powers of management on the Board, subject to the

provisions contained in articles of Association.

Thus, if legal proceedings have to be initiated for and on behalf of a

Company then the board needs to pass a resolution authorising any Director or

Managing Director or any other employee of the Company for initiating such

process.

The only eligibility criteria prescribed by section 142 is that the complaint

under section 138 must be filed by the payee or the holder in due course of the said

cheque. This criterion is satisfied as the complaint is in the name and on behalf of the

1 K.Bhaskarn v. Shanta Karan Vidyan Balan AIR 1999-7 SC-570

152

company who is the payee of the cheque. It is open to the dejure complainant

company to seek permission of the court for sending any other person to represent to

company in the court. Thus, even presuming that, the initially there was no authority

still the company can, at any stage rectify that defect. At a consequent stage the

company can send a person who is competent to represent.2

Not only this but we are fully alive to the imperatives of a sound “Cheque

system” and in our anxiety to scares away the offenders, we are providing more

stringent deterrents as spelled out in the Negotiable Instruments Act (Amendment)

2002 interalia provides 2 years imprisonment and issue of notice from 15 days to 30

days and day to day hearing in the case and absent only giving the sound reasons. It

provides for discretion of the courts to waive the period of one month for taking

cognizance of the case. Hence, we see that the directors are liable for the

dishonouring cheque severally. We have, therefore, still to go miles in this direction.

A. Jurisdiction u/s 138 of N.I. Act, 1881 –

Where a cheque was issued for business purchased at one place and the

recipient of the cheque also deposited the cheque into his account at that very place,

but, after dishonour, he issued notice of dishonour from his place of business in some

other town, it was held that a complaint filed at that place was competent. The cause

of action partly arose there because to discharge his liability the drawer would have to

make arrangement for payment at the recipient place. Thus the places where the

payment was to be made and where the cheque was delivered are also relevant. Where

a cheque was given at Delhi but was deposited by the payee at some other place, there

was no jurisdiction at that place. It is the duty of the debtor to seek his creditor and,

therefore, the court at the place of the payee had jurisdiction.

Cause of action may arise at the place where the cheque was issued or

delivered or where the money was expressly or impliedly payable. Where there was

2 MMTC Ltd. v. Meehi Chemicals & Pharma (P) Ltd. AIR 2002 Cr.L.J. 266 ( SC)

153

averment in the compliant of an agreement to return the money at the residence of the

complainant, it was held that the cause of action arose there.

B. Where Refusal Takes Place –

Section 177 of The Code of Criminal Procedure states that every offence shall

ordinarily be enquired into and tried by Court within whose local jurisdiction it was

committed and Section 179 of the said Code states that when an act is an offence by

reason of anything which has been done, and of a consequence which has ensured, the

offence may be enquired into or tried by the Court within whose local jurisdiction

such thing has been done or such a consequence has ensued. So far as the complaint

lodged by the respondent No. 2 against the petitioners for an alleged offence under

Section 138 of the Negotiable Instruments Act, 1881 is concerned, from the

complaint, it is evident that the cheques that were issued by the petitioner No 1 under

the signature of the petitioner No. 2 in the name of the respondent No. 2, were drawn

on the Vijaya Bank at Shakespeare Sarani in Calcutta, although sent to Bombay, and

the cheques were produced at Vijaya Bank at Shakespeare Sarani in Calcutta for

encashment where those were dishonoured. Accordingly, if any offence was

committed by the petitioners at all, it was committed in Calcutta as per the provisions

of Section 179 read with Section 177 of the Code of Criminal Procedure and such an

offence is to be tried by the Court within whose local jurisdiction such offence was

committed namely, by a competent Criminal Court in Calcutta. The ratio of the

decisions in AIR 1954 SC 429: AIR 1960 Cal 513: AIR 1963 Pat. 398 and AIR 1974

P & H 2, therefore, apply with full force so far as the contention of Mr. Mukherjee

regarding the lack jurisdiction of the Metropolitan Magistrate’s Court in Bombay to

entertain the disputed complaint against the petitioners is concerned, as from the facts

of the present case, it becomes quite clear, that if there be any cause of action for

starting a criminal proceeding against the writ petitioners for their alleged offence at

all, such cause of action has arisen wholly in Calcutta when the alleged offence has

154

been committed and not in Bombay as no part of such cause of action has arisen

there.3

Once the cheque is dishonoured and the payee serves the notice he is entitled

to enforce his rights under Section 138 of the Negotiable Instruments Act at the place

of his business.

The Courts at Khanna have the jurisdiction to try the criminal charges against

the petitioner. No case is thus, made out for quashing of the complaint and consequent

proceedings.4

The complaint can be filed in a Court within the jurisdiction of which the

cheque has been drawn or the place where the cheque is presented for collection and

received an endorsement about the dishonour of the cheque or the place where the

cheque is dishonoured. In this case the cheques drawn on State Bank of India,

Kurnool Branch of Hyderabad for collection where a part of the cause of action arose.

There fore, the Court at Hyderabad has got jurisdiction to try the case. Under those

circumstances, the learned Magistrate is perfectly right in dismissing the petition filed

by the accused which does not call for interference.5

C. In Case of Non Payment –

Since Section 142(b) of the Acts speaks of cause of action. What does cause of

action mean? A court gets jurisdiction over the matter if the cause of action arises

within the local limits of its jurisdiction. Cause of action means: “the whole bundle of

material facts which it is necessary for the plaintiff to prove in order to entitle him to

succeed in the suit” to ascertain whether the bundle of facts give rise to the cause of

action and to determine whether one or more of those facts had occurred within the

territorial jurisdiction of the Court the entire plaint has to be taken into consideration.

3 Indmark Finance and Investment Co. (Pvt) Ltd. v. The Learned Metropolitan Magistrate 28th Court,

1992(1) Crimes 993 at p. 997 4 T.K.Khungar v. Sanjay Ghai, 1994(3) Crimes 802 5 M/s Goutham T.V. Centre v. M/s Apex Agencies, 1993(1) Crimes 723: 1993 Cri. LJ 1004.

155

In the decision in the State of Madras v. C.P. Agencies,6 the Supreme Court quoted

with approval the following observations in Ms. Chand Kaur v. Partap Singh,7

“Now the cause of action has no relation whatever to the defence

which may set up by the defendant, nor does it depend upon the

character of the relief prayed for by the plaintiff. It refers entirely

to the grounds set forth in the plaint as the cause of action, or, in

other words, to the media upon which the plaintiff asks the Court to

arrive at a conclusion to his favour.”

The question whether the Court within whose jurisdiction cheque is delivered

can entertain the suit arose for consideration in the decision of Lachhman Dass v.

Chuhra Mal. 8

It was held that in a suit for recovery of loan, the cause of action does

not constitute merely the giving of loan but it consists for of a bundle of facts

including the agreement relating to the loan, the place where the plaintiff delivered to

the defendant the cheque for the amount of loan and the place where the loan was to

be paid back. It was observed that if no cash was advanced by plaintiff to the

defendant but it was the cheque that constituted the loan, then the place where the

defendant got the cheque from the plaintiff gives rise to a part of the cause of action

and the plaintiff has a right to institute the suit in the Civil Courts within whose

territorial jurisdiction the cheque was delivered to the defendant.

The complaint can be laid at the place wherein the cheque was dishonoured

and also at the place where the cheque was issued, which means that the complaints

laid in these cases before the Judicial First Class Magistrate-II Kannur has jurisdiction

to try the offence.9

As per Section 179 of Cr. P.C. the place where the cheque was given or

handed over will have jurisdiction and the courts of that place will have jurisdiction to

6 AIR 1960 SC 1309. 7 15 Indian Appeals, 156. 8 AIR 1952 Pepsu 5. 9 Mohmmed Kunhi v. Abdul Kagged, 1996(3) Crimes 406: 1 (1996) BC 271 Ker.

156

try the offence. Likewise for purpose of Section 178(b) payment of cheque may be

one part of an offence and dishonour of the cheque may be another part and,

therefore, both places, i.e. place where the cheque was handed over and the place

where it was dishonoured will have jurisdiction.10

D. The Court to Try Offence –

The offence falling under Section 138 of the Act will not be the only solitary

act of dishonour by the Bank on which the cheque is drawn. Even giving of the

cheque by the accused when he has not made arrangements for honouring of the

cheque itself will be a part of the facts constituting the offence. Section 178(b), Cr.

P.C. lays down that when an offence is committed partly in one local area and partly

in another area, it may be enquired into and tried by a Court having jurisdiction over

any of such local areas. Under Section 179, Cr. P.C. when an act is an offence by

reason of anything which has been done and of a consequence which has ensued, the

offence may be inquired into or tried by a Court within whose local jurisdiction such

thing has been done or such consequence has ensued. Giving the cheque by the

accused to the complainant and giving the cheque for collection by the complainant to

its Banker at Bangalore will also be the facts constituting the offence. Therefore, in

view of the provisions of Sections 178(b) and 179 Cr. P.C. the complaint can be filed

in a court within the jurisdiction of which the cheque has been issued or the place

where the cheque is presented for collection or the place where the cheque is not

honoured. In view of this position of law, the learned Magistrate was wrong in

coming to the conclusion that he has no jurisdiction to entertain the complaint. He has

the jurisdiction to entertain the complaint in view of the fact that the cheque was

issued by the accused at Bangalore and the cheque was given for collection by the

complainant to its Banker at Bangalore. These are the facts which took place within

the jurisdiction of the Court.11

10 CanBank Financial Services Ltd. v. Gitajli Motors Pvt. 1996 (1) BC 221: 1995 Cri. LJ 1222: 1995

(1) Crimes 342 : 1995(1) Civil LJ 902. 11 M/s. Pohathi Agencies v. The State of Karnataka, 1991 Cr. LJ 2530 at p. 2531 Kar.

157

It is well settled now that the Court has jurisdiction over the area where the

cheque was issued or delivered or where the drawer of the cheque fails to make

payment of the money or where the cheque was presented for encashment or the area

where the payment was to be made. Therefore, the appellant had cause of action to

file the complaint before the lower Court where the cheque was presented for

encashment and the lower court had jurisdiction to take cognizance of the offence.

Therefore, the finding of the lower court that it had no jurisdiction to take cognizance

of the offence is absolutely unsustainable.12

The non payment of cheque amount at Madras, despite the written demand

from the Registered Office at Madras, would make the offence complete. This is

made clear even from the observation made by the High Court of Kerala in P.K.

Muraleedharan case,13

that the cause of action arises at the place, where the cheque

was issued or delivered or the place where the money was expressly or impliedly

payable. In the instant case, the complainant, the Registered office at Madras demands

money from Madras, asking the drawer to pay the money to Madras office. Therefore,

the place where the money is payable also will have the jurisdiction.14

E. Where Cheque Dishonoured- Under Section 138 of Negotiable

Instruments Act, 1881 and Sections 177 & 179 Cr. P.C.

A reference may also be made to the decision in Re Jivandas v. Savchand,15

which deals with the question of jurisdiction in a case filed for the offence under

Section 406 of the Indian Penal Code. It was held by the Full Bench of the Bombay

High Court as follows :

“What Section 179 provides is that when a person is accused of the

commission of any offence by reason of two things, by reason first,

of anything which has been done, and secondly, of any

12 Varghese v. C.K. Ramani, 1998 Cri. LJ 2755 at p. 2757. 13 1993(1) Crimes 46. 14 Narang Industries Ltd. v. Ashok Leyland Finance Ltd., I (1998) BC 532 at p. 542. 15 AIR 1930 Bom. 490(FB).

158

consequence which has ensued, then the jurisdiction is conferred

on the Court where the act has done or the consequence has

ensued. The offence, therefore, must be charged by reason of the

two things, the act done and the consequence which ensued and the

consequence, therefore, forms the necessary part of the offence.”16

Where cheque was presented for collection that Court had also the jurisdiction

to try the complaint. In the present case, the cheque was presented at Chandigarh and

respondent was also informed through Bank regarding bouncing of the cheque.

Therefore, the Courts at Chandigarh had the jurisdiction to entertain the criminal

complaint. 17

F. Where Even Part Cause of Action Arises –

Coming to the question of jurisdiction, it is to be considered that the issuance

of the cheques and their dishonouring are only a part of cause of action, the offence

was complete only when the petitioners failed to discharge their liability to the

respondent-firm. For discharging a debt, it is the debtor who has to find out his

creditor and since in the present case the respondent, who is the creditor, has its office

at Panchkula, the Court at Ambala had the territorial jurisdiction to try the offence

complained of.18

In the present case the cheques were issued at Moga and these were presented

by the respondent for collection of payment to State of Patiala at Moga. The cheques

were dishonoured by the State Bank of Indian Jalanadhar but intimation of dishonour

was received at Moga. Notices were sent by the respondent to make payment at

Moga. Moga Court had, therefore, jurisdiction to try the case. Similar view was taken

in the case of M/s Probathi Agencies v. State of Karnataka.19

The Court at Moga,

16 M/s. Goutham T.V. Centre v. M/s. Apex Agenceis, 1993 Cr. LJ 1004 at pp. 1005-1007 AP. 17 M/s. Meltro Enterprises v. Ramesh Chander Jain, 1997 (3) Crimes 360 at p. 361. 18 M/s. Ess Bee Food Spectalities v. Kapoor Brothers, 1992 Cri. LJ 739 at pp.741, 742 P & H . 19 1991(2) Recent Criminal Reports 685.

159

thus, had jurisdiction to entertain the complaints. No. case is made out for quashing

the complaints and consequent proceedings. 20

G. When Complainant Died –

Bombay High Court had occasion to hold that the trying Magistrate has

discretion in proper cases to allow the complaint to continue by a proper and fit

complainant. The court held :

“In a case of non-cognizable offence instituted upon a complaint,

the axiom of actio personalis moritur cum persona, in civil law

confined to torts, does not apply, and the trying Magistrate has

discretion in proper cases to allow the complainant to continue by a

proper and fit complaint, if the latter is willing.”21

The above view has been adopted in Subbamma v. Kannappachari, 22

where

the Mysore High Court held that the death of the complainant in a case of non-

cognizable offence does not abate the prosecution and it is within the discretion of the

trying Magistrate in a proper case to allow the complaint to continue by a proper and

fit complaint if the later is wiling but some other High Courts have taken a contrary

stand.

As to the question whether the complainant’s death ends the proceedings in a

summons case, the Law Commission in its 41st report observed :

“A question has arisen whether the complainant’s death ends the

proceedings in a summons case; and we find that different views

have been expressed on this question. As a matter of policy we

think the answer should depend on the nature of the case and the

stage of the proceedings at which death occurs. It is impracticable

to detail the various situations that may arise and the considerations

20 Tarsem Lal Hans v. Prem Nath Palta, 1995 Cri. LJ 2408. 21 Mahomed Azam v. Emperor, AIR 1926 178. 22 AIR 1969 Mys. 221.

160

that may to be weighted. We think, in the circumstances, that the

decision should be left to the judicial discretion of the Court, and,

the legal provisions need only be that death and absence stand on

the same footing. We trust this will in practice work satisfactorily.”

As sub-section (2) of section 256 of Code of Criminal Procedure is intended to

achieve this objective it cannot be held that the Magistrate has no option but to acquit

the accused when the complainant is dead. In other words, in appropriate cases the

Magistrate can grant permission to the son of the deceased complaint to proceed with

the complaint.23

H. Compoundable Offence –

Though before introducing ‘The Negotiable Instruments (Amendment and

Miscellaneous Provisions) Act, 2002 remedies regarding compounding of an offence

committed under Section 138 were available under various sections of Code of

Criminal Procedure viz. in Section 239,319, 320 but now by inserting Section 147 the

offence has been made compoundable. Section 147 of the Negotiable Instruments

Act, 1881 reads as :

“Notwithstanding anything contained in the Code of Criminal

Procedure, 1973( 2 of 1974), every offence punishable under this

Act shall be compoundable”

II. APPEARANCE OF COMPLAINANT

When a complaint raises all pleas regarding ingredients of the offence under

Section 138 of the Negotiable Instruments Act, then at the time of taking cognizance,

the Magistrate cannot be expected to go into the niceties of the case which would be

set up by the accused and for which complainant’s personal presence should be

needed.24

The complaint was by a Government company through its manager. The

23 T.N. Jayarajan v. Jayarajan, 1992(3) Crimes 866 at. 667. 24 Pearey Lal Rajindra Kumar Pvt. Ltd. v. State of Rajasthan, (1994 3 Crimes.308.

161

manager was exempted from attendance. The counsel of the company did not appear

on the listed date. The dismissal of the complaint for such non–appearance was held

to be not justified. There was nothing to show lack of diligence to prosecute the

complaint.25

III. PROPER EVIDENCE

When the accused challenged the prosecution for the offence under Section

138 of the Act on the ground that goods supplied by the complainant were defective

and having been rejected there could be no liability to pay, it was held that without

proper evidence at the stage of the accused being summoned, it could not be said that

the accused company did not have the liability for which cheque was issued.26

Where a complaint was filed on the basis of the three cheques in a year, the

court demanded the complainant to make up his mind as to the cheque on which the

prosecution was to continue.27

IV. DATE OF CHEQUE

The Supreme Court has held that there is a presumption that cheque is drawn

on the date it bears and it is to be presented within six months of the date of the

cheque though beyond six months of the date of delivery. Offence is committed

within six months from the date it bears irrespective of when the cheque was written

or delivered.28

V. DEFENCES TO PROCEEDINGS UNDER SECTION 138 –

A. Which May be Available -

The set of defences available under the section 138 of the Negotiable

Instruments Act, 1881 have been listed as follows:29

(i) Absence of a legally enforceable debt or liability.

25 Steel Authority of India Ltd. v. Vishwakarma Agro and Allied Industries, (1996) 86 Comp. Cas. 929

P & H. 26 Dilip Kumar Jaiswal v. D. Banerjee, (1992) 1 Crimes 1233. 27 Printo Stick v. H.C. Oswal , (1996) 86 Comp. Vas. 942 Mad. 28 Manoj K. Seth v. Fernandez, (1994) 1 BC 1 SC. 29 K.T. Kuriyan v. K.K. Sreedharan, (1992) 74 Com Cas. 853: 1993 Bank LJ 346.

162

(ii) Cheque was not returned for the reasons constituting an offence.

(iii) Complaint is not as per time periods provided in Sections 138 and 142 i.e. the

plea of limitation.

(iv) Absence of legal notice of 15 days (now 30 days as per new provisions).

(v) Lack of jurisdiction.

(vi) No return of the cheque to the payee.

(vii) The holder did not receive the cheque in terms of Section 139; it was given

with certain conditions.

(viii) Payment after receipt of Notice.

The court added that so far a Section 138 is concerned mens rea is irrelevant.

That is why it is specified in Section 140 that it shall not be a defence in prosecution

for an offence under Section 138 that the drawer had no reason to believe when he

issued the cheque that it may be dishonoured for the reason stated in Section 138.30

It was held to be no defence that the cheque was give for refund of capitation

fee paid for seeking an admission which did not materialise.31

Payment after receipt of

notice is also a good defence. The complaint was not quashed just because the receipt

of payment was produced. The payee’s allegation that the receipt was forged required

enquiry.32

Allahabad High Court held that the cases in which the payment of a cheque

can be justifiably refused for example, the mutilation of the cheque, the offence under

the section is not made out.33

Andhra Pradesh High Court held that the defence that the

cheque was stolen was held to be something that could be considered at the trial and

not for quashing the prosecution.34

30 Ibid. 31 R.Sivaraj v. Llognathan, (1996) 86 Comp. Cas. 771 Mad. 32 Suraj Sharma v. Ajay Dahiya , (1996) 85 Comp. Cas. 764 P & H. 33 Deepak Agarwal v. Shanti Swarup Jain, (1996) 85 Comp. Cas. 771 All. 34 P.T.V. Ramanujachari v. Giridharilal Rathi, (1992) 73 Comp. Cas. 492 AP.

163

B. Defences Which may Not be Available –

(i) That the drawer had believed that the cheque may not be dishonoured

on presentation.35

(ii) A banker cannot take advantage of his own fault.36

(iii) Insufficiency of funds.

(iv) Exceeding arrangement with Bank.

VI. STAY PROCEEDINGS ( SECTION 138)

Where after the issue of notice to the drawer of the dishonour of his cheque he

filed a civil suit denying his liability to pay and, therefore, contending that Section

138 was not attracted and obtained an interlocutory injunction retraining the payee of

the cheque from proceeding under Section 138. The grant of the injunction was held

to be illegal.37

Whereas The Supreme Court held that where a civil suit was pending at

the time when criminal proceedings were launched for the dishonour of a cheque and

the High Court stayed the civil proceedings under the apprehension that the

defendant’s defences in the criminal case would become disclosed in advance, the

approach of the High Court was not correct. The court noted that the defence in the

criminal case had already been filed and therefore, nothing remained which deserved

protection from disclosure.38

Civil and criminal proceedings are simultaneously possible. Hence, a

complaint is not liable to be stayed pending the disposal of a civil suit.39

The court

said that a civil suit cannot debar a criminal prosecution. The successful end of a civil

suit cannot by itself amount to abuse of the process of the court.

35 Holland v. Manchester & Liverpool District Banking Co.(1909) 25 TLR 386. 36 Brahma v. Chartered Bank, AIR 1956 Cal.399. 37 Aristo Printers P. Ltd. v. Purbanchal Erade Centre, AIR 1992 Guau 81. 38 State of Rajasthan v. Kalyan Sundaram Cement Industries Ltd. (1996) 3 SCC 87 : (1996) 86

Comp.Cas. 433. 39 Sanjiv Kumar v. Surendra Steel Rolling Mills, (1996) Comp. Cas. 418 P & H.

164

VII. PRESUMPTION IN FAVOUR OF HOLDER -

The special rules of evidence contain certain presumptions concerning

negotiable instruments and the estoppels arising from them. The presumptions are

stated in Section 1. They are presumptions of law. The court is bound to raise such

presumptions. The presumptions being rebuttable, the party against whom a

presumption is drawn can lead evidence to the contrary to overthrow the presumption.

There is, for exampled the presumption that all instruments have been issued or

transferred for consideration. It relieves the plaintiff of the initial burden of proving

that he became a holder for consideration. The opposite party may show that there

was no consideration, in which case the plaintiff will have to prove consideration, the

presumption in his favour having been rebutted. Section 118 is as follows–

“118. Presumptions as to negotiable- Until the contrary is proved

the following presumptions shall be made :

(A) of consideration: that every negotiable instrument was

made or drawn for consideration, and that every such

instrument which it has been accepted, endorsed,

negotiated or transferred, was accepted, endorsed,

negotiated or transferred for consideration;

(B) as to date: that every negotiable instrument bearing a

date was made or drawn on such date ;

(C) as to time of acceptance: that every accepted bill of

exchange was accepted within a reasonable time after

its date and before its maturity;

(D) as to time of transfer: that every transfer of negotiable

instrument was made before its maturity ;

(E) as to order of endorsement: that the endorsements

appearing upon a negotiable instrument were made in

the order in which they appear thereon;

165

(F) as to stamp: that a lost promissory note, bill of

exchange or cheque was duly stamped;

(G) that holder is a holder in due course: that the holder of

a negotiable instrument is a holder in due course:

Provided that, where the instrument has been obtained from its lawful owner,

or from any person in lawful custody, thereof, by means of an offer or fraud, or has

been obtained from the maker or acceptor thereof by means of an offence or fraud or

for unlawful consideration, the burden of proving that the holder is a holder in due

course lies upon him.”

Section 139 of the Act says

“ it shall be presumed, unless the contrary is proved, that the holder

of a cheque received the cheque, of the nature referred to in Section

138 for the discharge, in whole or in part, of any debt or other

liability.”

In this way Sections 118 and 139 collectively provide:

(i) Special rules of Evidence ;

(ii) Presumption and their applicability;

(iii) Holder;

(iv) Essential ingredients

(v) Liability;

(vi) Debt;

(vii) ‘Shall presume’

(i) Special Rules of Evidence –

Section 139 is what may be termed as Special Rules of Evidence and to

confirm the presumption already provided by sections 118(a) and 118(g) of Chapter

XII of the Negotiable Instruments Act. It means that the cheque is for discharge of an

existing debt and not for creation of a new debt. The phrase “shall presume” is

explained under Section 4 of the Indian Evidence Act, 1872.

166

It says that whenever it is directed by this Act that the Court shall presume a

fact, it shall regard such fact as proved unless and until it is disapproved. Thus in this

case onus will be on the drawer to prove:

a) that cheque was not received by the holder for discharge of a debt

or other liabilities;

b) that the person in possession of cheque is not the holder;

c) that cheque represented for payment of any gratuitous act like

donation, gift, etc.

(ii) Presumptions and their applicability –

According to the section the presumption can be rebutted also and thus if A

give a loan to B by means of a cheque, if the cheque is dishonoured and B wants to

prove under Section 138 of the amended Act then A can prove that it was a

transaction creating a new debt. Moreover, the presumption under Section 139 is

applicable only for the cheques referred to under Section 138 and not in any other

case i.e. cheques issued for the discharge of a lawful debt or liability. In suits on

negotiable instruments, though the plaintiff is not in general required to prove that he

gave value for the instrument and the want of consideration is to be proved by the

defendant, yet the burden may shift in case of fraud and undue influence etc. and the

plaintiff may be required to prove his case.40

It should be kept in mind that the rules stated in Section 118(a) of the

Negotiable Instruments Act as to shifting of onus of proof when fraud of legality is

proved must be taken with the provisions of Section 53 of the Act. In certain cases the

plaintiff is to prove that consideration was free from taint.

(iii) Holder –

Every instrument initially belongs to the payee and he is entitled to its

possession. The payee can transfer it to any person in payment of his own debt. This

transfer is known as ‘negotiation’. Negotiation takes place in two ways. A bearer

40 Shanmugha Rajeswara v. Chidambaram, ILR (1938) Mad 646( PC) : AIR 1938 PC 123.

167

instrument passes by simple delivery and the person to whom it is delivered becomes

the holder. An order instruments, on the other hand, can be negotiated only by

endorsement and delivery and the endorsee becomes the holder. Hence the holder

means either the bearer of endorsee of an instrument. Accordingly Section 2 of the

English Bills of Exchange Act, 1882, provides that “holder means the payee or

endorsee of a bill or note who is in possession of it or the bearer thereof”. The

definition contained in Section 8 of the Indian Act is to the same effect, although

expressed in different words. It says that holder “means any person entitled in his

own name to the possession” of an instrument “and to receive and recover the

amount”. Now, no one can be entitled to the possession of a bill or note unless he

becomes either the bearer or endorsee thereof.41

Section 8 says :

“The ‘holder’ of a promissory note, bill of exchange or cheque

means any person entitled in his own name to the possession

thereof and to receive or recover the amount due thereon from the

parties thereto.

Where the note, bill or cheque is lost or destroyed, its

holder is the person so entitled at the time of such loss or

destruction.”

In Section 139 the words used are the ‘holder of a cheque received the

cheque.’ The word ‘Holder’ has been defined in Section 8 of the Negotiable

Instruments Act as well as in Section 2 of English Bills of Exchange Act, 1882 as

mentioned above. Reading these definitions with section 78 of the Negotiable

Instruments Act it means that a person to whom the payment should be made in order

to discharge the maker or acceptor from all liabilities under the instrument is the

holder of the instrument or he is accredited agent such as Banker, acting as an agent

for collection. A person cannot claim and does not have right to recover the amount

41 Avtar Singh’s Negotiable Instruments at p. 39.

168

due on the instrument, is not the holder. Thus, a person who can sue in his name is a

holder. He may be the payee or one who becomes entitled to it as endorsee or

becomes the bearer of an instrument payable to the bearer. The most significant words

in the section are ‘entitled in his own name’. Thus, the term ‘holder does not include a

person who, though in possession of the instrument, has no right to recover the

amount due thereon from the parties thereto. However, the assignee of such person is

entitled to sue in his own name.42

.

(iv) Essential ingredients –

The following may be stated to be the essential ingredients for bringing the

offence under Section 138 of the Act :-

a) the cheque should have been issued for the discharge in whole or part

of any debt or liability.

b) debt or liability means legally enforceable debt or other liability.

So far as the word ‘debt’ is concerned in accordance with section 2(b) of the

Presidency Towns Insolvency Act, 1909 it includes a judgement debt. According to a

Dictionary of Banking by F.E. Perry, ‘debt’ means something owned to another, a

liability, an obligation. A chose –in –action which is capable of being assigned by the

creditor to some other person. The assignment must be in writing and must apply to

the whole of the debt. According to the same Dictionary ‘debtor’ means one who

owes money, or is under some obligation to another, the debit side of an account. For

the purposes of the Consumer Credit Act, 1974 ‘debtor’ means the individual

receiving credit under a Consumer Credit Agreement or the person to whom his rights

and duties under the agreement have passed by assignment or operation of law, and in

relation to a prospective consumer credit agreement includes the prospective debtor.

According to the section the cheque must have been issued in discharge of whole or

part of debt or liability. Thus, a cheque given as gift will be out of the frame work of

42 S.N.Gupta’s Dishonur of Cheques, 3rd Ed.1995.

169

this chapter. According to New Webster Dictionary ‘debt’ means which one person is

bound to pay to or perform for another. It means an obligation and the state of owing

something to another, as to be in debt. It must be an existing debt and not a contingent

debt. It must a debt accrued and not a debt in future43

. The Supreme Court made the

following observation:44

“The question whether a contingent debt is a debt as understood in

law has often come up for consideration before English Courts in

connection with garnishee proceedings taken by the judgement

creditors to attach it as a debt. The decision has invariably been

that they are not debts ‘accruing’ and could not be attached. The

point for decision45

was whether an amount payable by a trustee to

the beneficiary in futuro could be attached by a judgement-creditor

as a debt ‘owing or accruing’, and it was answered in negative.

Discussing the distinction between an existing debt, and a

contingent debt, Lord Lindley observed: “I should say apart from

any authority, that a debt legal or equitable can be attached whether

it be a debt owing or accruing; but it must be debt, and a debt is a

sum of money which is now payable or will become payable in the

future by reason of a present obligation, debitum in praesenti,

solvendum in futuro. An accruing debt, therefore is a debt, not yet

actually payable but a debt which is represented by an existing

obligation… The result seems to me to be this: you may attach all

debts, whether equitable or legal; but only debts can be attached ;

and money which may or may not become payable from a trustee

to his cestuigue trust are not debts.”

43 S.N.Gupta’s Dishonour of Cheque 3rd ed. at p.164- 165. 44 Shanti Prasad Jain v. Director of Enforcement Foreign Regulation Act, BLC Vol. 2 p. 347 : AIR

1962 SC 1964: 1962(2) SCR 297. 45 Webb v. Stenton, (1883) 11 QBD 518.

170

Lord Blackburn observed46

that the meaning of accruing debt is debitum in

praesenti solvendum in future, but it goes not further, and it does not comprise

anything which may be debt, however, probable or however soon it may be a debt.

Thus, the cheque must have been issued in connection with the discharge of a

debt. The word liability is defined in the Explanation to section 46 of the Presidency

Towns Insolvency Act, 1909. Liability means the state of being liable. It means

something for which a man is liable and includes pecuniary liability or limited

liability. Payment for taxes, house rents may amount to enforceable liability. If the

cheque is issued and the cheque is dishonoured for insufficiency of funds, unless the

contrary is proved, it can be presumed that the cheque has been issued to discharge

liability.

(v) Liability -

As regards liability, The Law Lexicon by P.Ramanath Aiyar states :

“LiabiliIty: A broad term; it may be employed as meaning the state

of being liable, that for which one is responsible or liable;

obligation is general; that condition of affairs which given rise to

an obligation to do a particular thing to be enforced by action;

responsibility; legal responsibility. In other words, the condition of

one who is subject to a charge or duty which may be judicially

enforced.”

(vi) Debt or Liability –

These terms should be interpreted within the limited meaning so as to include

a legally enforceable debt or liability. Different Acts have given different definitions

of these terms. Different meanings have been give under the Income Tax Act, 1961,

various Debt Relief Act, Wealth Tax Act, 1957, Indian Contract Act, 1872 and so on.

Similarly there may be various type of liabilities which may arise in different ways

and they may be real or contingent and may be legally enforceable debt or not.

46 Tapp v. Jones, (1875) 10 QB 591.

171

However, we are concerned only with a legally enforceable debt or liability. There are

various debt which are not legally enforceable by law the detail of which is given

below:

a) A debt barred by limitation is not legally enforceable and not a debt for the

purposes of this Act.

b) A debt due on a wagering contract is not a lawful consideration.

c) Similarly a gratuitous payment is also not covered under Section 138 of the

Negotiable Instruments Act, 1881.

Whereas Explanation to Section 138 states that for the purposes of that section

‘debt or other liability’ means a legally enforceable debt or other liability. Section 139

provides for the discharge in whole or in part, or any debt or other liability. The

purpose of Section 139 seems to confirm the presumptions already provided under

Section 118(a) and 118(b) of the Chapter XIII of the Act. In fact Article 40 of

Schedule 1 of the Limitation Act dealt with the computation of Limitation of

limitation period for filing any suit for an amount of cheque dishonoured. A cheque so

returned prima facie, suggests that cheque is issued as a payment toward existing

debt.

(vii) ‘Shall presume’ –

The phrase ‘shall presume’ is explained under Section 4 of Indian Evidence

Act, 1872 . Section 4 reads :

“Whenever it is provided by this Act the Court may presume in

fact, it may either regard such fact as proved, unless and until is

disproved, or may call for proof of it:

Shall presume: When it is directed by this Act that the court shall

presume a fact, it shall regard such fact as proved unless and until it

disproved:”

Thus, in this case onus will be on the drawer to prove:

172

a). that cheque was not received by the holder for discharge of a debt or

other liabilities;

b). that the person in possession of cheque is not the holder;

c). that cheque represented for payment of any gratuitous act like

donation, gift etc.

This presumption is available only in cases of cheques as per the scheme of

Chapter XVII and not against other negotiable instruments. It shall be for the

defendant to allege and prove want of consideration.47

Where a cheque was issued for business purchased at one place and the

recipient of the cheque also deposited the cheque into his account at that very place,

but, after dishonour, he issued notice of dishonour from his place of business in some

other town, the cause of action partly arose there because to discharge his liability the

drawer would have to make arrangement for payment at the recipient place. Thus the

places where the payment was to be made and where the cheque was delivered are

also relevant. Cause of action may arise at the place where the cheque was issued or

delivered or where the money was expressly or impliedly payable.

VIII NOTING

When a Promissory note or Bill of Exchange has been dishonoured by non-

acceptance or non-payment, the holder may cause such dishonour to be noted by a

notary public upon the instrument, or upon a paper attached thereto, or partly upon

each.

Such note must be made within a reasonable time after dishonour, and must

specify the date of dishonour, the reason, if any, assigned for such dishonour, or, if the

instrument has not been expressly dishonoured, the reason why the holder treats it as

dishonoured and the notary’s charges.

47 Suanmugha Rajeshwara v. Chidambharam, ILR (1938) Mad 646 PC : AIR 1938 PC 123.

173

When a promissory note or bill of exchange has been dishonoured by non-

acceptance or non-payment, in order to create a proof of this fact, the holder may

approach a notary public and have the fact of dishonour noted either on the instrument

itself or on a separate piece of paper or partly upon each.

A. English Position Regarding Noting

A notary public is a duly appointed officer whose duty it is to draw, attest or

certify documents. In the case of Bills of exchange the notary or his clerk makes a

formal demand upon the drawee or acceptor for acceptance or payment, as the case

may be, and on refusal notes the bill; that is, he writes a minute on the face of the bill.

This minute consists of his initials, the date, the noting charges, and a reference to the

notary’s register.

A ticket or label is also attached to the bill, on which is written the answer

given to the notary’s clerk who makes the presentment, for example, ‘No order’ or

‘No effects’. Before sending out the bill the notary makes a full copy of it in his

register and subsequently adds the answer, if any.

Where an instrument is required by the statute to be protested within a

specified time or before some further proceeding is taken, it is sufficient that the

instrument has been noted for protest before the expiration of the specified time or the

taking of that proceeding and the formal protest may be extended at any time

thereafter as of the date of the noting.48

B. Time of Noting:

The noting of a dishonour instrument may take place on the day of its

dishonour and must take place not later than the next succeeding business day, but

when it has been duly noted the protest may subsequently be extended as of the date

of the noting.

48 Halsbury’s Laws of England, 4th Edn., Vol.4(1) Para 435.

174

Delay in noting or protesting is excused when the delay is caused by

circumstances beyond the control of the holder and not imputable to his default,

misconduct, or negligence; but, when the cause of delay ceases to operate, the

instrument must be noted as protested with reasonable diligence.49

C. Contents of Noting:

The note should contain the following contents:

(i). The fact that the instrument has been dishonoured;

(ii). The date on which it was dishonoured;

(iii). The reason, if any, assigned for dishonour;

(iv). If the instrument has not been expressly dishonoured, the reason

why the holder treats it as dishonoured; and

(v). Notary’s charges.

D. Object of Noting

The object of Noting and Protesting is to get some person to accept it for the

honour of any party liable thereon, or for the honour of the person for whose account

the bill is drawn. In the case of inland bills, the object in noting and protesting is not

to preserve the recourse against the drawer or an endorser, for protest and note are not

necessary at all. In the case of foreign bills it is necessary to preserve the recourse

against all the previous parties. Section 102 provides that when a Promissory note or a

Bill of Exchange is required by law to be protested (as is the case with the foreign

bills) notice of such protest must be given instead of notice of dishonour, in the same

manner, and subject to the same conditions. Noting and protesting are dispensed with,

if the bill does not appear to be a foreign bill upon its face.

In addition to giving notice of dishonour the holder of a dishonoured inland

bills, if he so desires may cause the bill to be noted or protested. Inland bills may or

may not be protested. But foreign bills must be protested for dishonour, when such

protest is required by the law of the place where they are drawn. Generally all bills

49Ibid..

175

drawn outside India must be protested. Protest is absolutely necessary in case of

foreign bills, and the courts will not allow any evidence of dishonour except the

evidence of protest.

The provisions as regards noting and protest under sections 99 and 100 of

Negotiable Instruments Act are not mandatory but directory in nature and therefore

non-compliance thereof cannot defeat the claim. This is obvious from the comparison

of the language used in section 99 and 100 with that of section 104 of the Act as

regards foreign bills, which is mandatory.50

IX PROTEST

When a Promissory note or bill of exchange has been dishonoured by non-

acceptance or non-payment, the holder may, within a reasonable time, cause such

dishonour to be noted and certified by a notary public. Such certificate is called a

protest.

When the acceptor of a bill of exchange has become insolvent, or his credit

has been publicly impeached before the maturity of the bill, the holder may, within a

reasonable time, cause a notary public to demand better security of the acceptor, and

on its being refused may, within a reasonable time, cause such facts to be noted and

certified as aforesaid. Such certificate is called a protest for better security.

Protest is one step further to noting, where the holder gets the fact of

dishonour noted, he may also have the dishonour and noting certified by the notary

public. Thus the holder will get a certificate from the notary public certifying the fact

of dishonour. Such a certificate is called a protest. The advantage is that the fact of

dishonour becomes easily provable and the court can raise a presumption in terms of

the protest certificate that the instrument has been dishonoured.

A. Contents of Protest:

A protest under section 100 must contain:

50 C.H. Java and Co. v. State Bank of India, 1(2007) BC 47 (DRAT/DRT) Mumbai.

176

(i) It should contain the instrument itself or a literal transcript of it and

of everything written or printed on the instrument.

(ii) The name of the person for whom and against whom the

instrument has been protested, that is, the name of the party making

the protest and against whom the protest is made.

(iii) It should contain a statement that acceptance, or payment or better

security has been demanded from such person by the notary public,

the terms of his answer, or a statement that he gave no answer or

that he could not be found.

(iv) When the protest is against the dishonour of a bill or note, the

protest is against refusal of better security, the place and time of

refusal should be noted.

(v) The subscription of the notary public making the protest.

(vi) Where there has been acceptance or payment for honour the protest

should specify the name of the person who accepted or paid for

honour and whose honour he did so and also the manner in which

such acceptance or payment was offered and effected.

Clause (C) of the section requires the notary before preparing his certificate to

make a demand for acceptance, payment or security. This section concludes with the

provision that the notary may make such a demand either in person or by his clerk or,

where authorized by agreement or usage, by registered post.

B. Contents of Protest in England

“A protest, besides being made and signed by a notary, must contain a copy of

the instrument, and must specify (i) the person at whose request the instrument is

protested; (ii) the place and date of protest; (iii) the cause or reason for protesting the

instrument; (iv) the demand made; and (v) the answer given, if any, or the fact that the

drawee or acceptor could not be found.

177

Where an instrument is lost or destroyed, or is wrongly detained from the

person entitled to hold it, protest may be made on a copy or written particulars

thereof. A protest may be made out in duplicate, and the second copy is as much

primary evidences as the copy first drawn out. No witnesses are required to attest a

protest by a notary public.51

C. Notice by Notary:

In the case of foreign bills, instead of a notice of dishonour, a notice of protest

must be given. But notice must be given by the notary public who makes the protest

and not by the holder. Whenever protest is required to be made within a specified

time, it is sufficient if noting be made within that time though the formal protest may

be drawn up later on.

In many foreign countries it is necessary to send to the party whom it is

proposed to charge notice of the protect and a copy of it, but it is not necessary at the

present day for purposes of suit in England to send a copy of the protest or even to

state in the notice of dishonour that the bill has been protested.

D. When Notary Public is not Available:

The Act does not say what should be done if there is no notary public

available. Under the English Law in such a case noting or protesting is made by a

respected house-holder in the presence of two witnesses.

Protest for non-payment after dishonour by non-acceptance.

All bills of exchange drawn payable at some other place than the place

mentioned as the residence of the drawee, and which are dishonoured by non-

acceptance, may, without further presentment to the drawee, be protested for non-

payment, in the place specified for payment, unless paid before or at maturity.

E. Protest of Foreign Bills:

Foreign Bills of exchange must be protested for dishonour when such protest

is required by the law of the place where they are drawn. A promissory note, bill of

51 Halsbury’s Laws of England, 4th Edn., Vol.4(1) Para 439.

178

exchange or cheque drawn or made in India and made payable in or drawn upon any

person resident in India shall be deemed to be an inland instrument. All other

instruments are called foreign instruments. Thus inland bills are of the following two

types viz.; (1) Drawn in India and made payable in India on a person who may or may

not be resident in India or (2) Drawn in India upon a person in India though it might

be payable any where. If a bill of exchange is drawn upon a resident in British India it

still remains an inland bill wherever it may have been drawn.52

F. Instruments not Liable to Duty if Acted Upon in India:

Bills of exchange and Promissory notes executed out of India are not liable to

duty unless and until they are acted upon in India. The phrase ‘acted upon’ means

accepted or paid or presented for acceptance of payment or endorsed transferred or

otherwise negotiated, but it does not include a notice of demand of payment

unaccompanied by tender of the bill.53

A foreign bill of exchange or promissory note

is admissible in evidence if the holder has done none of these acts and it may be sued

on, even though not stamped. It is sufficient if Indian stamp is affixed before the

decree is passed.

G. Stamp Duty on Foreign Instruments:

If Indian stamp is already on the promissory note, it will not, require a fresh

stamp, because if that is done, the crown or the state as the case may be, will be

charging double duty. Foreign Bills of exchange and Promissory notes may remain in

India for any time so long as they are not acted upon. But if they are not stamped by

the first holder as soon as they become liable to duty, the defect cannot be cured. A

foreign instrument other than a bill of exchange or promissory note must be stamped

within three months of its receipt in India, but if such an instrument is not stamped

within three months, the defect can be remedied on payment of a penalty.54

52 A.C. Kidston and Co. v. Seth Brothers, A.I.R. 1930 Cal. 692. 53 Rowthan v. Hussain, 22 Mad 337. 54 1873 Bom PJ 112.

179

H. Remedy and Procedure:

It is well settled that so much of the law as affects the remedy and the

procedure only is governed by the law of the country in which the action is brought

and not by foreign law. The court will not apply a foreign law of limitation which

affects the remedy only and is therefore a matter of mere procedure. The foreign law

of limitation will be applied where it extinguishes the right or creates the title so that it

ceases to be a matter of mere procedure.

Notarial acts verifying the execution of, and attached to power-of-attorney

executed out of India, are not liable to stamp duty, as they do not relate to any

property situate, or to any matter, or thing done or to be done in India, though the

power-of-attorney is liable to duty.

Where a bill or note is required to be protested within a specified time or

before any further proceedings are taken, it will be sufficient to note the instrument

for protest before the expiry of such time or the commencement of such proceeding.

The formal protest can be extended at any time thereafter as such proceeding

The formal protest can be extended at any time thereafter as of the date of

noting. Thus for the purposes of making a protest within a specified time or filing of a

suit, mere noting for protest serves as protest and becomes equivalent to protest

enabling the party to serve the formal protest thereafter.

X. CONCLUDING REMARKS

So far as jurisdiction of the Area is concerned, the complainant can choose

any one of those courts having jurisdiction over any of the local areas within the

territorial limits of which any one of the following acts took place : (i) Drawing of

the cheque (ii) Presentation of the cheque; (iii) Returning of the cheque by drawee

bank; (iv) Giving of notice in writing to the drawer of the cheque demanding

payment of cheque and failure of the drawer to make payments within 15 days of

receipt of notice. We are fully alive to the imperatives of a sound “Cheque system”

and in our anxiety to scares away the offenders, we are providing more stringent

180

deterrents as spelled out in the Negotiable Instruments Act (Amendment) 2002

interalia provides 2 years imprisonment and issue of notice from 15 days to 30 days

and day to day hearing in the case and absent only giving the sound reasons.

The Code of Criminal Procedure states that every offence shall ordinarily be

enquired into and tried by Court within whose local jurisdiction it was committed.

The complaint can be filed in a Court within the jurisdiction of which the cheque has

been drawn or the place where the cheque is presented for collection and received an

endorsement about the dishonour of the cheque or the place where the cheque is

dishonoured.

It is well settled now that the Court has jurisdiction over the area where the

cheque was issued or delivered or where the drawer of the cheque fails to make

payment of the money or where the cheque was presented for encashment or the area

where the payment was to be made. Therefore, the appellant had cause of action to

file the complaint before the lower Court where the cheque was presented for

encashment and the lower court had jurisdiction to take cognizance of the offence.

Therefore, the finding of the lower court that it had no jurisdiction to take cognizance

of the offence is absolutely unsustainable.

Where after the issue of notice to the drawer of the dishonour of his cheque he

filed a civil suit denying his liability to pay and, therefore, contending that Section

138 was not attracted and obtained an interlocutory injunction retraining the payee of

the cheque from proceeding under Section 138. The grant of the injunction was held

to be illegal. Civil and criminal proceedings are simultaneously possible.

In suits on negotiable instruments, though the plaintiff is not in general

required to prove that he gave value for the instrument and the want of consideration

is to be proved by the defendant, yet the burden may shift in case of fraud and undue

influence etc. and the plaintiff may be required to prove his case.

Where a cheque was issued for business purchased at one place and the

recipient of the cheque also deposited the cheque into his account at that very place,

181

but, after dishonour, he issued notice of dishonour from his place of business in some

other town, the cause of action partly arose there because to discharge his liability the

drawer would have to make arrangement for payment at the recipient place. Thus the

places where the payment was to be made and where the cheque was delivered are

also relevant. Cause of action may arise at the place where the cheque was issued or

delivered or where the money was expressly or impliedly payable.

When a Promissory note or Bill of Exchange has been dishonoured by non-

acceptance or non-payment, the holder may cause such dishonour to be noted by a

notary public upon the instrument, or upon a paper attached thereto, or partly upon

each. The object of Noting and Protesting is to get some person to accept it for the

honour of any party liable thereon, or for the honour of the person for whose account

the bill is drawn. In the case of inland bills, the object in noting and protesting is not

to preserve the recourse against the drawer or an endorser, for protest and note are not

necessary at all. In the case of foreign bills it is necessary to preserve the recourse

against all the previous parties. Where a bill or note is required to be protested within

a specified time or before any further proceedings are taken, it will be sufficient to

note the instrument for protest before the expiry of such time or the commencement of

such proceeding. The formal protest can be extended at any time thereafter as such

proceeding

The formal protest can be extended at any time thereafter as of the date of

noting. Thus for the purposes of making a protest within a specified time or filing of a

suit, mere noting for protest serves as protest and becomes equivalent to protest

enabling the party to serve the formal protest thereafter.