2025 (12) TMI 2 - SC - Indian Laws

Territorial jurisdiction in Section 138 NI Act lies where payee's bank branch handles cheque under Section 142(2)(a)

SC held that for offences under Section 138 NI Act, mere issuance of statutory notice does not confer territorial jurisdiction; cause of action arises ... Dishonor of Cheque - Prayer for transfer of the Complaint Case pending in the court of Judicial Magistrate First Class, Bhopal to the Court of Metropolitan Magistrate, Kolkata - whether the cases where the trial had reached the stage of summoning, appearance of accused, and the recording of evidence had commenced as per Section 145(2) Negotiable Instruments Act, 1881, those should continue in the same court where the trial was ongoing? - whether the sending of notice from Delhi, by itself would give rise to a cause of action for taking cognizance under Section 138? - HELD THAT:- This Court held that the cause of action for proceeding against an accused person under Section 138 would arise not from the mere sending of the statutory notice but rather from its receipt by the accused person. The object behind sending of notice was considered by this Court and it was observed that it is only upon receipt of the notice that an accused person may elect to either pay the amount due and payable within a period of 15 days or not to pay the same. Therefore, issuance of notice by itself would not give rise to a cause of action. The service of notice is imperative as it is only when the communication thereof is complete that the cause of action arises. This Court, while applying the principles relating to jurisdiction as laid down in Bhaskaran (supra), explained the legal effect of the act of sending the statutory notice under Section 138 for the purpose of determining the jurisdiction to try a complaint thereunder. It was recognized that conferring jurisdiction on the locality from where the notice was sent would give unfettered powers to a complainant to set jurisdiction at a particular location that may be inconvenient or cause undue hardship to the accused person. Thus, the dictum in Harman Electronics [2008 (12) TMI 677 - SUPREME COURT] curtailed the wide jurisdictional empowerment expounded in Bhaskaran [1999 (9) TMI 941 - SUPREME COURT] to some extent. Since an offence under Section 138 could be said to be committed upon dishonour of cheque by the drawee bank, it was held that such offence would be localised at the place where the drawee bank is situated. Therefore, only the court within whose territorial jurisdiction the drawee bank is situated, is empowered to proceed against an accused person under Section 138. The language used in the Explanation may also create a legal fiction that would enable ‘any branch’ of the payee’s bank to be deemed as ‘the branch in which the payee maintains an account’ (the “home branch”). This construction of the Explanation would mean that by virtue of Section 142(2)(a), the court within whose local jurisdiction the home branch is situated, has an inherent power to try a complaint under Section 138 filed by the payee. However, the payee delivered the cheque for collection at another branch instead of the home branch. According to the dictum as laid in Yogesh Upadhyay [2023 (2) TMI 884 - SUPREME COURT], primacy has to be accorded to the action of the payee in “delivery of the cheque for collection” for the purpose of determining jurisdiction. The only understanding that we can obtain from the aforesaid is that the court exercising territorial jurisdiction over the home branch will have to share the inherent powers that it possesses under Section 142(2)(a), with the court in whose jurisdiction such other branch is situated, in which the payee delivered the cheque for collection. This Court considered the requirement of “maintaining of the account” implicit in “for collection through an account”. In other words, once it is identified that the cheque in question is an account payee cheque, the delivery must be to such branch in which the payee maintains the account as it is this branch of the bank that will receive the funds in the account maintained by the payee, from the drawee bank which will debit the drawer’s account to send such amount. However, the necessity of delivery of an account payee cheque to the home branch is only legal and not commercial. It is to address commercial exigencies that the legislature enacted the Explanation to Section 142(2)(a). The deeming fiction in the Explanation ensures that even if a cheque is delivered to a branch other than the home branch for commercial convenience, it shall be considered to have been delivered to the home branch for the legal purpose of determining jurisdiction. Thus, a case has been made out for transfer of the proceedings in question - petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Territorial jurisdiction post-Negotiable Instruments (Amendment) Act, 2015: Whether, after insertion of Section 142(2), the court within whose local jurisdiction the drawee bank is situated possesses jurisdiction to try a complaint under Section 138 of the Negotiable Instruments Act, 1881. 1.2 Transfer where evidence under Section 145(2) has commenced: Whether, after the Amendment Act, 2015, a complaint under Section 138 can or should be transferred to the court within whose jurisdiction the drawee bank is situated when the recording of evidence under Section 145(2) has already commenced in another court. 1.3 Interpretation of Section 142(2)(a) and its Explanation: How the expressions 'delivered for collection through an account', 'presented for payment otherwise through an account', and 'maintains an account' in Section 142(2) are to be understood for determining territorial jurisdiction, including the effect of the Explanation to Section 142(2)(a). 1.4 Validity of prior precedent on Section 142(2)(a): Whether the interpretation of Section 142(2)(a) and its Explanation in the decision which treated jurisdiction as lying where the cheque was 'delivered for collection' (rather than at the 'home branch' of the payee) correctly states the law, or is per incuriam. 1.5 Approach to pending cases and transfer under Section 142A: How Section 142A operates in relation to pending complaints, particularly where proceedings had already reached the stage of evidence under Section 145(2) in a court lacking jurisdiction under the amended regime, and the propriety of transferring such matters back to that court. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Territorial jurisdiction after the Amendment Act, 2015 (Issue 1.1) Legal framework discussed 2.1.1 The Court traced the evolution of territorial jurisdiction for Section 138 offences through earlier decisions which: (i) treated all five acts listed in Section 138 (drawing, presentation, dishonour, notice, failure to pay) as capable of conferring jurisdiction; (ii) later curtailed that position by distinguishing between sending and receipt of notice; and (iii) finally localized the offence at the place where the drawee bank dishonours the cheque, treating the dishonour as the 'commission' of the offence and the remaining conditions as enabling prosecution. 2.1.2 The Court then considered the legislative response in the Negotiable Instruments (Amendment) Act, 2015 introducing Section 142(2) and Section 142A, and set out the amended text of Section 142(2)(a) and (b) with the Explanation, emphasizing that the provision is a special jurisdictional code overriding the general provisions of the Code of Criminal Procedure. Interpretation and reasoning 2.1.3 The Court held that, post-amendment, jurisdiction is expressly governed by Section 142(2), not by Sections 177-179 of the Code of Criminal Procedure. For account-payee cheques ('delivered for collection through an account'), jurisdiction lies where 'the branch of the bank where the payee or holder in due course maintains the account is situated' [Section 142(2)(a)]. For bearer-type scenarios ('presented for payment otherwise through an account'), jurisdiction lies where 'the branch of the drawee bank where the drawer maintains the account is situated' [Section 142(2)(b)]. 2.1.4 The Court clarified that Section 142(2)(b) effectively modifies the earlier 'drawee-bank' based approach in light of modern banking (including 'payable at par' cheques and CTS), by anchoring jurisdiction not at the place of actual dishonour in any branch, but at the 'home branch' of the drawer where the account is maintained, irrespective of the place of physical or electronic dishonour. 2.1.5 For Section 142(2)(a), the Court reasoned that the expressions 'delivered' and 'for collection through an account' must be read together: 'delivery' completes the making of the cheque under Section 46 and the phrase 'for collection through an account' denotes that the cheque is an account payee instrument that must operate through the payee's bank account. The decisive factor is the branch where the payee 'maintains the account', not the particular branch where the cheque is physically handed in for collection. 2.1.6 The Court relied on the Explanation to Section 142(2)(a), holding that when a cheque is delivered for collection at 'any branch' of the payee's bank, the law deems that delivery to have been made to the branch where the payee maintains the account (the 'home branch'), which alone fixes jurisdiction. 2.1.7 The Court emphasized that allowing jurisdiction to follow the payee's choice of 'any branch' where a cheque is physically deposited would reintroduce the forum-shopping and 'payee-centric' abuse which earlier restrictive interpretations had curbed, and which Parliament, though altering the basis of jurisdiction, did not intend to aggravate. 2.1.8 The Court held that the Statement of Objects and Reasons of the Amendment Act, 2015 cannot control or override the clear text of Section 142(2) and its Explanation; it may only illuminate the background and mischief sought to be remedied, not the final meaning of the enacted provision. Conclusions 2.1.9 For account-payee cheques, jurisdiction under Section 142(2)(a) lies only with the court within whose local jurisdiction the branch of the bank where the payee maintains the account (the payee's 'home branch') is situated, irrespective of the branch where the cheque is actually deposited. 2.1.10 For bearer/type cheques governed by Section 142(2)(b), jurisdiction lies with the court where the branch of the drawee bank in which the drawer maintains the account (the drawer's 'home branch') is situated, regardless of the place of actual presentment or dishonour. 2.1.11 Accordingly, the Court rejected the contention that, post-amendment, the court where the drawee bank is located (in the sense used in pre-amendment jurisprudence) retains jurisdiction independent of Section 142(2); jurisdiction is now fully governed by Section 142(2) as a special rule. 2.2 Interpretation of 'delivered for collection through an account', 'presented for payment otherwise through an account', and 'maintains an account' (Issue 1.3) Legal framework discussed 2.2.1 The Court analysed Sections 7, 46 and 64 of the Negotiable Instruments Act, 1881, defining 'drawer', 'drawee', 'payee', 'delivery' and 'presentment for payment', and considered prior interpretation of 'on an account maintained by him with a banker' in the context of Section 138 (clarifying the exclusive character of the account-holder-bank relationship). Interpretation and reasoning 2.2.2 On 'delivery': The Court held that under Section 46, 'delivery' completes the making of the cheque and establishes the drawer-payee relationship. When the payee further hands the cheque to his bank for collection, that act is a continuation of 'delivery' and, in account-payee cases, falls within 'delivered for collection through an account'. 2.2.3 On 'presentment for payment': The Court distinguished this from delivery, holding that presentment under Section 64 is the act by which the drawee (or the drawee bank) is called upon to pay, creating or activating the drawee-bank-payee (or payee-bank) relationship and operating at a stage subsequent to delivery. 2.2.4 On 'delivered for collection through an account': The Court held that the phrase describes the nature of the cheque and mode of negotiation-i.e., that the cheque can only be realized via credit to the payee's account. The deposit of such a cheque at any branch of the payee's bank is legally treated, via the Explanation to Section 142(2)(a), as delivery to the home branch where the payee's account is maintained, for purposes of jurisdiction. 2.2.5 On 'presented for payment otherwise through an account': The Court held that this covers situations where the cheque is directly presented at the drawee bank for cash or otherwise not by routing through the payee's account. In these situations, Section 142(2)(b) anchors jurisdiction at the branch where the drawer maintains the account, irrespective of where actual presentment occurs. 2.2.6 On 'maintains an account': Relying on prior authority, the Court held that 'maintains an account' describes the intrinsic, exclusive relationship between the account holder and the specific branch of the bank where the account is kept; delegation of signing or operating authority does not alter that relationship and does not make an authorised signatory the account holder or drawer in law. 2.2.7 The Court stressed that Section 142(2) deliberately adds the word 'branch' to focus jurisdiction on the specific branch in which the account is maintained (the 'home branch'), not on the bank in the abstract. This ensures unique and predictable jurisdiction and eliminates multiplicity based on different branches. Conclusions 2.2.8 For Section 142(2)(a), jurisdiction is tied to the payee's 'home branch', defined as the branch where the payee maintains the account into which the cheque proceeds are to be credited; the Explanation deems delivery at any other branch to be delivery at that home branch for jurisdictional purposes. 2.2.9 For Section 142(2)(b), jurisdiction is tied to the drawer's 'home branch', defined as the branch where the drawer's account on which the cheque is drawn is maintained, irrespective of the physical location of actual presentment or dishonour. 2.3 Validity of prior precedent on Section 142(2)(a) (Issue 1.4) Legal framework and precedents discussed 2.3.1 The Court examined earlier decisions applying Section 142(2)(a), including: one that paraphrased the provision as vesting jurisdiction where the cheque is 'delivered for collection i.e., through an account in the branch of the bank where the payee... maintains an account'; a later decision that read Section 142(2)(a) as conferring jurisdiction where the cheque was 'delivered for collection' (with emphasis on the actual branch of deposit); and more recent decisions that stressed the significance of 'for collection through an account' and the deeming effect of the Explanation. 2.3.2 The Court also considered the Statement of Objects and Reasons and prior authority on the permissible use of such statements in statutory interpretation (that they may be used to understand background and mischief, but not to determine the substantive meaning of clear statutory language). Interpretation and reasoning 2.3.3 The Court held that the later decision which treated jurisdiction as lying in the court within whose jurisdiction the specific branch where the cheque was 'delivered for collection' is situated was not consonant with the text and scheme of Section 142(2)(a) read with its Explanation. That approach ignored or misapplied the deeming fiction which equates delivery at 'any branch' of the payee's bank with delivery to the home branch. 2.3.4 The Court rejected the view that the Explanation could be used to expand jurisdiction to multiple venues by treating 'any branch' as if it were the 'home branch', thus enabling a payee to manipulate jurisdiction by choosing where to deposit the cheque. This would invert the role of the Explanation, effectively allowing it to override rather than clarify the main provision, contrary to established principles that an explanation cannot be elevated above the section it explains. 2.3.5 The Court found that reading Section 142(2)(a) as conferring jurisdiction at the place of actual deposit ('delivery for collection') fails to safeguard against forum-shopping and abuse, and is at odds both with the structure of the amended provision and with the mischief that Parliament evidently sought to remedy, without reinstating unlimited complainant-driven choice of forum. 2.3.6 The Court further noted that reliance in that decision on the language of the Statement of Objects and Reasons, in preference to the enacted text and the Explanation, was impermissible, as it treated the prefatory note as if it were controlling substantive law. Conclusions 2.3.7 The decision that accorded primacy to the place where the cheque was 'delivered for collection' and derived jurisdiction therefrom, without correctly giving effect to the Explanation to Section 142(2)(a), is held to be per incuriam. 2.3.8 The correct position is that, by virtue of Section 142(2)(a) read with its Explanation, jurisdiction for complaints relating to account-payee cheques lies solely with the court having jurisdiction over the payee's home branch, and not with courts at places where the cheque was merely deposited or collected. 2.4 Jurisdiction of the specific courts in the case and applicability of CrPC (Issues 1.1 and 1.2 as applied to facts) Interpretation and reasoning 2.4.1 The Court applied the above interpretation to the facts: the cheque was drawn on a bank in one city; it was deposited by the payee in its account maintained at a different city; and the complaint was initially filed in the city of the drawee bank and later refiled in the city where the payee's account was maintained, following the 2015 amendment and return of the complaint by the first court for want of jurisdiction. 2.4.2 The Court held that, given the account-payee nature of the transaction and the fact that the payee maintained its bank account in the latter city, jurisdiction under Section 142(2)(a) lay exclusively with the court where that payee's home branch is situated. 2.4.3 The Court expressly rejected the contention that jurisdiction could still be determined by resort to the general provisions of the Code of Criminal Procedure (Sections 177-179) based on the location of the drawee bank or place of dishonour. It held that Section 142(2), as a special jurisdictional rule within a special statute, occupies the field and overrides the general provisions of criminal procedure. Conclusions 2.4.4 The court situated at the place where the drawee bank was located (and where the complaint was originally filed) had no jurisdiction post-amendment to try the Section 138 complaint concerning an account-payee cheque. 2.4.5 The court situated at the place where the payee maintained its bank account (the payee's home branch) is the court of competent jurisdiction under Section 142(2)(a). 2.5 Transfer and effect of proceedings reaching the Section 145(2) stage; operation of Section 142A (Issues 1.2 and 1.5) Legal framework discussed 2.5.1 The Court examined Section 142A, which validates and regulates the transfer of pending Section 138 cases to the court of competent jurisdiction as determined by Section 142(2), and revisited prior directions where, in order to avoid legal complications, complaints that had progressed to or beyond the stage of recording evidence under Section 145(2) were allowed to remain in the court where they were pending, notwithstanding lack of territorial jurisdiction under the then-declared law. Interpretation and reasoning 2.5.2 The Court acknowledged that if the proceedings in the original court had not progressed beyond the pre-evidence stage, the operation of Section 142A(1) and the new jurisdictional scheme under Section 142(2) would have warranted the deemed transfer of the case to the court of competent jurisdiction (i.e., the court at the payee's home-branch location). 2.5.3 However, it noted that in the instant matter, the original court (later found lacking jurisdiction under Section 142(2)(a)) had already: (i) issued summons, (ii) framed charge, and (iii) taken on record the affidavit of evidence-in-chief, and had reached the stage of recording of evidence under Section 145(2), before returning the complaint for refiling. 2.5.4 The Court considered that compelling the accused to face a de novo trial before the court of newly-determined jurisdiction, after such substantial progress in the earlier court, would amount to procedural impropriety and could prejudice the accused, contrary to the balance sought to be struck in earlier directions that allowed such advanced-stage cases to remain where they were. 2.5.5 The Court invoked the earlier principle that complaints which had reached the Section 145(2) stage should be deemed transferred to and continue in the court where they were pending, even if that court would not otherwise have territorial jurisdiction under the newly-declared rule, as an exceptional measure to avoid legal complications and ensure fairness. Conclusions 2.5.6 As a matter of strict statutory jurisdiction under Section 142(2)(a), only the court at the payee's home-branch location has territorial jurisdiction over the complaint. 2.5.7 Nonetheless, to meet the ends of justice and avoid prejudice where proceedings had already reached the Section 145(2) stage in the original court, the Court ordered that the complaint be transferred to that original court and that proceedings resume from the stage immediately prior to the return of the complaint. 2.5.8 A case was therefore made out for transfer of the proceedings back to the original court where the evidence stage had commenced, with all connected petitions disposed of on the same basis, and directions issued to circulate the decision to all High Courts.