Summary: Section 138 of the Negotiable Instruments Act, 1881, penalizes cheque issuers who fail to honor payments for debts or liabilities due to insufficient funds, imposing imprisonment up to two years, a fine double the cheque amount, or both. Initially, the Act lacked clarity on territorial jurisdiction for filing cases, leading to differing Supreme Court judgments. In K. Bhaskaran v. Sankaran Vaidhyan Balan (1999), the court allowed jurisdiction in any area linked to five specified acts: cheque issuance, presentation, dishonor, notice, and payment failure. However, in Dashrath Rupsingh Rathod v. State of Maharashtra (2014), the court ruled that only the location of the drawee bank—where the cheque was dishonored—held jurisdiction. This inconsistency prompted legislative amendments via the Negotiable Instruments (Amendment) Act, 2015. The amendments clarified that cases could be filed either where the payee’s bank (for cheque collection) or the drawer’s bank (for payment) is located. Furthermore, all cases against the same drawer were to be consolidated in one court, provided the first case was filed within the prescribed jurisdiction. These changes resolved jurisdictional ambiguities and streamlined legal processes under the NI Act.

CHAPTER XVII – OF PENALTIES IN CASE OF DISHONOR OF CERTAIN CHEQUES FOR INSUFFICIENCY OF FUNDS IN THE ACCOUNT (containing Section 138 to 142) were inserted (by the Act 66 of 1988) in the Negotiable Instruments Act, 1881 (N.I. Act) w.e.f. 01.04.1989. Section 138 provides that if a person is failed to honour the amount specified in the cheque, which has been issued by him towards discharge of his debt or liability towards another person, shall be deemed to have committed an offence and the such person shall be punishable with imprisonment for a term which may be extended to two years or with fine which may be extend twice the amount of cheque, or with both.

It is pertinent to mention that aforesaid amendment by the Act 66 of 1988 did not expressly specify territorial jurisdiction of the court in which Section 138 cases are to be filed by the aggrieved complainant/person. Due to such anomalies, different judgments of Hon’ble Supreme Court at different times had arrived using their own divergent methods.

In very first case in K. Bhaskaran v. Sankaran Vaidhyan Balan [(1999) 7 SCC 510], the Honourable Supreme Court held that an offence under Section 138 of the Act of 1881 has five components:

(1) drawing of the cheque,

(2) presentation of the cheque to the bank,

(3) returning of the cheque unpaid by the drawee bank,

(4) giving notice in writing to the drawer of the cheque demanding payment of the cheque amount, and

(5) failure of the drawer to make payment within 15 days of the receipt of the notice.

It was further held that the Courts having jurisdiction over the territorial limits wherein any of the five acts, that constitute the components of the offence, occurred would have the jurisdiction to deal with the case and if the five acts were done in five different areas, any one of the Courts exercising jurisdiction in those five areas would have jurisdiction and the complainant could choose any one of those Courts.

Thereafter, in Dashrath Rupsingh Rathod v. State of Maharashtra [(2014) 9 SCC 129], a three Judges Bench of Honourable Supreme Court observed that the return of the cheque by the drawee bank would alone constitute commission of the offence under Section 138 of the Act of 1881 and would indicate the place where the offence is committed. It was, therefore, held that the place, situs or venue of judicial inquiry and trial of the offence must logically be restricted to where the drawee bank is located, i.e., where the cheque is dishonoured upon presentation and not where the complainant’s bank is situated.

The Honourable Supreme Court in Dashrath Rupsingh Rathod (supra) summed up the law relating to the place of suing as under:

“56. To sum up:

(i) An offence under Section 138 of the Negotiable Instruments Act, 1881 is committed no sooner a cheque drawn by the accused on an account being maintained by him in a bank for discharge of debt/liability is returned unpaid for insufficiency of funds or for the reason that the amount exceeds the arrangement made with the bank.

(ii) Cognizance of any such offence is however forbidden under Section 142 of the Act except upon a complaint in writing made by the payee or holder of the cheque in due course within a period of one month from the date the cause of action accrues to such payee or holder under clause (c) of proviso to Section 138.

(iii) The cause of action to file a complaint accrues to a complainant/payee/holder of a cheque in due course if

(a) the dishonoured cheque is presented to the drawee bank within a period of six months from the date of its issue.

(b) If the complainant has demanded payment of cheque amount within thirty days of receipt of information by him from the bank regarding the dishonour of the cheque and

(c) If the drawer has failed to pay the cheque amount within fifteen days of receipt of such notice.

(iv) The facts constituting cause of action do not constitute the ingredients of the offence under Section 138 of the Act.

(v) The proviso to Section 138 simply postpones/defers institution of criminal proceedings and taking of cognizance by the Court till such time cause of action in terms of clause (c) of proviso accrues to the complainant.

(vi) 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.

(vii) The general rule stipulated under Section 177 of Cr.P.C applies to cases under Section 138 of the Negotiable Instruments Act. Prosecution in such cases can, therefore, be launched against the drawer of the cheque only before the Court within whose jurisdiction the dishonour takes place except in situations where the offence of dishonor of the cheque punishable under Section 138 is committed along with other offences in a single transaction within the meaning of Section 220(1) read with Section 184 of the Code of Criminal Procedure or is covered by the provisions of Section 182(1) read with Sections 184 and 220 thereof.”

In order to resolve the concerns regarding the said judgment, the President of India promulgated an Ordinance, called Negotiable Instruments (Amendment) Ordinance,

2015. The said Ordinance, thereafter, became an Act, namely, Negotiable Instruments (Amendment) Act, 2015. Amendments were made by the Negotiable Instruments (Amendment) Act, 2015, which read as under:

“An Act further to amend the Negotiable Instruments Act, 1881.

BE it enacted by Parliament in the Sixty-sixth Year of the Republic of India as follows:—

1. (1) This Act may be called the Negotiable Instruments (Amendment) Act, 2015.

(2) It shall be deemed to have come into force on the 15th day of June, 2015.

2. In the Negotiable Instruments Act, 1881 (hereinafter referred to as the principal Act), in section 6,-

(i) in Explanation I, for clause (a), the following clause shall be substituted, namely:—

‘(a) “a cheque in the electronic form” means a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature (with or without biometrics signature) and asymmetric crypto system or with electronic signature, as the case may be;

(ii) after Explanation II, the following Explanation shall be inserted, namely:—

‘Explanation III.-For the purposes of this section, the expressions “asymmetric crypto system”, “computer resource”, “digital signature”, “electronic form” and “electronic signature” shall have the same meanings respectively assigned to them in the Information Technology Act, 2000.’.

3. In the principal Act, section 142 shall be numbered as sub-section (1) thereof and after sub-section (1) as so numbered, the following sub-section shall be inserted, namely:—

“(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,-

(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or

(b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.

Explanation.- For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.”.

4. In the principal Act, after section 142, the following section shall be inserted, namely:—

“142A.(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 or any judgment, decree, order or direction of any court, all cases transferred to the court having jurisdiction under subsection (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015, shall be deemed to have been transferred under this Act, as if that sub-section had been in force at all material times.

(2) Notwithstanding anything contained in sub-section (2) of section 142 or sub-section (1), where the payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque in the court having jurisdiction under sub-section (2) of section 142 or the case has been transferred to that court under subsection (1) and such complaint is pending in that court, 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 delivered for collection or presented for payment within the territorial jurisdiction of that court.

(3) If, on the date of the commencement of the Negotiable Instruments (Amendment) Act, 2015, more than one prosecution filed by the same payee or holder in due course, as the case may be, against the same drawer of cheques is pending before different courts, upon the said fact having been brought to the notice of the court, such court shall transfer the case to the court having jurisdiction under sub-section (2) of section 142, as amended by the Negotiable Instruments (Amendment) Ordinance, 2015, before which the first case was filed and is pending, as if that sub-section had been in force at all material times.

5. (1) The Negotiable Instruments (Amendment) Second Ordinance, 2015, is hereby repealed.

(2) Notwithstanding such repeal, anything done or any action taken under the principal Act, as amended by the said Ordinance, shall be deemed to have been done or taken under the corresponding provisions of the principal Act, as amended by this Act.”

It may be noted that Section 142 of the Act of 1881, titled ‘Cognizance of Offences’, provided that, notwithstanding anything contained in the Criminal Procedure Code, 1973, no Court shall take cognizance of an offence punishable under Section 138 except on a complaint in writing made by the payee or, as the case may be, the holder in due course of the cheque; such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138; and no Court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class shall try an offence punishable under Section 138.

Significantly, the original Section 142 of the Act of 1881 was renumbered as Section 142(1) when amendments were made in the Act of 1881 by the Negotiable Instruments (Amendment) Act, 2015 (Act 26 of 2015). Further, Section 142(2) was inserted in the statute book along with Section 142-A. The newly inserted Section 142(2), to the extent relevant, states that the offence under Section 138 shall be inquired into and tried only by a Court within whose local jurisdiction – (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.

Later on, there was a challenge at one point of time to the validity of Section 142(2) of the Amendment Act, 2015 before the High Court of Madras in the case of Refex Energy Ltd. v. Union of India reported in 2019 SCC Online Mad 9941. While dismissing the writ petition and holding that the amendment cannot be said to be ultra vires, the division bench of the High Court, in view of para 2 to 6 of the said judgment held that:

“6. In view of the above, there is no infirmity in the amendment. Even otherwise, the Parliament is competent to bring out the amendment under the Negotiable Instruments Act. The said amendment cannot be said to be ultra vires in view of the provisions of the Act or Part III of the Constitution of India. The amendment cannot also be called to be manifestly arbitrary in the absence of any materials on record.”

The Honourable High Court of Madras in the aforesaid judgment Refex Energy Ltd. (supra) noted in para 5 that by virtue of the said amendment [i.e. the Negotiable Instruments (Amendment) Act, 2015], the entire basis of the judgment of Dashrath Rupsingh Rathod (supra) has been removed. The power of the Legislature to take away the basis of a judgment by making amendments is well settled. It is trite law that the Legislature can take away the basis of the judgment of a judicial pronouncement by either passing a Validating Act or passing amendments to the parent Act. [Refer. State of Karnataka v. Karnataka Pawn Brokers Association reported in (2018) 6 SCC 363; State of Karnataka v. Pro Lab reported in (2015) 8 SCC 557; Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality reported in (1969) 2 SCC 283 : AIR 1970 Supreme Court 192; Gujarat Ambuja Cements v. Union of India reported in (2005) 4 SCC 214; State Bank’s Staff Union (Madras Circle) v. Union of India reported in (2005) 7 SCC 584].

The Honourable Surpeme Court in the case of Yogesh Upadhaya and Another v. Atlanta Limited reported in 2023 SCC OnLine SC 170 had the occasion to consider the plea for transfer filed under Section 406 Cr. P.C. in connection with six complaint cases filed under Section 138 and 142 of the N.I. Act respectively. While considering the plea for transfer, the court had the opportunity to consider Section 142(2) contained in the statute book along with Section 142-A. The relevant observations in the said matter in para 11 & 12 read as under-

“11. Perusal of the Statement of Objects and Reasons in Amendment Act 26 of 2015 makes it amply clear that insertion of Sections 142(2) and 142-A in the Act of 1881 was a direct consequence of the judgment of this Court in Dashrath Rupsingh Rathod (supra). Therefore, the use of the phrase: ‘shall be inquired into and tried only by a Court within whose local jurisdiction……’in Section 142(2) of the Act 1881 is contextual to the ratio laid down in Dashrath Rupsingh Rathod (supra) to the contrary, whereby territorial jurisdiction to try an offence under Section 138 of the Act of 1881 vested in the Court having jurisdiction over the drawee bank and not the complainant’s bank where he had presented the cheque. Section 142(2) now makes it clear that the jurisdiction to try such an offence would vest only in the Court within whose jurisdiction the branch of the Bank where the cheque was delivered for collection, through the account of the payee or holder in due course, is situated. The newly inserted Section 142-A further clarifies this position by validating the transfer of pending cases to the Courts conferred with such jurisdiction after the amendment.

12. The later decision of this Court in Bridgestone India Private Limited v. Inderpal Singh [(2016) 2 SCC 75] affirmed the legal position obtaining after the amendment of the Act of 1881 and endorsed that Section 142(2)(a) of the Act of 1881 vests jurisdiction for initiating proceedings for an offence under Section 138 in the Court where the cheque is delivered for collection, i.e., through an account in the branch of the bank where the payee or holder in due course maintains an account. This Court also affirmed that Dashrath Rupsingh Rathod (supra) would not non-suit the company in so far as territorial jurisdiction for initiating proceedings under Section 138 of the Act of 1881 was concerned.”

The Honourable Surpeme Court in the case of M/s. Shri Sendhur Agro & Oil Industries v. Kotak Mahindra Bank Ltd. (dated 06.03.2025) had held that

“61. It is clear on a reading of Section 142(2)(a) and the Explanation thereto that, for the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.

62. A conjoint reading of Section 142(2)(a) along with the explanation thereof, makes the position emphatically clear that, when a cheque is delivered or issued to a person with liberty to present the cheque for collection at any branch of the bank where the payee or holder in due course, as the case may be, maintains the account then, the cheque shall be deemed to have been delivered or issued to the branch of the bank, in which, the payee or holder in due course, as the case may be, maintains the account, and the court of the place where such cheque was presented for collection, will have the jurisdiction to entertain the complaint alleging the commission of offence punishable under Section 138 of the N.I. Act. In that view of the position of law, the word ‘delivered’ used in Section 142(2)(a) of the N.I. Act has no significance. What is of significance is the expression ‘for collection through an account’. That is to say, delivery of the cheque takes place where the cheque was issued and presentation of the cheque will be through the account of the payee or holder in due course, and the said place is decisive to determine the question of jurisdiction.”

Section 142 of the N.I. Act in clear terms, provides the complainant with the right to lodge a complaint, before a court, within whose jurisdiction, the branch of the bank where the cheque is delivered for collection, is situated. Moreover, the court of the place where such cheque was presented for collection, will have the jurisdiction to entertain the complaint alleging the commission of offence punishable under Section 138 of the N.I. Act.

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