IP Connect

INDIAN Government Approves Proposal for Negotiable Instruments (Amendment) Bill 2015

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, approved the long-pending Negotiable Instruments (Amendment) Ordinance, 2015 on June 10, 2015. The corresponding Bill was passed in the Lok Sabha, earlier this year in May, seeking to overturn a Supreme Court 2014 ruling.

The ruling in question is the controversial case of Dashrath Rupsingh Rathore vs. State of Maharashtra, whereby the Hon’ble Apex Court, in a bid to overcome the legal lacunae, had ruled that for a case of cheque bouncing under Section 138 of the Negotiable Instruments Act, 1881, the suit is to be initiated where the cheque-issuing branch was located. The said ruling was also covered by us in our September 8, 2014 issue, which can be accessed here.

To refresh our readers’ minds, according to the aforesaid ruling, for prosecuting a person under Section 138 of the Negotiable Instruments Act, 1881 (i.e. for presenting a cheque which bounced for insufficiency of funds), the case has to be initiated at the place where the branch of the bank in which the cheque was drawn is located. The earlier rule allowed such a case to be initiated by the holder of the cheque at his place of business or residence. But as per the 2014 ruling, for instance, if a person from Delhi gave a cheque drawn on a Delhi bank for buying goods in Kerala and it bounced for insufficiency of funds, then the aggrieved person would have to travel all the way from Kerala to Delhi just to initiate prosecution against the defaulter under Section 138. Moreover, this judgment demanded a retrospective application, thereby, directly affecting the lakhs of cheque bouncing cases pending in various courts all over the country which would now have to go through interstate transfers. However, since this order is not Payee-friendly (who is the victim), the Government of India has brought the present amendment bill to by-pass the Court’s order.

Necessity of the NI (Amendment) Bill 2015

The Negotiable Instruments Act, 1881 defines promissory notes, bills of exchange, cheques etc. and creates penalties for issues like bouncing of cheques. The Act specifies the circumstances under which cheque bouncing complaints can be filed, however, it fails to specify the territorial jurisdiction of the courts where such a complaint is to be filed.

The Statement of Objects of the bill stated that following the aforementioned apex court ruling, representations have been made to the government by various stakeholders, including industry associations and financial institutions, expressing concerns about the wide impact the judgement would have on the business interests as it will offer undue protection to defaulters at the expense of the aggrieved complainant.

The objective of the proposed amendments is to clarify the jurisdiction related issues for filing cases under Section 138 of the NI Act. Such a clarification is a much desired one from the equity point of view, as this would be in the interests of the aggrieved complainant and would also ensure a fair trial. It would also increase the credibility of the cheque as a financial instrument, and allow lending institutions, including banks, to continue to extend financing to the economy, without the apprehension of the loan default on account of bouncing of a cheque. Therefore, the entire move would help the trade and commerce in general.

The new law is also intended to help consolidate the already pending cases and aid the judicial system, which currently has 21 lakh cheque-bounce cases pending with 259 courts hearing them exclusively.