Which Court has territorial jurisdiction to entertain complaint of dishonour of cheque? Explain with reference to latest law.

The Early Landscape — Multiple Acts, Multiple Places

The Negotiable Instruments Act, as originally enacted and even after the insertion of Chapter XVII in 1988, contained no specific provision on territorial jurisdiction for Section 138 complaints. The law was left to the general framework of Sections 177 to 184 of the Code of Criminal Procedure, 1973, which ordinarily vest jurisdiction in the court within whose local limits the offence was committed.

The difficulty was that the offence under Section 138 is not a single act but a series of concatenated acts — drawing of the cheque, its presentation, its dishonour by the drawee bank, the service of statutory notice, and the failure to pay within fifteen days. Since each of these acts could happen at a different place, courts across the country gave conflicting answers. Some held that only the place of dishonour — that is, the location of the drawee bank — was the relevant forum. Others held that the place where the drawer fails to pay, or where the demand notice was served, or even where the payee carries on business, was equally competent. There was, frankly, no settled law — a situation that invited manipulation.

The Bhaskaran Era — Maximum Liberality

The Supreme Court stepped in to resolve this confusion in the landmark decision of K. Bhaskaran v Sankaran Vaidhyan Balan (AIR 1999 SC 3762). A two-judge bench held that Section 138 is completed only through the concatenation of five acts, and that the complainant may file the complaint before a court having jurisdiction over the place where any one of those five acts was done. The five acts enumerated by the court were: drawing the cheque; its presentation to the bank; its return unpaid; the giving of notice; and the failure to pay within fifteen days. Under this broad reading, the complainant had the widest possible choice — he could file the complaint at any one of five different places.

While this interpretation was compassionate towards the payee, the court itself noted that it made "jurisdictional questions an idle exercise." In practice, it opened the door to a serious abuse — unscrupulous payees began deliberately presenting cheques at far-off bank branches and sending statutory notices from places having no connection with the transaction or the accused, solely to harass the drawer by compelling him to travel to a distant forum and defend himself at great inconvenience and expense.

The Harman Electronics Correction

Recognising the abuse, the Supreme Court began walking back the Bhaskaran position. In Harman Electronics Pvt Ltd v National Panasonic India Pvt Ltd (AIR 2009 SC 1168), a two-judge bench held that where the entire transaction took place at Chandigarh — the cheque was issued there, drawn on a Chandigarh bank, and the accused resided and carried on business there — the complainant could not invoke the jurisdiction of a Delhi court merely because it had issued the demand notice from its Delhi head office where no part of the transaction had taken place. The court made it clear that a complainant who manufactures jurisdiction by issuing a notice from an address unconnected with the transaction will not be allowed to exploit that manufactured connection.

Dashrath Rupsingh Rathod — A Sharp Course Correction

The decisive reversal came with the Constitution Bench equivalent, a three-judge bench decision of the Supreme Court in Dashrath Rupsingh Rathod v State of Maharashtra (AIR 2014 SC 3519). This decision undertook a comprehensive review of all the earlier judgments and delivered a sharp course correction. It overruled K. Bhaskaran insofar as it had held that the place of issuance or delivery of the statutory notice or the place where the payee chose to present the cheque could confer territorial jurisdiction.

The court held that the offence under Section 138 stands committed at the place where the cheque is dishonoured — that is, where the drawee bank is located and returns the cheque unpaid. The return of the cheque by the drawee bank is the act that gives birth to the offence, and therefore the court within whose local jurisdiction the drawee bank is situated is the ordinarily competent court. All other acts — notice, failure to pay — are conditions precedent to prosecution but do not themselves constitute the offence or confer jurisdiction. The court also directed the manner in which pending cases were to be dealt with, holding that cases where recording of evidence under Section 145(2) had already commenced would be treated as transferred to those courts, while all other complaints were to be returned to the complainant for filing before the proper court.

The 2015 Amendment — Parliament's Final Word

The Dashrath Rupsingh Rathod decision, while correcting the abuse, created its own set of practical problems. A payee often had no bank account at the place where the drawee bank was located, and compelling him to travel to the accused's city to file his complaint significantly undermined the remedial purpose of Section 138. Parliament responded swiftly and definitively.

The Negotiable Instruments Amendment Act, 2015 (Act No. 26 of 2015), which came into force on 15 June 2015, inserted sub-section (2) to Section 142 and the new Section 142A into the Act. This amendment, passed with retrospective effect from 15 June 2015, entirely overturned the rule in Dashrath Rupsingh Rathod and substituted a new, balanced regime.

The Current Law — Section 142(2)

The current law, as it stands after the 2015 Amendment, is set out clearly in Section 142(2). The offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction:

• Clause (a) — Where the cheque is presented through a bank account: The relevant court is the one within whose jurisdiction the branch of the bank where the payee or holder in due course maintains his account is situated. This is the crucial shift from Dashrath Rupsingh Rathod — it is now the payee's bank, not the drawer's bank, that determines the forum.

• Clause (b) — Where the cheque is presented otherwise than through an account: If the cheque is presented directly without routing it through a bank account, the relevant court is the one within whose jurisdiction the branch of the drawee bank where the drawer maintains his account is situated.

An important Explanation is appended to Clause (a): where a cheque is physically deposited at any branch of the payee's bank — not necessarily the home branch — it shall be deemed to have been delivered to the branch where the payee maintains his account. This prevents mischief in the reverse direction — the payee cannot create jurisdiction in a distant city by choosing to deposit the cheque at an inconvenient branch of his own bank.

Section 142A — Validation and Consolidation

Alongside Section 142(2), the legislature also inserted Section 142A, which is a validation and transitional provision. Sub-section (1) of Section 142A declared that all cases already transferred under the Dashrath Rupsingh Rathod direction to courts having jurisdiction under the new sub-section (2) of Section 142 shall be deemed to have been validly transferred, as if sub-section (2) had been in force at all material times.

Sub-section (2) of Section 142A introduced an important consolidation rule: once a payee or holder in due course has filed a complaint against a particular drawer in the court having jurisdiction under Section 142(2) and that complaint is pending, all subsequent complaints arising under Section 138 against the same drawer by the same payee — regardless of whether those cheques were presented within or outside the territorial jurisdiction of that court — must be filed before the same court. This consolidation rule prevents multiplicity of proceedings in multiple courts arising from a single ongoing commercial relationship, a problem that the Supreme Court had earlier addressed in Damodar S. Prabhu v Sayed Babalal H (AIR 2010 SC 1907).

The Class of Court — Not Below First Class Magistrate

Aside from the question of territory, Section 142(1)(c) mandates that no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class shall try any offence punishable under Section 138. This rule has been consistently applied by all High Courts. In Dashrath Rupsingh Rathod itself, the Supreme Court reaffirmed that cognizance can be taken only by a court of the requisite class. Section 143 of the Act further provides that all such offences shall be tried summarily under the procedure for summary trials in the CrPC, though the Magistrate may convert to a regular summons trial if the case demands a sentence of imprisonment exceeding one year.

The Principle That Emerges

What the law, as it stands after the 2015 Amendment, achieves is a careful equipoise between two competing interests. The old Bhaskaran rule gave too much freedom to the complainant and was easily abused. The Dashrath Rupsingh Rathod rule swung the pendulum too far in the other direction and unduly burdened the payee. Section 142(2), as amended, anchors jurisdiction at the payee's bank — the place that is most natural and convenient for the person who has been wronged — while the consolidation rule in Section 142A prevents the escalation of multiple complaints into multiple courts. This is the current and final state of the law, which has effectively put to rest decades of controversy and abuse on a question that once paralysed thousands of Section 138 proceedings across the country.