Case Study: Dashrath Rupsingh Rathod v. State of Maharashtra

By Yousuf Khan 12 Minutes Read

“Territorial jurisdiction for filing cheque dishonored complaints is restricted to the court within whose territorial jurisdiction the offense is committed”

Citation: 2014 (9) SCC 129

Date of judgment: 1st August, 2014

Court: Supreme Court of India

Bench: T.S. Thakur (J), Vikramajit Sen (J), C. Nagappan (J)

Facts

• The appellant, Dashrath Rupsingh Rathod, had issued a cheque in favor of the complainant. The cheque was presented for payment at a bank located in Maharashtra, but it was dishonoured due to insufficient funds in the appellant’s account.
• Following the dishonour, the complainant issued a statutory notice to the appellant demanding payment of the cheque amount within the stipulated time, which the appellant failed to meet.
• Based on Section 138 of the Negotiable Instruments Act, 1881, the complainant filed a complaint in a court in Maharashtra. The appellant contended that the complaint should have been filed in the court having jurisdiction over the place of dishonour, not where the cheque was presented.
• The key issue was whether the complaint could be filed in a court other than the one where the dishonour occurred, which raised questions about the territorial jurisdiction for such cases under Section 138. The matter reached the Supreme Court due to the inconsistent rulings across various jurisdictions.

Decision of the Trial Court

The Judicial Magistrate First Class (JMFC), Digras, Maharashtra, where the cheque was presented for payment, ruled that it had the jurisdiction to entertain the complaint.

The lower court’s decision was contested on the grounds of lack of jurisdiction since the cheque was drawn on a bank located in a different jurisdiction.

Decision of the High Court

The Nagpur Bench of the Bombay High Court overruled the lower court’s decision, stating that the Judicial Magistrate First Class at Digras did not have the territorial jurisdiction to entertain the complaint.The High Court ruled that the proper court for hearing the matter was the one located where the bank on which the cheque was drawn was situated, i.e., Bank of India, Bhandara Branch, Maharashtra. The High Court ordered the case to be transferred to the appropriate jurisdiction.

Decision of the Supreme Court

In a landmark decision, the Supreme Court of India, led by Justices T.S. Thakur, Vikramajit Sen, and C. Nagappan, ruled on August 1, 2014, that the territorial jurisdiction for filing a complaint under Section 138 of the Negotiable Instruments Act is limited to the location where the cheque is dishonoured.

• Strict Interpretation of Section 138: The Court clarified that Section 138 should be strictly interpreted and that the cause of action arises only at the place of dishonour—specifically at the bank of the drawer.
• Forum Shopping Prevention: The Court overturned previous rulings that permitted the filing of cases based on the location where the cheque was presented or where the statutory notice was issued. The Court emphasized that allowing this would encourage forum shopping, undermining the intent of the law and causing undue hardship to the accused.
• Redirection of Pending Cases: The Supreme Court instructed that all pending cases filed in courts without jurisdiction be returned to the complainants. Fresh complaints could be filed in the appropriate courts, provided they were not time-barred.

Key legal issues addressed

1. Whether a complaint under Section 138 of the Negotiable Instruments Act can be filed at a place other than the location where the cheque was dishonoured?

No

The Supreme Court ruled that a complaint under Section 138 must be filed in the court having jurisdiction over the place where the cheque was dishonoured.

The Court reasoned that the cause of action in cases under Section 138 arises when the cheque is dishonoured. Therefore, the proper venue for filing such complaints is the court within whose jurisdiction the dishonour occurred, i.e., the location of the bank where the cheque was drawn and subsequently dishonoured.

The court stated in para number 21, “We clarify that the place of the issuance or delivery of the statutory notice or where the complainant chooses to present the cheque for encashment by his bank are not relevant for purposes of territorial jurisdiction of the complaints even though non-compliance therewith will inexorably lead to the dismissal of the complaint. It cannot be contested that considerable confusion prevails on the interpretation of Section 138 in particular and Chapter XVII in general of the NI Act.”

The Court rejected the argument that the complaint could be filed based on the location where the cheque was presented for payment or where the complainant resided, as these factors do not determine the legal cause of action under Section 138.

2. Whether the complainant’s choice of jurisdiction (based on the location where the cheque was presented) was valid under Section 138?

No

The Court rejected the notion that the complainant could choose the jurisdiction based on the location where the cheque was presented.

The Court held that forum shopping—where complainants choose jurisdictions for convenience—undermines the fairness of the trial process and goes against the legislative intent of the Negotiable Instruments Act. The Court emphasized that the jurisdiction must be tied to the cause of action, which is the dishonour of the cheque. The place where the cheque is presented is irrelevant for determining territorial jurisdiction under Section 138. Allowing complainants to file cases at their chosen venues could burden the accused by forcing them to defend themselves in distant and unrelated jurisdictions.

The court reiterated in Para 12 that “…it has been held that the plaintiff is precluded from instituting the suit anywhere else(The other places which seem to have jurisdiction as laid out in Section 20 of the Civil Procedure Code,1908). Obviously, this is also because every other place would constitute a forum non conveniens. This Court has harmonised the various hues of the conundrum of the place of suing in several cases and has gone to the extent of laying down that it should be courts’ endeavour to locate the place where the cause of action has substantially arisen and reject others where it may have incidentally arisen.

3. Whether the presumption under Section 139 of the Negotiable Instruments Act extends to determining jurisdiction?

No

The presumption under Section 139 relates only to the existence of a debt or liability, not to the determination of jurisdiction.

The Court clarified that the presumption under Section 139 operates in favour of the holder of the cheque in terms of assuming the existence of a legally enforceable debt. However, this presumption does not apply to the determination of territorial jurisdiction. The jurisdiction is governed strictly by the place where the cheque was dishonoured, and any other interpretation would lead to an arbitrary expansion of the court’s reach.

The court reasoned in Para 17 of the judgment, “Section 139 carves out the presumption that the holder of a cheque has received it for the discharge of any liability.”

The section nowhere mentions about the presumption of the jurisdiction in the cases of dishonour, rather it only presumes liability of an existing debt or other liability and even that liability is rebuttable.

4. Whether pending cases in courts lacking jurisdiction should be transferred or refiled under the new ruling?

Yes

The Court directed that all pending cases filed in courts lacking jurisdiction should be returned to the complainants, who may file fresh complaints in the appropriate courts. But the case which went far beyond a particular point shall be tried in the same court.

In para number 21 of the judgment, the court said, “We are quite alive to the magnitude of the impact that the present decision shall have to possibly lakhs of cases pending in various courts spanning across the country. One approach could be to declare that this judgment will have only prospective pertinence i.e. applicability to complaints that may be filed after this pronouncement… Consequent on considerable consideration we think it expedient to direct that only those cases where, post the summoning and appearance of the alleged accused, the recording of evidence has commenced as envisaged in Section 145(2) of the Negotiable Instruments Act, 1881, will proceeding continue at that place.”

The Court recognized that its ruling would affect numerous cases already filed in courts that lacked jurisdiction based on the new interpretation. To address this, the Court ordered that such cases be returned to the complainants for refiling in the appropriate courts. The Court in this case provided a safeguard by stating that if the complaints were not time-barred, they could be filed afresh without being prejudiced by the delay caused due to the jurisdictional confusion.

Yousuf Khan