This article has been written by Vishwendra Prashant. It provides a detailed analysis of Section 142 of the Negotiable Instruments Act, 1881 which talks about the jurisdiction of Indian courts and time limitation for lodging complaints under Section 138 of this Act. Moreover, the article discusses the amendments made in Section 142, along with the latest judgements.

Introduction

The Imperial Legislative Council enacted the Negotiable Instruments Act, 1881 (hereinafter referred to as the NI Act). This Act aims to establish and revise the regulations concerning Promissory Notes, Bills of Exchange, and cheques.

As business and trade rapidly expanded, the use of cheques increased, leading to a rise in disputes related to bounced cheques. Over the years, there have been several significant modifications in the following areas:

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  • Process of issuing of cheques;
  • Laws regarding bounced cheques; and
  • Procedures for resolving cheque-related disputes.

However, Sections 138–142 of the NI Act are designed to enhance the efficiency of banking operations and uphold the integrity of commercial transactions involving cheques. Section 138 regulates offence committed when insufficient funds in the drawer’s account cause a cheque to bounce. Additionally, there are other specified reasons given under the Section which cause cheques to bounce. Moreover, Section 142 deals with the cognizance of offence and jurisdiction of courts concerning Section 138.

Section 138 of NI Act

Section 138 of the NI Act is a punitive regulation concerning the consequences of a bounced cheque. The act of bouncing a cheque is not inherently illegal, however, certain conditions must be met for it to be considered an offence for it to become punishable. These conditions are as follows:

  1. Issuance of cheques: Firstly, the drawers must issue cheques, which can be made out in favour of the payees.
  2. Presentation of cheques: The payees need to present the cheques to the banks within three months from the date of issue of the cheques. Adhering to this timeframe is crucial, as the delayed presentations may weaken the cases.
  3. Dishonoured cheques: If the banks refuse to honour cheques due to insufficient funds or other specified reasons, these are called dishonoured cheques.
  4. Notices to Drawers: The payees must legally notify the drawers within 30 days of receiving information about the dishonoured cheques from the banks. The notices must stipulate that the cheque amounts should be paid within 15 days of receiving the notices.
  5. Failure to make payments: If the drawers do not make the payments within the specified 15-day timeframe, the payees have the right to file complaints.

As far as Section 142, is concerned, let’s discuss the same through this article.

Clause-wise explanation of Section 142 of Negotiable Instruments Act, 1881

Clause 1

Section 142 deals with cognizance of offence punishable under Section 138 of the NI Act. However, Section 142(1) states that the Code of Criminal Code, 1973 (hereinafter referred to as CrPC) is not to be considered in the following:

  1. Courts are prohibited from taking cognizance of any offence punishable under Section 138 of the Act unless a written complaint is submitted by the payee or holder of the cheque. 
  2. The complaint must be made within one month from the date on which the cause of action arises under clause (c) of the proviso to section 138, which provides legal protection for payees in cases of bounced cheques, holding the issuers of the cheques (drawers) accountable when the cheques bounce due to insufficient funds or other specific reasons. However, the courts may take cognizance of complaints after the prescribed period if the complainant can prove that there were sufficient reasons for not making complaints within that period.
  3. Offences punishable under Section 138 cannot be tried by courts lower than Metropolitan Magistrates or Judicial Magistrates of the first class.

Clause 2

Moreover, Section 142(2) states that:

The courts with the local jurisdiction shall inquire and try the offence under section 138 only;

  1. If the cheques are delivered for collection through accounts at the branches of the banks where the payee or holder in due course maintains the account; or
  2. If the cheques are submitted for payments by the payee or holder in due course, other than through accounts, the branches of the drawee banks located where the drawers maintain the accounts.

Explanation: For Clause (a), if cheques are submitted for collection at any branch of the payee’s or holder’s bank, they will be considered as delivered to the branches where the payee or holder, in due course, maintains the account.

Meaning of cognizance

It refers to the judicial notice or awareness taken by magistrates or courts regarding the commission of the alleged offence. Section 190 of the CrPC deals with the same. As per this Section, the magistrate can take cognizance of the offences in the following ways:

  1. When a police officer submits a police report to the magistrate about the commission of an offence;
  2. When aggrieved parties file written complaint against the offenders to the magistrate;
  3. In the absence of police reports and complaints, the magistrates may take cognizance based on information from other sources, such as third parties or the magistrates’ personal knowledge.

Cognizance under Section 142 of Negotiable Instruments Act, 1881

Section 142(1)(a) and proviso of Section 142(1)(b) deal with the cognizance of the offence under Section 138 of the NI Act. The same has been discussed below:

  • Section 142(1)(a) specifies that CrPC cannot be invoked in cases where the courts are barred from taking cognizance of any offence punishable under Section 138 of the Act. The courts have to take cognizance based on the written complaint submitted by the payee or holder of the cheque.
  • Proviso of Section 142(1)(b) states that the court may also take cognizance of a complaint after the expiry of 1 month. But, the parties must satisfy the courts that they have sufficient grounds for not filing complaints within 1 month. Subsequently, the courts would take cognizance of complaints after 1 month also.  

Time limit for taking cognizance under the provision

Section 142(1)(b) postulates that the time limit for filing a complaint under Section 138 is one month from the date when the cause of action arises. But, the courts may take cognizance of the complaint even after 1 month from the date when the cause of action arises when the complainants fulfil the condition mentioned in the proviso of this Section. 

In Sudesh Kumar vs. State of UP and another (2024), the respondent presented the petitioner’s cheque dated 18th September 2019 to the bank, which was returned on 17th December 2019 due to insufficient funds. Subsequently, on 4th January 2020, the respondent sent a notice to the petitioner about the cheque being returned, and the petitioner received it on 8th January 2020. The complaint was filed on 20th February 2020.

The Counsel representing the petitioner contended that the limitation for filing the complaint should commence from 8th January 2020, i.e., the date when the legal notice was received by the petitioner. Consequently, the complaint filed by the respondent was argued to be liable for rejection.

The Allahabad High Court noted that the complaint, filed on 20th February 2020, fell within the one-month time limit as per clause (b) of Sub ­Section (1) of Section 142, from the date of the underlying cause of action on 23rd January 2020. Therefore, the court was justified in taking cognizance of the offence, following Section 142.

This Court ruled that since the petitioner received the notice on 8th January 2020, they had 15 days from that date to make the payment. The cause of action for filing the complaint under Section 142 arose at the end of these 15 days.

Additionally, the Allahabad High Court has ruled that the payees or cheque holders have to file complaints under Section 138 when the drawers fail to pay the due amounts to them within 15 days from the dates of legal notices.

Moreover, in Amjad Ali Khan @ Guddu Khan vs. State of Bihar (2022), two cheques issued by the petitioner to the complainant’s firm bounced due to insufficient funds. The complainant then sent a legal notice to the petitioner on 17th March 2018, but as no payment was made, a complaint case was filed against the petitioner on 25th April 2018 under Sections 420, 406, and 120B of the IPC, along with Section 138 of the NI Act.

The petitioner objected to the magistrate’s decision to take cognizance of the complaint and also challenged the Additional Sessions Judge’s dismissal of the revision against the magistrate’s order.

The petitioner argued that the lower court had taken cognizance of a complaint that was time-barred. The Patna High Court observed that under clause (c) of section 142(1), an offence punishable under Section 138 cannot be tried by a court lower than that of a Metropolitan Magistrate or a Judicial Magistrate of the first class.

In this case, the cause of action arose on 17th March 2018, and the complaint was filed on 25th April 2018, which means there was a delay of 7 days. Therefore, the magistrate wrongly took cognizance.

Jurisdiction under Section 142 of Negotiable Instruments Act, 1881

Sections 142(1)(c), 142(2)(a) and 142(2)(b) deal with the jurisdiction of the courts that are authorised to conduct trials for the offence falling under Section 138. The same can be explained in the following manners:

  • No court lower than Metropolitan Magistrates or Judicial Magistrates of the first class can hear cases falling under section 138 [Section 142(1)(c)].
  • Section 138 specifies that the case will be investigated and adjudicated by a court located within the following local jurisdictions:
  1. If the cheque is submitted for collection through an account, the court where the bank branch is situated, where the payee or holder in due course maintains the account, will have jurisdiction [Section 142(2)(a)].
  2. If the cheque is presented for payment by the payee or holder in due course, or through an account by someone else, the court where the branch of the drawee’s bank is situated, where the drawer maintains the account, will have jurisdiction [Section 142(2)(b)].

For deciding the jurisdiction to register the cheque bounce cases, there is no need to determine where the cheques got bounced. For clause (a), if a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then it shall be deemed that the cheque has been delivered to the branch of the bank where the payee or holder in due course maintains the account, as the case may be.

In Alfa One Global Builders Pvt. Ltd. vs. Nirmala Padmanabhan (2023), the accused provided a cheque to the complainant following their agreement. According to the agreement, the complainant is a permanent resident of Mumbai. The accused delivered the cheque in Kannur, drawn on South Indian Bank Ltd., Kannur.

The complainant presented the cheque for collection through a bank in the Alappuzha district, and it was reportedly dishonoured. The complainant filed a case under Section 138 of the NI Act against the accused at the court of Judicial Magistrate of First Class (JMFC), Alappuzha district. In the proceedings, the complainant stated that he is currently living in Alappuzha. The Kerala High Court contemplated the question related to the jurisdiction of courts that would consider the complaints filed under Section 138 of the NI Act. Additionally, the court ruled that the courts, where the presentation of cheques would take place through the payees’ or cheque holders’ accounts, have the authority to consider these complaints.

Relevant amendments to the provision

The Negotiable Instruments (Amendment) Act, 2015 had added two more provisions in Section 142 of the NI Act. These provisions are as follows:

  1. Section 142(2); and
  2. Section 142A.

Section 142A(1) states that all cases regarding Section 138 pending in any courts before the NI (Amendment) Act must be transferred to the courts having jurisdiction under Section 142(2) as if that subsection was applicable at every time.

If complainants wish to file any subsequent complaints arising out of Section 138 against the same drawers, Section 142A(2) casts an obligation on the complainants to file these complaints before the same courts where the initial complaints filed against the same drawers are pending.

The intention of the legislature behind inserting Section 142A becomes more clear when one reads Section 142A(3), according to which, on the date of the commencement of the NI (Amendment) Act, if more than one case filed by the complainants against the same drawers is pending before different courts then every such subsequent court, upon the said fact having been brought to the notice, shall transfer the cases pending before it to the courts having jurisdiction under Section 142(2) as amended by the NI (Amendment) Act before which the first case was filed and is pending.

In Kedar Bhausaheb Malhari vs. Axis Bank Limited (2024), the Supreme Court has contemplated whether a court can transfer complaints related to dishonoured cheques to the courts where the drawers’ banks are situated. The court, deeming the matter important and requiring the Union of India’s stance, decided to involve the Union of India, represented by the Ministry of Finance (Department of Financial Services) and the Ministry of Law and Justice (Legislative Department) and asked the Attorney General for India to handle the issue.However, the matter is still pending before the Hon’ble Supreme Court.

Constitutional validity of the amended provisions

The provisions such as Sections 142(2) and 142A of the NI Act, 1881 (amended by the NI (Amendment) Act, 2015) were challenged in the courts, contending that they are in violation of the Constitution of India.

In Vikas Bafna vs. Union of India (2016), the petitioners filed a writ petition to challenge the constitutional validity of Sections 142(2) and 142A of the Act. The Chhattisgarh High Court has affirmed the validity of these provisions. The court dismissed the petition by further ruling that such amendments do not infringe upon any fundamental rights of the offenders. The offenders still maintain the right to defend themselves.

Moreover, in Refex Energy Ltd. vs. Union of India & Ors. (2019), a company (Refex Energy Ltd.) filed a Writ Petition under Article 226 of the Indian Constitution, requesting a writ of Declaration to declare Section 142(2) of the NI (Amendment) Act, 2015 as violative of Article 14.

The counsel representing the petitioner argued that the amendment violates the Supreme Court ruling in Dashrath Rupsingh Rathod vs. State of Maharashtra (2014), which held that a complaint can only be filed in two places:

  1. The location where the drawer has his account; or  
  2. The location where the payee has his account.

Additionally, the Supreme Court referred to K. Bhaskaran vs. Sankaran Vaidhyan Balan (1999) in which it was held that the completion of the offence under Section 138 of the Act depends on the occurrence of several acts. The acts constituting the said offence are as follows:

  1. Writing the cheque,
  2. Submitting the cheque to the bank,
  3. Receiving the unpaid cheque back from the drawee bank,
  4. Notifying the drawer in writing to pay the cheque amount,
  5. The drawer’s failure to make payment within 15 days of receiving the notice.

All of these five acts don’t need to take place in the same location. Each of these five acts can occur in different locations. The jurisdiction of any court in one of the five local areas allows for the trial of the offence under Section 138 of the Act, if any of the five different acts were conducted in those areas. This means that the complainant has the freedom to select any of the courts with jurisdiction over any of the local areas within which any of the five acts took place.

Dashrath Rupsingh Rathod’s case is a landmark judgment that resulted in the amendment of 2015. Before this decision, various cases had ruled differently, creating significant ambiguity. After the enforcement of the NI (Amendment) Act, 2015, two Sub-sections i.e., (1) and (2), were inserted in Section 142 of the NI Act, 1881.

In Refex Energy Ltd.’s case, the Madras High Court upheld that Section 142(2) of the NI (Amendment) Act, 2015, does not violate Article 14 of the Indian Constitution. This court disregarded the writ.

Important precedents

M/S. Bridgestone India Pvt. Ltd. vs. Inderpal Singh (2015).

In this case, the Supreme Court ruled that the phrase ‘as if that subsection had been in force at all material times’ in Section 142A(1) of the NI Act provides retrospective application to Section 142(2). The court further ruled that the Judicial Magistrates would have territorial jurisdiction to initiate proceedings under Section 138 following the enactment of the Negotiable Instruments (Amendment) Second Ordinance, 2015.

M/s. A.K.R. Transport vs. M/s. Kamakshi Shipping (2015).

In this case, the appellant filed a complaint before JMFC, Pamgarh under Section 138, but the court returned the complaint stating that the dishonoured cheques were drawn in Visakhapatnam. Therefore, JMFC Pamgarh did not have jurisdiction, citing the precedent set in the case of Dashrath Roop Singh Rathod vs. State of Maharashtra. The revision petition filed by the appellant was dismissed by the Sessions Court. Subsequently, the appellant sought relief from the High Court after the dismissal of the revision petition.

The Chhattisgarh High Court ruled that amendments in Section 142 of the NI Act are amendments of procedural laws and not substantive laws. Therefore, these amendments in the Section have retrospective effect. However, retrospective effect means that the new law would encompass the matters that took place before the enforcement of these laws.

Pawan Kumar Goel vs. State of U.P. & Another (2022).

In this case, the High Court nullified a magistrate’s summoning order in a cheque bounce case. The court’s rationale was that a company director could not be prosecuted under Section 138 of the NI Act without the company also being charged. The appellant (Pawan Kumar Goel) filed an appeal against the High Court’s judgment.

The Supreme Court ruled that the additional offenders can not be prosecuted after filing complaints related to dishonoured cheques. Moreover, the prescribed period under Section 142(1)(b) should not lapse.

M/S. A. Seating & Others vs. M/S. Nandini Modulars (2022).

In this case, the revision petition was filed by M/S. A. Seating and others, urging the Karnataka High Court to overturn the trial court’s judgment that convicted the petitioners for the offence under Section 138 of the NI Act. The petitioners also requested the High Court to set aside the Appellate Court’s judgment, which remanded the case to the trial court.

The complainant operated an industry under the name M/s. Nandini Modulars. The accused assured the complainant that he would settle the amount of Rs.13,58,921 within 15 days and issued four cheques as security for the loan amount payable to the complainant. Upon presenting these cheques, they were dishonoured due to ‘funds insufficient’. Cognizance was taken, and a complaint was filed, securing the petitioners who did not plead guilty. After considering oral and documentary evidence, the trial court convicted the petitioners.

On appeal, the accused argued that the complaint was time-barred and no application was filed before the trial court, suggesting that initiating the proceedings against the petitioners was erroneous.

The Karnataka High Court stated that in case parties opposing the proceedings initiated under Section 138 of the NI Act do not bring up the legitimate reasons for the delay in lodging the complaints before the lower courts, the Appellate Courts have the authority to send the cases back for a new review on the matter of condoning the delay under Section 142(b). 

The Appellate Court sent the case back for a fresh review, allowing the complainant to apply for condonation of delay. It directed the trial court to prioritise and decide on this application before proceeding with the matter following the law. As a result, it overturned the trial court’s conviction and sentence order.

Yogesh Upadhyay vs. Atlanta Limited (2023).

In this case, four out of the six cases were initiated by a company before the Dwarka courts in New Delhi, while the other two cases were awaiting resolution in the Nagpur courts in Maharashtra. The accused parties (petitioners) have approached the Apex Court to request the transfer of the two cases from the Nagpur court to the Dwarka court.

In response to this plea, the complainants (respondents) argued that the non-obstante clause in Section 142(1) of the NI Act would take precedence over Section 406 CrPC. They stated that it would not be within the court’s authority to transfer these complaint cases in the exercise of power under this clause.

The Supreme Court observed that despite the non-obstante clause in Section 142(1), this Court still maintains the authority to transfer criminal cases under Section 406 CrPC, particularly in cases involving offence under Section 138 of the NI Act, if it is deemed necessary for the interests of justice. Moreover, the Supreme Court ruled that, as per Section 406 CrPC, it has the authority to relocate cheque bounce cases from one state to another.

Arvind Singh Rajpoot vs. M/s Intersight Holidays Pvt. Ltd. & Ors. (2023).

In this case, the director of the company, Intersight Holidays Pvt. Ltd., filed a complaint for an offence punishable under Section 138 of the NI Act. However, this company was a third party to the complaint, and the cheques were in the name of Intersight Tours and Travel Pvt. Ltd. The Kerala High Court ruled that the drawers or issuers of cheques can not be prosecuted by third parties for the offence under this Section. The court observed that as per Section 142(1)(a), only ‘payees’ or ‘holders in due courses of the cheques’ would file written complaints of the offence punishable under Section 138. Moreover, the courts must take cognizance of such complaints. Therefore, the court disregarded the complaint.

Right choice Marketing Solutions Jlt & Ors. vs. State (NCT of Delhi) (2024).

In this case, the Delhi High Court elucidated that Indian courts are authorised to decide the cases of dishonoured foreign cheques under Section 138. However, these courts should be located where foreign cheques were deposited for encashment in India.

Ashok Sharma vs. State of U.P. and Another (2024).

In this case, Uttarakhand Engineering Products Private Limited supplied products to M/s Trimurti Concast Pvt. Ltd., but the cheque provided by M/s Trimurti Concast Pvt. Ltd. bounced due to insufficient funds. Consequently, the complainant lodged a complaint. As the owed amount remained unpaid, the complainant pursued legal action under Section 138 of the NI Act with the Chief Judicial Magistrate in Muzaffarnagar. The complainant submitted evidence in the form of an affidavit with all relevant documents, leading the court to issue a summons. After the issuance of the summons, Ashok Sharma, the signatory of the cheque, filed an application under Section 482 CrPC, in which this court issued notices and halted the ongoing proceedings of the complaint case. As a result, the trial could not be progressed for the past 8 years.

The Allahabad High Court ruled Section 142 of the NI Act does not specify who can file complaints on behalf of companies as per Section 138. Moreover, when companies are payees, the complainants must be lodged in the names of companies.

Conclusion

In a nutshell, this article concludes that Section 142 of the NI Act has been inserted to provide legal proceedings to be followed against the offenders punishable under Section 138 of the Act. However, Section 138 postulates that dishonouring cheques due to insufficient funds is a criminal offence, and the offenders may face a maximum imprisonment of two years or maximum fines of twice the amount of cheques or both.

Moreover, Section 142 talks about the jurisdiction of the courts, which may decide the cases of Section 138. It also discusses the stipulated period for lodging complaints regarding bounced cheques.  

Frequently Asked Questions (FAQs)

What do you mean by negotiable instruments?

Section 13 of the NI Act defines the term ‘negotiable instruments’ as promissory notes, bills of exchange, or cheques that can be transferred to another party.

It is possible for negotiable instruments to be made payable to multiple payees together, or it can be made payable to one of two, or one or some of several payees as an alternative.

Who are drawers, drawees and payees? In which condition the drawers and payees can be identical?

Drawers are the individuals who sign the cheques and instruct the banks to make the payments. The banks or any persons who are directed to pay the specified amounts written on the cheques are known as the drawees. The recipients of the specified amounts are known as the payees.

The drawers and payees can be identical when the drawers write self-cheques. However, when individuals want to withdraw funds from the banks for personal use, they fill out self-cheques. Such cheques can only be cashed at the account holders’ or the drawers’ banks.

What do you mean by cheques and dishonoured cheques?

Cheques are written commitments made by the payers (the person issuing the cheque) to the payee (the person receiving the cheque) against a sum of money. In an ideal situation, the payer’s bank transfers the funds from the payer’s account to the payee’s account.

The payers who issue the cheques make written promises to the payees to provide a certain amount of funds. Ideally, the payers’ banks transfer the funds from the payers’ accounts to the payees’ accounts.

When banks decline cheques submitted by individuals, such cheques are referred to as dishonoured cheques. This refusal can be due to insufficient funds in the account, mismatched signatures, or post-dated cheques.

The dishonoured cheques indicate that some obstacles are preventing the processing of transactions for which the cheques were issued. In India, dishonouring cheques due to insufficient funds is considered a legal offence, and the individual who issued the cheque may face legal consequences under the NI Act, 1881.

Who are the holders of negotiable instruments and holders in due course under the NI Act?

According to Section 8 of the NI Act, 1881, the term ‘holders of negotiable instruments’ refers to individuals who have the authority to have the documents in their own names and to receive or claim the amounts owed from the parties responsible.

Moreover, Section 9 of the Act states that the individuals who legitimately acquire negotiable instruments in exchange for some values when payments are still outstanding are known as holders in due course.

What are the differences between Sections 138 and 142 of the NI Act?

Section 138 talks about on which grounds the courts take cognizance of offence. It talks about some conditions on which the payers can hold the drawers criminally liable. On the other hand, Section 142 talks about how courts would accept cognizance of offence. It talks about how complaints are to be registered and the time limitations for the payer to hold drawers criminally liable.

What is the nature of the offence under Section 138 of the Act?

The offence under this Section is non-cognizable and bailable. 

References 

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