Territorial Jurisdiction in Cheque Bounce Cases India

A Comprehensive Analysis of the Evolving Judicial and Legislative Framework under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881

1. Introduction

Section 138 of the Negotiable Instruments Act, 1881 (hereinafter “the NI Act”) criminalises the dishonour of a cheque on the ground of insufficiency of funds or for reasons attributable to the drawer. The provision prescribes a punishment of imprisonment for a term which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both. Since its insertion by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (Act 66 of 1988) with effect from 1 April 1989, this provision has served as a cornerstone for safeguarding the credibility of cheque-based commercial transactions in India.

One of the most extensively litigated and evolving facets of cheque-bounce jurisprudence is the question of territorial jurisdiction — that is, which court possesses the authority to inquire into and try an offence under Section 138. The original statutory framework under Sections 138 to 142 (Chapter XVII of the NI Act) was conspicuously silent on the specific court in which such complaints were to be instituted. This legislative lacuna paved the way for conflicting judicial interpretations by different Benches of the Supreme Court of India over a span of nearly two decades, creating significant uncertainty and procedural hardship for litigants.

This article traces the complete arc of this jurisdictional evolution — from the liberal five-factor test in K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510, through the restrictive drawee-bank standard in Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129, the corrective legislative response via the Negotiable Instruments (Amendment) Act, 2015 (Act 26 of 2015), and finally to the definitive clarification in Jai Balaji Industries Ltd. v. M/s HEG Ltd., (2025) INSC 1362. A chronological timeline table, a comparative analysis of each judicial milestone, and practical takeaways for legal practitioners are included.

2. The Statutory Framework: Chapter XVII of the NI Act

Sections 138 to 142, comprising Chapter XVII (“Of Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Account”), were inserted into the NI Act by Act 66 of 1988 with effect from 1 April 1989. Section 138 provides that where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account is returned by the bank unpaid — either because of the insufficiency of funds or because it exceeds the amount arranged to be paid from that account — such person shall be deemed to have committed an offence.

However, the original legislative framework was conspicuously silent regarding the territorial jurisdiction of the court before which the complaint was to be instituted. This omission left a critical procedural vacuum, which became the subject of extensive judicial exploration. As subsequent analysis demonstrates, different Benches of the Supreme Court, at different points in time, adopted divergent interpretive approaches — resulting in considerable uncertainty that was ultimately resolved only through legislative intervention.

3. Chronological Evolution of Territorial Jurisdiction — At a Glance

The following table provides a snapshot of the key judicial and legislative milestones in the evolution of territorial jurisdiction under Section 138 of the NI Act:

4. The Liberal Approach: K. Bhaskaran v. Sankaran Vaidhyan Balan (1999)

The first significant judicial pronouncement on territorial jurisdiction in cheque bounce cases was delivered by a two-Judge Bench in K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510. The Court observed that the offence under Section 138 is completed only upon the concatenation of the following five acts:

1. Drawing of the cheque;
2. Presentation of the cheque to the bank;

Return of the cheque unpaid by the drawee bank;

1. Giving of notice to the drawer demanding payment; and
2. Failure of the drawer to make payment within 15 days of receipt of the notice.

Relying upon Sections 177 to 179 of the Code of Criminal Procedure, 1973 (CrPC), the Court held that the complainant could institute the complaint in any court having jurisdiction over any local area within the territorial limits of which any one of the aforesaid five acts was done. While this interpretation was liberal and complainant-friendly, it inadvertently opened the door to forum shopping and gave rise to varying judicial interpretations in subsequent cases.

5. Partial Refinement: Harman Electronics (P) Ltd. v. National Panasonic India (P) Ltd.

In Harman Electronics (P) Ltd. v. National Panasonic India (P) Ltd., a two-Judge Bench partially modified the K. Bhaskaran framework by holding that the court within whose limits the statutory notice was issued could not have territorial jurisdiction. The Court correctly reasoned that it is the communication (receipt) of notice that gives rise to a cause of action, not the mere issuance thereof. Under no established principle of law does the place of dispatch of a notice confer jurisdiction — it is the place of receipt that is determinative.

Importantly, this decision only excised one of the five principles from K. Bhaskaran; the remaining four factors continued to be applied. Subsequent decisions — including Nishant Aggarwal v. Kailash Kumar Sharma and Escorts Ltd. v. Rama Mukherjee — followed K. Bhaskaran and upheld jurisdiction at the place where the cheque was presented by the payee through his account.

6. The Restrictive Turn: Dashrath Rupsingh Rathod v. State of Maharashtra (2014)

In a landmark and highly consequential decision, the Supreme Court in Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129, departed from the liberal K. Bhaskaran approach and held that only the court within whose jurisdiction the drawee bank (i.e., the bank of the drawer) is located would have territorial jurisdiction. The Court reasoned that the offence under Section 138 is attracted the moment the cheque is dishonoured by the drawee bank, and therefore, the place of dishonour constitutes the situs of the offence.

The Court drew significant support from the three-Judge Bench decision in Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd., (2001) 3 SCC 609, which held that the word “bank” in Section 138 refers exclusively to the drawee bank, and that the cheque must be presented within the limitation period at such drawee bank. While Ishar Alloy did not directly address territorial jurisdiction, the Dashrath Rupsingh Bench extended its interpretive logic to the jurisdictional question — reasoning that a three-Judge Bench’s interpretation of the statutory term “bank” was binding and must be applied uniformly across all factual scenarios.

6.1 Consequences and Critique

This interpretation led to the return of thousands of pending complaints for refiling before courts having jurisdiction over the drawee bank’s location. This caused enormous procedural hardship, particularly for small traders and businesses who were compelled to travel to distant locations — often in another state — to pursue their rightful claims. The payee was, in effect, penalised for the drawer’s choice of bank.

It is submitted that while Dashrath Rupsingh was partly correct in identifying the moment of dishonour as the point of commission of the offence, it overlooked the critical statutory condition under Section 142(1)(b) of the NI Act, which mandates that no prosecution can be initiated until the cause of action accrues — that is, until the drawer fails to make payment within 15 days of receipt of the statutory notice. The very purpose of the mandatory statutory notice is to afford the drawer an opportunity to cure the default; only upon the failure to do so does the cause of action fully crystallise. Thus, the offence cannot be said to be complete merely upon dishonour of the cheque — it is a composite offence requiring multiple constituent acts.

7. The Legislative Correction: Negotiable Instruments (Amendment) Act, 2015

Recognising the severe practical difficulties created by the Dashrath Rupsingh ruling, the legislature intervened swiftly by enacting the Negotiable Instruments (Amendment) Act, 2015 (Act 26 of 2015). Through this amendment, Section 142(2) was inserted into the NI Act, providing that the offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction the branch of the bank where the payee or holder in due course maintains the account, and where the cheque is delivered for collection, is situated.

Additionally, Section 142-A was inserted to address the transitional complications arising from the change in jurisdictional regime, providing for the validation and transfer of pending cases to courts possessing jurisdiction under the newly inserted Section 142(2). The Statement of Objects and Reasons of the Amendment Act explicitly acknowledged that the insertion was a direct legislative consequence of the Dashrath Rupsingh Rathod judgment.

This amendment marked a paradigm shift towards a payee-centric jurisdictional framework, ensuring that the complainant is not compelled to initiate proceedings at distant locations merely because the drawer chose to maintain an account with a bank situated in a different city or state. The amendment reinforced the fundamental right of access to justice, particularly for small traders and business entities who rely heavily on cheque transactions in day-to-day commerce.

8. First Judicial Endorsement: Bridgestone India Pvt. Ltd. v. Inderpal Singh (2016)

In M/s Bridgestone India Pvt. Ltd. v. Inderpal Singh, (2016) 2 SCC 75, the Supreme Court was among the first to judicially affirm the amended Section 142(2). Referring to the Negotiable Instruments (Amendment) Second Ordinance, 2015, the Court categorically held that the place where a cheque is delivered for collection — i.e., the branch of the bank of the payee or holder in due course where the payee maintains an account — would be determinative of territorial jurisdiction.

The Court observed that the Ordinance contained a non-obstante clause and retrospective language, effectively overriding the Dashrath Rupsingh ruling. This decision confirmed that the 2015 amendment successfully restored the balance between procedural law and commercial practicality, and that the earlier restrictive interpretation would no longer prevent the complainant from filing proceedings in a convenient forum.

9. Subsequent Judicial Developments

9.1 Prakash Chimanlal Sheth v. Jagruti Keyur Rajpopat

The Supreme Court categorically held that jurisdiction under Section 138 read with Section 142(2)(a) is to be determined with reference to the place where the payee maintains his bank account and where the cheque is delivered for collection through such account. Reaffirming Bridgestone, the Court endorsed the statutory position that Section 142(2)(a) vests jurisdiction in the court where the cheque is delivered for collection through the payee’s account.

9.2 Yogesh Upadhyay v. Atlanta Limited

In this case, the Supreme Court considered a plea for transfer of multiple cheque dishonour cases under Section 406 CrPC arising from a single transaction involving six cheques. The Court reaffirmed that under Section 142(2), jurisdiction lies where the cheque is presented for collection. Notably, the Court clarified that the non-obstante clause in Section 142 does not bar the court’s inherent power under Section 406 CrPC to transfer cases in the interest of justice. This is a significant clarification — the amendment fixed jurisdiction but did not extinguish the Supreme Court’s transfer power.

9.3 M/s Shri Sendhur Agro & Oil Industries v. Kotak Mahindra Bank Ltd.

The Supreme Court held that a conjoint reading of Section 142(2)(a) along with its Explanation makes the position emphatically clear: when a cheque is delivered to a person with liberty to present it for collection at any branch of the payee’s bank, the cheque shall be deemed to have been delivered to the branch where the payee maintains the account. The Court upheld the “deemed delivery” fiction, reinforcing that the payee’s home branch is the sole jurisdictional anchor regardless of where the physical deposit was made.

10. The Definitive Clarification: Jai Balaji Industries Ltd. v. M/s HEG Ltd. (2025)

In Jai Balaji Industries Ltd. v. M/s HEG Ltd., (2025) INSC 1362, the Supreme Court delivered the most authoritative and definitive pronouncement on territorial jurisdiction in cheque-bounce cases to date. This decision has conclusively put to rest the long-standing uncertainty that had persisted despite the 2015 amendment and multiple subsequent affirmatory judgments.

Key holdings of the judgment:

1. Payee’s bank branch determines jurisdiction: Territorial jurisdiction lies exclusively with the court within whose local limits the branch of the bank where the payee maintains the account (home branch) is situated.
2. Drawer’s bank location is irrelevant: The place where the drawer maintains the account or issues the cheque plays no role in fixing jurisdiction.
3. Conflicting 2023 decisions overruled: The Court explicitly declared that certain conflicting rulings rendered in 2023, which had deviated from the settled statutory position, were incorrect and stood overruled.
4. Restoration of the 2015 amendment’s purpose: Parliament’s intent was to protect the payee and prevent harassment by forcing complainants to file cases in distant places.
5. Retrospective effect under Section 142-A upheld: The validating provision for transfer of pending cases was reaffirmed, ensuring that no litigant is prejudiced by the change in jurisdictional regime.

11. Significance and Practical Impact

The Jai Balaji judgment is significant for multiple reasons:

• Ensures uniformity across all courts: The ruling establishes a single, unambiguous standard applicable throughout India, eliminating the possibility of divergent interpretations by different High Courts and trial courts.
• Forecloses jurisdiction-related objections: Accused persons frequently raised jurisdictional challenges as dilatory tactics. This definitive ruling shuts the door on such frivolous objections.
• Protects the payee: The complainant is no longer required to travel to distant cities merely because the drawer’s bank is situated elsewhere, thus upholding the fundamental right of access to justice.
• Reduces case delays: Clear jurisdictional rules lead to faster progress in NI Act proceedings, reducing the enormous backlog of cases that had accumulated due to jurisdictional disputes across India.

12. Relevant Provisions Reaffirmed

Section 142(2) of the NI Act provides that the offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction the branch of the bank where the payee or holder in due course maintains the account, and where the cheque is delivered for collection, is situated. The Explanation appended to the sub-section further clarifies that where a cheque is delivered for collection at any branch of the payee’s bank, it shall be deemed to have been delivered to the branch where the payee maintains the account.

Section 142-A of the NI Act gives retrospective effect to the amended jurisdictional provision and validates pending cases, ensuring that complainants who had filed cases before the amendment are not prejudiced by the change in jurisdictional regime. This validating provision was critical to prevent the wholesale dismissal of pending complaints.

13. Practical Takeaways for Legal Practitioners

In light of the settled legal position following the Jai Balaji judgment, the following practical points may be noted by legal practitioners, businesses, and litigants:

1. Always file the complaint at the payee’s home branch location: The complaint under Section 138 must be filed in the court within whose territorial jurisdiction the branch of the bank where the payee maintains the account is situated. Filing at any other location will expose the complaint to a jurisdictional challenge.
2. Physical deposit location does not matter: Even if the cheque was physically deposited at a different branch (e.g., through centralised clearing or a branch in a different city), the complaint must be filed where the payee’s account is maintained.
3. For multiple cheques from the same drawer: Section 142-A read with Section 142(2) enables consolidation of cases. All complaints against the same drawer should be filed in one court — the court having jurisdiction over the payee’s bank branch.
4. Pending cases may be transferred: Under Section 142-A, cases filed before the 2015 amendment at courts that no longer have jurisdiction may be transferred to the appropriate court. Practitioners should move transfer petitions promptly.
5. Drawer’s bank location is wholly irrelevant: Legal practitioners representing accused persons should note that jurisdictional objections based on the location of the drawee bank are no longer tenable after the Jai Balaji judgment.
6. Mention the payee’s bank branch details clearly in the complaint: To pre-empt jurisdictional challenges, the complaint should specifically state the name, address, and location of the branch where the payee maintains the account.

Conclusion

The Supreme Court’s ruling in Jai Balaji Industries Ltd. v. M/s HEG Ltd. has conclusively put to rest the long-standing uncertainty regarding territorial jurisdiction for cheque-bounce cases under Section 138 of the NI Act. With the statutory command of Section 142(2)(a) now authoritatively interpreted, the law is unequivocal: the complaint must be filed in the court within whose territorial limits the branch of the bank where the payee maintains the account is situated.

The journey from K. Bhaskaran (1999) through Dashrath Rupsingh (2014) to the 2015 Amendment and finally Jai Balaji (2025) illustrates the dynamic interplay between judicial interpretation and legislative response in shaping procedural law. The payee-centric jurisdictional framework now in place balances commercial practicality with procedural fairness, ensuring that justice remains accessible to all stakeholders in cheque-based transactions. For legal practitioners, the message is clear: know where your client’s bank account is, and file the complaint there. The era of jurisdictional ambiguity in cheque-bounce cases is definitively over.