Clarity on Negotiable Instruments Act: Supreme Court Defines Jurisdiction for Cheque Bounce Cases

Introduction

The Supreme Court of India recently addressed a critical issue concerning territorial jurisdiction for filing complaints related to the dishonor of cheques. The case, Prakash Chimanlal Sheth vs. Jagruti Keyur Rajpopat[1], centered on where an appellant was required to file his complaints after four cheques were dishonored. This ruling provides a definitive resolution to a common jurisdictional ambiguity by clarifying the correct interpretation of the law. The judgment sets aside the erroneous decisions of both the High Court of Karnataka and the lower Magistrate’s court, emphasizing that the location of the payee’s bank account is the determinative factor for jurisdiction.

Background of the Case

The case involved an appellant, Prakash Chimanlal Sheth, and a respondent, Jagruti Keyur Rajpopat. The dispute arose from a loan of ₹38,50,000 given by the appellant to Keyur Lalitbhai Rajpopat, for which the respondent, Jagruti, acted as a guarantor. The respondent also took financial assistance from the appellant. To discharge her husband’s and her own liability, Jagruti issued four cheques in September, 2023.

Prakash Chimanlal Sheth deposited these cheques at the Kotak Mahindra Bank, Opera House Branch, Mumbai. On September 15, 2023, the cheques were dishonored due to insufficient funds. Following this, the appellant filed four complaint cases (C.C. Nos. 1258, 1259, 1260, and 1261 of 2023) under Section 200 of the Cr.P.C. read with Section 138 of the N.I. Act. These complaints were filed before the Judicial Magistrate First Class, Fifth Court, Mangalore.

However, the Magistrate, by an order dated December 12, 2023, returned the complaints, stating that the drawee bank was in Mumbai, and therefore, the Mangalore court lacked territorial jurisdiction. The appellant challenged this decision by filing petitions under Section 482 of the Cr.P.C. with the High Court of Karnataka at Bengaluru. On March 5, 2024, the High Court confirmed the Magistrate’s order and dismissed the appellant’s petitions. This led to the appeals being filed with the Supreme Court.

During the Supreme Court proceedings, it was clarified that while the appellant had presented the cheques at the Mumbai branch, he maintained his bank account at the Kotak Mahindra Bank’s Bendurwell, Mangalore Branch. The High Court had proceeded on the incorrect assumption that the appellant’s bank account was at the Opera House Branch in Mumbai.

Legal Reasoning and Relevant Provisions

The central legal issue in this case was the determination of the correct territorial jurisdiction for filing a complaint under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act). The Supreme Court’s reasoning hinged on the correct interpretation of Section 142(2)(a) of the N.I. Act, a provision specifically introduced to address this kind of jurisdictional confusion.

• Section 142(2)(a) of the N.I. Act: This provision, as amended in 2015, explicitly states that an offense under Section 138 of the N.I. Act shall be “inquired into and tried only by a Court within whose local jurisdiction, if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account is situated”.

The Supreme Court highlighted that this provision clarifies that jurisdiction lies with the court where the payee’s bank branch is located. The Court also referenced its previous decision in Bridgestone India Private Limited vs. Inderpal Singh[2], which affirmed this interpretation.

The appellant had provided a letter from Kotak Mahindra Bank, Bendurwell, Mangalore Branch, certifying that his account (number 0412108431) was maintained there. The respondent’s counsel also fairly stated that the appellant had earlier maintained an account in Mumbai but had since transferred it to the Mangalore branch. Therefore, at the time of the presentation of the cheques, it was undisputed that the appellant’s account was with the Bendurwell, Mangalore Branch. The fact that he deposited the cheques at the Mumbai branch for the purpose of crediting his Mangalore account was not the determining factor for jurisdiction.

Judicial Reasoning

The Supreme Court determined that the High Court and the Magistrate’s reasoning was flawed. The High Court’s decision was based on the erroneous premise that the appellant’s bank account was located at the Opera House Branch of Kotak Mahindra Bank in Mumbai. However, it was established that the appellant’s account was, in fact, maintained at the Bendurwell, Mangalore Branch of the same bank. The appellant had merely deposited the cheques at the Mumbai branch to be credited to his account in Mangalore.

Based on the clear mandate of Section 142(2)(a) of the N.I. Act, the Court concluded that the correct jurisdiction for the complaints was the court in Mangalore, as the appellant maintained his account there at the time the cheques were presented.

Conclusion

The Supreme Court’s decision in this case decisively settles the jurisdictional issue concerning complaints filed under Section 138 of the N.I. Act. The Court set aside the impugned orders of both the High Court of Karnataka and the Judicial Magistrate First Class, Fifth Court, Mangalore, thereby correcting their erroneous understanding of the law. By clarifying that jurisdiction lies with the court where the payee maintains their account, as mandated by Section 142(2)(a) of the N.I. Act, the judgment provides a clear and unambiguous rule.

The Court’s reliance on the plain language of the amended Section 142(2)(a) is commendable, as it provides a straightforward test for determining jurisdiction. The ruling correctly distinguishes between the place where a cheque is physically deposited and the location of the bank branch where the payee’s account is maintained. This distinction is vital in the modern banking era, where cheques can be deposited at any branch of a bank, regardless of the account’s home branch. The decision ensures that complainants are not burdened by jurisdictional technicalities and can seek justice in the court where their financial transactions are anchored.

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[1] CRIMINAL APPEAL NOs. OF 2025 (S.L.P.(Crl.) Nos. 5540-5543 of 2024)

[2]  (2016) 2 SCC 75