Update - IBC Moratoriums, Personal Insolvency, and Cheque Bounce Cases

About a year ago, the blog covered a decision of the Supreme Court [Rakesh Bhanot v. Gurdas Agro, 2025 INSC 445] dealing with the issue of interim moratoriums under the Insolvency and Bankruptcy Code, 2016 [IBC] and prosecutions for offences under the Negotiable Instruments Act, 1881 [NI Act]. It took the view that the decision in Rakesh Bhanot did not sufficiently explain its conclusions, especially in light of existing precedent in the field. At the same time, the post also noted that the concerns animating the decision were, arguably, originating in poor legislative design of the IBC.

Over the past year, it appears that the correctness of the view taken in Rakesh Bhanot has come under a cloud. The most recent doubts were raised when in May 2025 a bench of Three Justices — headed by the Chief Justice — issued notice and granted interim reliefs in a petition which has, at least going by the news article, directly challenged the correctness of Rakesh Bhanot [Karan Bhatia, W.P. (Crl.) 131/2026]. 

There are tons of such fact scenarios playing out causing much grief to (some) litigants. A Three Justices Bench granting an interim relief in the face of the existing judgment, is a decent sign of which way the wind may blow. Additionally, it would be nice if, this time, the issue can also get the clarity that it requires. As the previous post discussed, there are some thorny law and policy issues involved here. It requires careful reading of the Indian Contract Act, the IBC, as well as precedent (such as P. Mohanraj). 

One can only hope that the issue thus gets finally resolved soon, one way or another. That is eminently more desirable than a Vijay Madanlal kind of scenario where the Court is kicking the proverbil can down the road which clogs the docket, as more and more persons move for interim reliefs, and also continues the confusion in courts below.

  

Sanjabij Tari and More Guidelines for Speedy Disposal of Cheque Bounce Cases

Since the criminalisation of defaulting of cheque payments in 1988 by amendment of the Negotiable Instruments Act 1881, the Supreme Court has made many attempts to contain and reduce mounting arrears created by such cases. Much of that good-natured effort, it would seem going by statistics, has proved to be in vain. Nevertheless, the Supreme Court cannot be faulted for not making an effort. This indefatigable spirit is perhaps what animated a Division Bench in Sanjabij Tari v. Kishore S. Borcar & Anr. [2025 INSC 1158 (“Sanjabij Tari”)] to pass a fresh series of guidelines / directives, to curb arrears in cheque bounce cases.

Getting the Right Pendency Data

There can be no doubting the general observation that there is a deluge of cheque bounce cases in the system. The Court gives a sense of perspective to this by citing data from the National Judicial Data Grid (NJDG) to state that the figures for Delhi alone are 6.5 Lakh cases as of 01.09.2025 (Para 33).

The tenor of the judgment suggests that it is this sky-high pendency figure which has prompted the Court into giving directions. This shows us the importance of having data at hand. Unfortunately, it also shows us the difficulty in getting the “right” data which we face in India. One would think that using NJDG is as good as it can get to make a statement about caseloads. But as Prashant Reddy and Chitrakshi Jain explain in Tareekh Pe Justice, NJDG cannot be seen as that gold-standard. The website itself accepts this, and carries a disclaimer on the figures being given and requires visitors to cross check the correctness of the information.

The ordinary citizen access for NJDG does not seem to allow searching for statute-specific data and perhaps this is a unique feature that is available to those with special access, so we do not know exactly what the Court saw (it would be nice for everyone to have this access!). It is safe to assume, though, that this data was also not wholly accurate, given how the NJDG data presentation leads to double counting. In its gross figures, the NJDG often adds smaller miscellaneous applications filed within cases, besides the cases themselves, leading to an inflation of the total figures.

Given that pendency is anyway quite high in cheque bounce cases, overestimation here perhaps does not cause huge problems. There may be other situations though where uncritical reliance on NJDG data by a Bench does cause serious trouble. One hopes that day does not come to pass.

What to make of the Guidelines?

Having got the data part out of the way, we can turn our attention to the guidelines / directions itself that are issued in Paragraph 36 of Sanjabij Tari. A part of this is the Court restating / tweaking earlier directives, perhaps with a hope that their enforcement with some renewed vigour will lead to better results. The old is complemented by the new, where emphasis appears to be on pushing the system to (1) secure swift appearance of accused parties and, linked to this, (2) encourage settlements once they have appeared. Within these, I only want to deal with one part viz. the Court’s move to remove application of Section 223 of the Bharatiya Nagarik Suraksha Sanhita 2023 ['BNSS'] from these proceedings [Guideline E].

Section 223 BNSS is a new clause (unlike a lot of the statute) by which a court is now required to give the accused an opportunity to be heard before the court takes cognizance of an offence. The Court has approved the view taken by a Karnataka High Court judgment without adding any explanation. This view is that the Section 223 pre-cognizance notice part will not apply to cheque bounce cases since (i) these case are prosecuted under a special law (Negotiable Instruments Act 1881) and (ii) the offence is quasi-criminal where speed in the trial is key.

It is unfortunate that the Court has dealt with a legal issue in such a summary fashion, because on closer scrutiny neither of these reasons hold water. A special criminal law must prescribe a different method of proceeding for it to override the general procedural law in the BNSS, and there is nothing within Section 142 of the Negotiable Instruments Act 1881 which overrides Section 223 BNSS. This is why the Supreme Court itself has extended Section 223 BNSS to other special criminal laws, such as the Prevention of Money Laundering Act 2002.

Which naturally brings up the other point — you need this pre-cognizance hearing for serious crimes like money laundering, but not ‘quasi-crimes’ like cheque bouncing. The nature of the cheque bouncing crime is an issue which came up in another context recently on the blog — the right of a victim to file an appeal in such cases. While on the hand courts see the cheque bounce crime as 'quasi-criminal', a bench of the Supreme Court in Celestium Financial emphasised on the very clearly 'criminal' nature of this offence to hold that the complainant in such cases was at par with victims in other, traditional, offences. Interestingly, Sanjabij Tari neither cites nor refers to Celestium Financial. 

One may disagree with the approach in Celestium Financial and want to support the view that a cheque bounce case is really 'civil sheep in wolf's clothing'. Unfortunately though, this view is just not supported by law. There is no legally defined category of 'quasi-crime' in Indian law and when the legislature decides to deal with offending conduct by means other than criminal proceedings, it has prescribed punishments other than jail time. No matter how innocuous we make cheque bounce cases appear by likening them to civil disputes, it does not change the reality that a conviction for this offence can result in imprisonment and loss of liberty — the core component of proper crime. 

Conclusion

There is no disputing the fact that cheque bounce cases contribute hugely to arrears within the legal system, making it a natural target for attention by the Supreme Court. Prior to Sanjabij Tari, multiple attempts have been made by issuing directives and guidelines but without lasting or measurable success, and whether this most recent round of efforts will meet a different fate is something only time can tell. 

At the same time though, if we look deeper, perhaps there is a different lesson to be learnt here, especially with the repeated reference by the Supreme Court to the idea that cheque bounce are not real crimes but 'quasi-criminal' in nature. Why not actually take that step and conjure a set of remedies that deliver on this premise by changing the infraction in question from being a crime with possible jail time to something which can be dealt with outside of the proper legal system by means of penalties and other, non-penal, sanctions. The judiciary cannot take that step, as much as it may want to. 

It is soon going to be four decades since Parliament decided to experiment with levying penal sanctions for dishonour of cheques. The experience of these past four decades suggest that whatever benefits the move has brought to financial transactions, it is significantly outweighed by the harm that it has caused to the integrity and stability of the judicial system. Maybe it is time to call it a day on the offence of cheque bouncing altogether? 

IBC Interim Moratoriums and Cheque Bounce Cases

On 01.04.2025, the Supreme Court rendered its judgment in a batch of cases [decision reported as Rakesh Bhanot v. M/s Gurdas Agro Pvt. Ltd., 2025 INSC 445 ("Rakesh Bhanot")]. The common issue across the cases concerned the interplay between cheque bounce cases under the Negotiable Instruments Act 1881 [NI Act] and the Insolvency and Bankruptcy Code 2016 [IBC] provisions on moratoriums pending the resolution of the insolvency process for persons and firms. 

The problems begin with how the issue is framed at paragraph 4 of the judgment: 

"The common legal question that arises for consideration herein is, whether the proceedings initiated against the appellants / petitioners under Section 138 read with Section 141 of the N.I. Act, 1881 should be stayed in view of the interim moratorium under Section 96 IBC having come into effect upon the appellants / petitioners' filing applications under Section 94 IBC. In view of the commonality of issues involved in all the cases, we need not necessarily review the facts of each case individually"

If we read this paragraph without an inkling of the facts, it is reasonable to think that Rakesh Bhanot dealt with general applicability of the moratoriums for persons and firms under Sections 96 / 101 IBC to proceedings for cheque bounce cases. This impression, however, is entirely wrong. Rakesh Bhanot was dealing with a specific and niche issue that the petitions presented. It was not at all a question of deciding the general applicability of the IBC moratorium clauses for personal insolvency to cheque bounce cases. Rather, I would frame the issue as follows:

Company X is arraigned in a cheque bounce case under Section 138 NI Act, and Y is arraigned in his capacity as its director. Company X moves insolvency proceedings for corporate debtors under IBC, and separately, Director Y moves personal insolvency proceedings in his capacity as a personal guarantor of the company. Can Director Y use the interim moratorium triggered by his filing an application of personal insolvency, to stall proceedings of the cheque bounce case filed against Company X and him?

This issue is an offshoot of the Supreme Court's earlier decision in P. Mohanraj [(2021) 6 SCC 258 (Three Justices' Bench)] where it had to decide whether a cheque bounce filed against a company would be hit by the IBC moratorium provisions. P. Mohanraj held that the moratorium provisions for corporations covered cheque bounce cases. The key element of the Court's reasoning was that a cheque bounce case is, essentially, a proceeding for recovering debts owed to a person. Even though it may potentially involve a jail sentence, cheque bounce cases could be seen as 'quasi-criminal' at best. 

Crucially, though, the Court specifically held that the moratorium would not apply to the persons arrayed in their capacity as directors / officers of the corporate debtor itself. In other words, while proceedings in cheque bounce cases against a company undergoing insolvency would be halted against the company during the insolvency process, they could continue against its directors. The findings on this aspect in P. Mohanraj are, unreasoned, to say the least. Nevertheless, they have not been challenged. Instead, it would seem that litigants across the country devised a new approach to try and use IBC moratorium clauses to stall cheque bounce cases in which they were arraigned as directors of companies. 

This approach was to file for personal insolvency under Section 96 IBC which has a separate moratorium process. A look at the clause makes it clear that this route could not be availed so simply. Section 96 IBC halts any pending proceedings in respect of a debt of the person filing for insolvency. In a cheque bounce case against the company, the 'debt' would be that of the company which issued the cheque, and not the director. The liability of the director is purely vicarious, flowing from his position in the company as an officer responsible for the company's affairs. 

This is where the guarantor arrangement is relevant. Section 126 and Section 128 of the Indian Contract Act 1872 when read together explain that the liability of a surety (the person giving the guarantee) is coextensive with that of the principal debtor (here, the company). So in situations where a director stands as a guarantor for debts of the company that the company pays by way of a cheque which is dishonoured, one cannot separate the debt in respect of which a cheque is issued as being that of the company alone, and it must be seen as also being a debt of the director who stands as guarantor in the contract. If the debt is equally that of the guarantor, then it would bring us back within the fold of Section 96 IBC, and the moratorium would have to apply.

How has Rakesh Bhanot resolved the issue? Deeply unsatisfactorily, to say the least. The Court notes at Paragraph 10.1 that the moratorium under Section 14 IBC for corporate debtors "is not available to the surety or in other words, to a personal guarantor" but that is merely stating the obvious since none of the pleas invoked Section 14 to begin with but invoked Section 96 IBC to make their case. On that score, the Court notes in the same paragraph that "[T]he use of the words 'all the debts' and 'in respect of any debt' in sub-section (1) of Section 96 is not without a purpose, as the moratorium is intended to offer protection only against civil claim to recover the debt. Hence, such period of moratorium prescribed under Section 14 or Section 96 is restricted in its applicability only to protection against civil claims which are directed towards recovery and not from criminal action." Through Paragraphs 10 to 13 the Court hammers down this nail of its reasoning, emphasising that a cheque bounce case is not a civil claim for debt recovery but a criminal case, and notes the deterrent effect of this criminal case in Paragraph 17 to hold that a person should not be allowed to evade liability by using IBC moratorium clauses. 

In other words, rather than explain to us whether the debt in question could be that of the surety to extend Section 96 IBC to cheque bounce cases against the director, or offer any argument of public policy that militates against extension of Section 96 IBC, what the Court in Rakesh Bhanot has held is that Section 96 IBC cannot be applied to cheque bounce cases at all. This finding is directly contrary to the judgment of a larger strength in P. Mohanraj which held that moratoriums under both Section 14 and Section 96 IBC would extend to cheque bounce cases because they were "'civil sheep' in a 'criminal wolf's' clothing". In fact, P. Mohanraj observed that the language of Section 96 IBC covered cheque bounce cases against persons / firms, and its used this as the starting point for its conclusions that the Section 14 IBC moratorium for companies also covers cheque bounce cases. 

None of these observations in P. Mohanraj are dealt with or mentioned by the bench in Rakesh Bhanot through paragraphs 10-13. The 2021 decision is only referred to is in paragraph 14 by citing the extract from P. Mohanraj that denies extension of Section 14 IBC moratorium to the directors of a company in cheque bounce cases, which has been followed by subsequent cases. Again, extending Section 14 IBC to directors was not the issue. It was only the starting point for understanding the issue, which concerned the impact of the coextensive nature of debts under guarantee contracts on the moratorium provisions of the IBC. This issue has not been touched, let alone discussed, in Rakesh Bhanot.

Given how difficult it is to seek a review of a verdict, one wonders whether this spells the end for what is an interesting legal issue that could benefit explanations through a reasoned judgment. Even so, this entire branch of litigation appears to be the result of loopholes in the IBC regime on moratoriums in personal insolvency cases. Section 96 IBC triggers an 'interim moratorium' upon the filing of an insolvency plea, and this interim moratorium remains in force till the application is 'admitted' by the authority. Compare Section 96 IBC and its 'interim moratorium' with the actual 'moratorium' governed by Section 101 IBC post admission of the plea, and you can see the loophole. Where Section 101 limits a moratorium to 180 days after the application is admitted, there is no time limit to how long interim moratoriums can subsist, because there is no time limit to how long it can take for the application to be 'admitted'. Since the interim moratorium remains in force till the application is admitted, enterprising litigants will naturally try and delay things at this stage itself. This is a problem with Section 96 / 101 IBC which the legislature really ought to address, which might clean up a lot of issues in pending litigations.

The Supreme Court and Delays in Cheque Bouncing Cases

This April, a Constitution Bench of the Indian Supreme Court took up the issue of delays in cheque bouncing cases — i.e., complaints instituted under Section 138 of the Negotiable Instruments Act 1881 — and passed some important directions on how such cases should be run [Order dated 16.04.2021 in Suo Motu Writ Petition (Crl.) 2 of 2020]. It has also constituted a Committee to look at issues beyond these criminal procedure aspects which will take time in formulating its recommendations. On June 21, the Delhi High Court has taken the lead and made efforts (as recommended by the Supreme Court itself) to help secure implementation of the Supreme Court's order by issuing "Practice Directions". 

Given that judges, especially at the Supreme Court, have to budget the very limited time available to them and pick what they think are serious issues, it is great that the issue of delays in cheque bouncing cases caught their attention to this extent. At the same time, I remain extremely skeptical of the directions itself that the Supreme Court has proposed. I've extracted the directions below for completeness: 

1) The High Courts are requested to issue practice directions to the Magistrates to record reasons before converting trial of complaints under Section 138 of the Act from summary trial to summons trial.

2) Inquiry shall be conducted on receipt of complaints under Section 138 of the Act to arrive at sufficient grounds to proceed against the accused, when such accused resides beyond the territorial jurisdiction of the court.

3) For the conduct of inquiry under Section 202 of the Code, evidence of witnesses on behalf of the complainant shall be permitted to be taken on affidavit. In suitable cases, the Magistrate can restrict the inquiry to examination of documents without insisting for examination of witnesses.

4) We recommend that suitable amendments be made to the Act for provision of one trial against a person for multiple offences under Section 138 of the Act committed within a period of 12 months, notwithstanding the restriction in Section 219 of the Code.

5) The High Courts are requested to issue practice directions to the Trial Courts to treat service of summons in one complaint under Section 138 forming part of a transaction, as deemed service in respect of all the complaints filed before the same court relating to dishonour of cheques issued as part of the said transaction.

6) Judgments of this Court in Adalat Prasad (supra) and Subramanium Sethuraman (supra) have interpreted the law correctly and we reiterate that there is no inherent power of Trial Courts to review or recall the issue of summons. This does not affect the power of the Trial Court under Section 322 of the Code to revisit the order of issue of process in case it is brought to the court’s notice that it lacks jurisdiction to try the complaint.

7) Section 258 of the Code is not applicable to complaints under Section 138 of the Act and findings to the contrary in Meters and Instruments (supra) do not lay down correct law. To conclusively deal with this aspect, amendment to the Act empowering the Trial Courts to reconsider/recall summons in respect of complaints under Section 138 shall be considered by the Committee constituted by an order of this Court dated 10.03.2021.

8) All other points, which have been raised by the Amici Curiae in their preliminary report and written submissions and not considered herein, shall be the subject matter of deliberation by the aforementioned Committee. Any other issue relating to expeditious disposal of complaints under Section 138 of the Act shall also be considered by the Committee.

The Court concluded that these directions would help speed up disposal of cheque bouncing cases — only time will tell if that will be the case. What I am perturbed by is how the Court seems to have paid insufficient attention to detail while arriving at these conclusions, and failed to fully think through the kinds of unintended consequences which may ensue due to the proposed interventions in the process.

• Insufficient Data: The Constitution Bench order refers to the absolute number of pending cases (at around 35 Lakh), to remind us about how serious the problem is. But it is unclear whether there was any attempt to probe deeper behind the numbers. At another point in the order, some specific aspects  of the trial process are flagged as contributing to delays, such as the stage of issuing summons. But, these numbers don't tell us anything if we don't ask why are delays happening — is it because there are accused persons evading summons, or because courts are taking too long, or because accused persons choose to challenge the issuance of summons in the High Court which causes the trial to be stuck? All of these are different problems and require different solutions. This is just one example to show the kind of in-depth analysis that was needed to try and tailor solutions for this problem of delays in cheque bouncing cases — and it seems to be wholly absent from the order. It is not that what I am suggesting here is unthinkable; in fact, just recently a pilot study for identifying delays was commissioned by the Delhi High Court where this kind of a granular approach was adopted. The Supreme Court could have also taken the help of experts in the field — organisations such as Daksh have done wonderfully informative work on delays — but instead adopting something close to armchair problem-solving. 
• Unintended Consequences: Armchair problem-solving led the Court to propose three broad changes to how the existing system works to help reduce delays — directions (1) and (5). I fear that all of these directions might prove counterproductive and increase delays rather than curb them. First, we have the summary trial being converted to summons trial issue. Magistrates are now required to be more strict in converting cheque bouncing cases to summons trial cases, the thought being that more summary trials will obviously speed up disposal — great right? Maybe not. What this creates is yet another significant stage in the criminal process, which will be contested with arguments on both sides, and whichever side looses might well challenge the order before appellate courts which will only contribute to more delays. The same objection applies to Direction (5) which now allows for "deemed service" of summons where complaints are in respect of the same transaction — a court will need convincing of it being the same trial, which will take time, and accused persons will go and challenge that order issuing summons, as they already do. On top of which, I fear that this kind of "deemed service" might well be contrary to law — the Supreme Court has supplanted a judicial determination which occurs at the stage of charge to a prior stage. The key difference between these two is that while at that later stage the accused is present in court to contest the joinder of cases, at the stage of issuing summons we are asking the court to make that determination without giving the accused a right to be heard. 
• The Inherent Powers Issue: For the number of cheque bouncing trials that are pending, there are a fairly high number of 482 petitions / revision petitions pending before appellate courts where orders issuing summons are challenged — and often are successfully set aside. This is because it is quite common for totally unrelated persons to be summoned in such cases especially when companies are involved — complainants aren't expected to know internal management affairs, and usually arraign all known management personnel, some of whom may have had nothing to do with the cheque. In many of these cases, it is possible to prevent the irrelevant persons being summoned by asking the magistrates to be more careful. But in others, it is simply impossible to secure this outcome without letting the accused bring forth the relevant facts. Since the Supreme Court evidently agrees that the trial process can witness unbelievable delays and cause great hardship to parties, one would think that it would try and sponsor solutions which help curtail that process where possible. Instead, what the Court has done by Directions (6) and (7) is exactly the opposite — render it impossible for magistrates to try and do justice by curbing frivolous prosecutions. The Court could have looked at Section 251 and located therein a power to help magistrates achieve this objective [this issue has been discussed at length on the Blog] and create an environment which would have had beneficial consequences for all summons cases, going beyond the cheque bouncing offence alone. Instead, it chose to double-down on the logic which says magistrates cannot stop summons cases instituted on a complaint at any stage prior to judgment once an accused has been summoned. Not only does this worsen delays for trial courts, but also contributes to more 482 petitions in High Courts, which is where the aggrieved accused persons are likely to go seek reliefs.

Again, it might be that the Committee constituted by the Supreme Court suggests that the directions issued by the Constitution Bench might be reconsidered. It might also be that the directions end up dramatically reducing pendency for cheque bouncing cases and make this post look foolish. Even if that happens, I still think that the process of armchair problem-solving adopted by the Supreme Court in this instance is bound to create more problems than solutions, especially if the exercise is the product of a Constitution Bench.    

Guest Post: A Critical Analysis of GJ Raja v. Tejraj Surana and 143A of the Negotiable Instruments Act

(This is a guest post by Kratika Indurkhya) 

Background

In an era where credit transactions are not only convenient but also the need of the hour, the Supreme Court has given a judgment detrimental to the interests of lending institutions. In July 2019, the Supreme Court gave a decision in G.J. Raja v. Tejraj Surana [2019 SCC OnLine SC 989] holding that Section 143A of the Negotiable Instruments (Amendment) Act, 2018 [‘Amendment Act, 2018’] is only prospectively applicable. The case was lodged in the year 2016 and the Amendment Act came into force on 1st September, 2018. This judgment has not been in vogue, albeit decided recently by the Supreme Court after a lot of skepticism and divergent views of different High Courts of the country on this issue. Section 148 and Section 143A, the only sections of the Amendment Act, 2018 have been dealt quite differently, hence creating an imbroglio situation. Whereas the High Court of Allahabad [Application u/s 482 No. 11055 of 2019, Date of Decision -11.04.2019] held that Section 143A would have a retrospective effect, the High Courts of Punjab & Haryana [2019 SCC OnLine P&H 747], Madras [2019 SCC OnLine Mad 4091] and Bombay [2019 SCC OnLine Bom 436] were at consensus and held that although Section 148A is retrospective, Section 143A will be prospective. It was the Madras High Court judgment which was taken in appeal to the Apex Court, challenging the prospective application of the section. 

Statutory Context and the SC Decision

The case made an attempt to differentiate itself from Surinder Singh Deswal v. Virender Gandhi [(2019) 11 SCC 341], which dealt with the same question about retrospective effect with respect to Section 148 of the Amendment Act, 2018. Section 148 states that ‘in an appeal by the drawer against conviction under section 138, the Appellate Court may order the appellant to deposit such sum which shall be a minimum of twenty per cent of the fine or compensation awarded by the Trial Court’. 

Prior to the 2018 amendment, the imposition and consequential recovery of fine or compensation either through the modality of Section 421 or Section 357 of CrPC could arise only after the person was found guilty of an offence. This position of law was sought to be changed by introducing Section 143A. Section 143A states that ‘if the Trial Court is trying an offence under Section 138 of the Negotiable Instrument Act, 1881, interim compensation, not exceeding 20% of the cheque amount may be given’. Further, the interim compensation can be recovered by mode of recovery mentioned under Sections 421 or 357 of Code of Criminal Procedure, 1973 [‘CrPC’]. 

The Supreme Court in the case at hand held that since fine and compensation under Section 421 and Section 357 of the CrPC 1973, respectively, are for post-conviction, and the compensation in the present case is interim compensation, they create a new obligation and hence would be prospective. Precisely, the Supreme Court decided that since Section 143A not only changes the procedure but also creates new rights and liabilities, it shall be construed to be prospective in operation. While differentiating from Section 148 of the Amendment Act, 2018 it held that since Section 148 was to be applied post-conviction, it "depends upon the existing machinery and principles already in existence and does not create any fresh disability of the nature similar to that created by Section 143A of the Act."

Analysis

The Supreme Court has held that since under Section 148 a convict goes to appeal and is not merely an accused, Section 421 and 357 of CrPC 1973, i.e., the existing legal machinery is enough and no new liability would be created. Further, it held that since Section 143A is for the trial stage, there is no applicability of Section 421 and 357 and hence the said section exposes the accused to a new obligation. 

In my opinion, there are two major problems with this differentiation which requires us to revisit the CrPC. Under the head of ‘warrant of levy of fine’, Section 421 states that "the Court passing the sentence may take action for the recovery of the fine …" [emphasis supplied]. This means that the section is limited to the Court passing the sentence and does not apply to the Appellate Court. The same reason flows for Section 357 which states that "When a Court imposes a sentence of fine or a sentence … the Court may, when passing judgment" [emphasis supplied]. Hence it is incorrect to consider Sections 421 and 357 as being applicable at the appellate level. 

Further, the only reason given for the retrospective application of amended Section 148 was a purposive interpretation of the clause. Towards this, the Statement of Objects and Reasons was read within the section, which says: 

"[B]ecause of delay tactics of unscrupulous drawers of dishonoured cheques... compromise the sanctity of cheque transactions. With a view to address the issue of undue delay in final resolution of cheque dishonour cases so as to provide relief to payees of dishonoured cheques and to discourage frivolous and unnecessary litigation which would save time and money." 

As relied upon in case at hand, in Vatika Township Pvt Ltd [2014 SCC OnLine SC 712], it was held that “of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation.” Since the reason for holding Section 143A prospective was that it creates a substantive and not a purely procedural right, the Court ought to have at least considered the Objects and Reasons which confirms that the legislative intent was to render Section 143A retrospectively applicable.

Lastly, in overlooking and blurring of the differentiation between civil and criminal remedies is where I argue that the Court has gravely erred. It is undoubted that Section 138 states the offence for which the punishment is given in Section 142 of the Negotiable Instrument Act, 1881, but the point to be considered here is that Section 143A (which again is for offences committed given under Section 138) provides for a civil remedy. On this issue, the Supreme Court in R. Vijayan v. Baby and Anr [(2012) 1 SCC 260 ] observed that :

“Though a complaint under section 138 of the Act is in regard to criminal liability for the offence of dishonouring the cheque and not for the recovery of the cheque amount, (which strictly speaking, has to be enforced by a civil suit), in practice once the criminal complaint is lodged under section 138 of the Act….It provides a single forum and single proceeding, for enforcement of criminal liability (for dishonouring the cheque) and for enforcement of the civil liability (for realization of the cheque amount) thereby obviating the need for the creditor to move two different fora for relief.”

This excerpt clears that the obligation is of civil nature and not criminal as the interim compensation, which is deducted from the final cheque amount to be recovered which is a civil obligation. 

But why does this distinction between civil and criminal matter here? It is because Article 20(1) of the Indian Constitution only prohibits the retrospective imposition of criminal liability and not civil. In my opinion, interim compensation is a civil remedy as it is neither an ‘offence’ nor a ‘penalty’ which is a prerequisite to fall under the criminal legal system and to be barred from retrospective application. 

The expression ‘offence’ is not defined anywhere in the Constitution. Article 367 of the Constitution says that unless the context otherwise provides for words which are not defined in the Constitution, the meaning assigned in the General Clauses Act, 1897 may be given. Under Section 3 (38) of the General Clauses Act, the term means "an act or omission punishable any law for the time being in force." Further, when a statute imposes a civil obligation, the failure to discharge it is not an offence unless the statute expressly makes it so. Hence, in Hathising Mfg Co. v. Union of India [(1960) 3 SCR 528] it was held that the insertion of Sec. 25FFF(1) in the Industrial Disputes Act, 1947, with retrospective effect, does not constitute a violation of Article 20(1) because the failure to pay the compensation required to be paid by the section is not made an offence though the money may be recovered by a coercive process, and the person may be imprisoned for failure to pay, under the revenue law for coercive recovery of the amount. Even Section 143A of the Amendment Act, 2018 does not make the failure to pay this interim compensation an offence. Moreover, its clause (5) is restricted to equating the modality of recovery of compensation with that of fine and does not intend to replace the civil remedy with criminal. Further, ‘fine’ means ‘to sentence a person convicted of an offence to pay a penalty in money’, and hence cannot be equated with interim compensation as the latter is awarded during the pendency of the proceedings and not when one is convicted.

It must also be noted that in Depot Manager, A.P.S.R.T.Corpn v. Mohd. Yusuf Miya [AIR 1997 SC 2232] it was held that, “offence generally implies infringement of public duty, as distinguished from mere private rights.” Even though dishonour of cheque is a criminal liability (public wrong), interim compensation is a percentage of the cheque amount to be recovered which is strictly a private right. 

Article 20(1) avails only against punishment for an act which is treated as an offence, which when done is not an offence. As per the case of Jawala Ram v. State of Pepsu [AIR 1962 SC 1246], unless there is a law forbidding the doing or the omission to do something, no question of ‘punishment’ comes. Hence in this case, although the mode of recovery is ‘coercive’, non-payment of the interim compensation is still not an offence and being a civil remedy, can be retrospective. Hence, the first condition of interim compensation being an offence is not attracted. 

Although there is no argument of greater amount being imposed post the Amendment Act, 2018, the author would like to clarify that interim compensation does not fall under the definition of ‘penalty’ as required in the second part of Article 20(1). In Sova Ray v. Gostha Gopal Dey [(1988) 2 SCC 134], the expression ‘penalty’ was held to mean ‘an elastic term with many different shades of meaning but it always involves an idea of punishment.’ Further, in Shiv Dutt Rai Fateh Chand [(1983) 3 SCC 529], the Apex Court held that this expression is used in the narrow sense as meaning a payment which has to be made or a deprivation of liberty which has to be suffered as a consequence of a finding that the person accused of a crime is guilty of the charge. Since interim compensation does not involve the idea of ‘punishment’ as it is awarded during the pendency of the proceedings, it does not fall under this definition. Hence, the latter part of Article 20(1) is not attracted as well. Even if there was any enhancement of the amount, in Mukandi Ram v. Executive Engineer [1956 SCC OnLine Pepsu 3], it was held that since the levy of an enhanced rate for unauthorised use of water created only a civil liability, a criminal prosecution for such unauthorised use is not barred under Article 20(1). 

In conclusion, missing this question and the differentiation between criminal and civil remedies has led to an erroneous judgment by the Supreme Court and a grave injustice to creditors. Additionally, this judgment, while realising that Section 143A is a procedural law affecting the substantive rights of an individual, completely ignored the intention of the legislature and thus failed to spot that the true purpose was to save creditors and lending institutions from pending litigation as part of unscrupulous activities of debtors. Rather than a judgment which protects the lending institution and others, we have a judgment which does not help status quo. 

More Confusion on Section 138?

The Government chose not to renew the Land Ordinance after the constitutional limit lapsed. The Constitutional limit spoken about is found in Article 123(2), specifying that an ordinance remains valid only for 6 weeks after the "reassembly" of the legislature. In the case of the Land Ordinance, the ordinance was passed before the Monsoon Session. Parliament "reassembled" on 21.07.2015 for the session, and six weeks lapsed on 31.08.2015. 

What went under the radar was another ordinance having the same time limit - the Negotiable Instruments (Amendment) Ordinance 2015 [available here]. Parliamentary Affairs Minister Mr. Naidu admitted that both the Land Ordinance and the Negotiable Instruments Ordinance would lapse on 31.08.2015. The Government has not re-promulgated either of the two. Now, the fallout of the failure to re-promulgate the Land Ordinance has been widely reported, but what about the Negotiable Instruments Ordinance? The Ordinance brought a pivotal change in the law on jurisdiction, which had been dramatically altered by the Supreme Court through its decision in Dasrath Rupsingh Rathod. This ever-changing position of law has been the subject of previous posts on this blog, accessible here, and here.

The most recent development on the Negotiable Instruments Jurisdiction Merry-Go-Round [for it is nothing less than a circus] is brilliant. What are its ramifications? Now that the Ordinance lapsed, we don't have the amended section 142 on the statute books. Which means Dasrath and the position of jurisdiction it offered becomes good law again. Which means that, again, there must be a transfer of all those cases that are currently pending before courts and have not yet reached the stage of cross-examination under Section 145(2) on the lines of jurisdiction as laid down by the three judges in Dasrath.

How's that for confusion.

Bidding Adieu to Dashrath Rupsingh Rathod?

If you haven't had a chance to read the news, the Lok Sabha passed the Negotiable Instruments (Amendment) Bill, 2015 yesterday, which is available here. Notably, it inserts Section 142-A to the statute, and inserts a new sub-clause to the existing Section 142 [sub-clause (2)]. The latter stipulates:

"(2) The offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment, is situated"

So now, the only place where we can file complaints under Section 138 is the court where the cheque is presented for payment. The operation of this jurisdictional rule is affected/implemented by the new section 142-A, which reads:

"(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 or any other judgment, decree, order or directions of any court, all cases arising out of section 138 which were pending in any court, whether filed before it, or transferred to it, before the commencement of the Negotiable Instruments (Amendment) Act, 2015, shall be transferred to the court having jurisdiction under sub-section (2) of section 142 as if that sub-section had been in force at all material times.

(2) Notwithstanding anything contained in sub-section (2) of section 142 of sub-section (1), where the payee or the holder in due course, as the case may be, has filed a complaint against the drawer of a cheque in the court having jurisdiction under sub-section (2) of section 142 or the case has been transferred to that court under sub-section (1), all subsequent complaints arising out of section 138 against the same drawer shall be filed before the same court irrespective of whether those cheques were presented for payment within the territorial jurisdiction of that court.

(3) If, on the date of commencement of the Negotiable Instruments (Amendment) Act, 2015, more than one prosecution filed by the same person against the same drawer of cheques is pending before different courts, upon the said fact having been brought to the notice of the court, such court shall transfer the case to the court having jurisdiction under sub-section 142(2) before which the first case was filed as if that sub-section had been in force at all material times."

The Statement of Objects & Reasons [SoR] appended to the Bill makes it pretty clear that the amendments are directed towards nullifying the effect of the three judge bench decision in Dashrath Rupsingh Rathod v. State of Maharashtra [(2014) 9 SCC 129]. It restricted the jurisdiction for filing of complaints under Section 138 to only those courts within whose jurisdiction the cheque was drawn, and did so with retrospective effect. I've discussed Dashrath and its problematic retrospective application in some detail before. The SoR reveals that the amendment is spurred by representations received by the Government from various stakeholders (read banks) that the decision affords undue protection to defaulters. More important reasons seem to have been the failure of the decision to consider (i) the uniqueness of "at-par" payable cheques, (ii) the electronic clearance of cheques which is devoid of territorial-links, and (iii) the potential for multiple litigation between same parties at different locations.

These concerns raised with the decision were quite pertinent and the amendment is welcome, in most parts at least because I have my reservations about the ease with which the amendment allows for transferring matters (not because of the supposed harm to the common man which follows). What I fail to understand though is the fetish both Judiciary and Legislature seem to have with making changes retrospective. Through the new Section 142-A these jurisdictional tweaks are made retrospective in their operation. On a plain reading it suggests that all cases pending before any other court shall be transferred to the court of proper jurisdiction as now defined by Section 142(2). 

The possibility of the retrospective operation being unconstitutional was being discussed with friends yesterday, where my initial gusto legally supporting a challenge was dampened by the clearly correct position of Legislature being supreme. The only limits to retrospective operation are found in Article 20(1) of the Constitution, prohibiting the retrospective imposition of liability. This is indisputable. A challenge can certainly be mounted to the vagueness in Section 142-A regarding the stage at which a complaint must be for a transfer to happen. Surely the Legislature does not envisage every pending case to be scrutinized. Or does it? Cue: several more months of confusion about the jurisdiction of courts to entertain complaints under Section 138.

Thanks to Chetna Kumar for pointing out important errors in the previous version of this post

Delhi High Court on Section 138 and Dashrath Rupsingh

Section 138 of the Negotiable Instruments Act, 1881 [NI Act] remains primarily responsible for clogging the dockets of most courts. The ease of prosecution had also transformed it into a weapon for abuse and misuse by errant litigants, so thought the Supreme Court while passing the important decision of Dashrath Rupsingh Rathod v. State of Maharashtra [(2014) 9 SCC 129]. The decision has been already discussed on this blog, and I remarked on how the follow up will be interesting. 

One issue among several left open in Dashrath is how do we interpret the requirement that cases shall not be transferred if they have reached the stage of Section 145(2) of the Act. The relevant extract from the decision reads as follows:

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. To clarify, regardless of whether evidence has been led before the Magistrate at the pre-summoning stage, either by affidavit or by oral statement, the Complaint will be maintainable only at the place where the cheque stands dishonoured. To obviate and eradicate any legal complications, the category of Complaint cases where proceedings have gone to the stage of Section 145(2) or beyond shall be deemed to have been transferred by us from the Court ordinarily possessing territorial jurisdiction, as now clarified, to the Court where it is presently pending.

Pendulum Swinging in the High Court

I have been following the decisions from the High Courts of Bombay and Delhi in the aftermath of Dashrath on this point, and the Delhi High Court has provided interesting material for study. Two material decisions are discussed below:

1. New Delhi Tele Tech v. Cisco Systems Capital (India) Pvt Ltd [Crl. M.C. 4690/2014, decided on 12.01.2015, Vaish J.]

This matter was part of a series of cases, with the same Bench passing another order in separate but connected cases on 13.01.2015. Here, an application under Section 145(2) was filed by the Accused persons and allowed on 25.03.2014 but no examination was conducted, and then a jurisdictional challenge under Dashrath was made. The Single Judge held this was sufficient to conclude trial has commenced, thus warranting the case to remain with the same judge though a jurisdictional challenge existed under Dashrath. The Court held:

The Apex Court in Dashrath Rupsingh Rathod’s case (supra) observed in para 22 that the category of complaint cases where proceedings have gone to the stage of Section 145(2) of the Act or beyond shall be deemed to have been transferred from the Court ordinarily possessing territorial jurisdiction, as clarified therein, to the Court where it is presently pending. Thus, it is only when the stage of proceedings in cases filed under Section 138 of the Act has reached the stage of Section 145(2) of the Act or beyond thereof, such case shall continue to be dealt with by the Court where it is pending trial [Emphasis supplied].

2. Neerav J. Shah v. State & Anr [Crl. M.C. 700/2012, decided on 23.03.2015, Gaur J.]

Similar to the previous case, here an application for cross-examination of the Complainant under Section 145(2) was allowed by the Magistrate in 2011, but no cross-examination had been conducted till the challenge under Dashrath was made. The decisions in the Cisco litigation were relied upon to argue that the cases must be retained by the same magistrate albeit there was no jurisdiction. On this occasion, a co-ordinate Bench disagreed thus dismissing this and other connected matters. 

Relying upon Dashrath as seemingly clarified in Shivgiri Associates & Ors v. Metso Mineral (India) Pvt Ltd [(2014) 12 SCC 366], the Court held that it was necessary for actual evidence to be recorded and merely allowing the application would not do. The Court held:

On careful perusal of afore-noted two decisions of this Court, it becomes apparent that Apex Court decision rendered by Hon’ble Mr. Justice T.S.Thakur and Hon’ble Mr. Justice Vikramjit Sen in Shivgiri Associates (supra) was not brought to the notice of the two Coordinate Benches of this Court, which had rendered the decision in cases of CISCO Systems (supra) and Naveen Malhotra (supra). The Apex Court’s decision in Dashrath Rupsingh (supra) is authored by Hon’ble Mr. Justice Vikramajit Sen, who is also party to the later Apex Court decision in Shivgiri (supra), wherein paragraph No.22 of Dashrath Rupsingh (supra) stands duly explained. In Shivgiri (supra), it has been clearly held that evidence post-summoning has not been recorded and so the complaint under Section 138 of Negotiable Instruments Act, 1881 was directed to be transferred to the Court of competent territorial jurisdiction. In the face of latest Apex Court decision in Shivgiri (supra), reliance placed upon decisions in Peter David Xavier Pinto v. Dinesh M. Ranwat & Anr. 2014 SCC Online Bom 1248, New Delhi Tele Tech Pvt. Ltd. v. M/s CISCO Systems Capital (India) Pvt. Ltd. 2015 SCC Online Del.6533, Radhey Shyam Garg v. Naresh Kumar Gupta (2009) 13 SCC 201 and CISCO Systems Capital (India) Pvt. Ltd. v. New Delhi Tele Tech. Pvt. Ltd. & Ors. 2015 SCC Online Del 6535 is of no avail. Applying the dictum of Apex Court in Dashrath Rupsingh (supra) which is reiterated in Shivgiri (supra), it is held that the complaints in which cross examination in pursuance to allowing of application under Section 145(2) of Negotiable Instruments Act, 1881 has not commenced, shall stand transferred to the court of competent territorial jurisdiction.

Conclusion

Thus, after holding that an application for cross-examination need only be allowed for the matter to remain with the original court, the High Court has now shifted its position to require for the actual cross-examination to have begun. In my opinion, it does not further the underlying intent behind the restriction provided by the Supreme Court in Dashrath, despite the best efforts of Gaur J. to convince us otherwise. The Supreme Court in Dashrath created this exception to reduce the number of matters which were bound to be transferred due to the decision being given retrospective effect. The delays caused in examining witnesses before the trial courts are notorious but very real, and to allow matters to be transferred even where applications for cross-examination have been allowed is a position ignorant of this reality. 

The latest decision only worsens the confusion currently pervading across trial courts in cheque bouncing cases. But on the bright side, this clearly contradictory stand of co-ordinate benches might necessitate intervention by a higher bench/higher court to finally put the issue to bed.  

Section 138, Jurisdiction, and Dashrath Rupsingh Rathod

In August this year, three judges handed down the decision in Dashrath Rupsingh Rathod v State of Maharashtra [(2014) 9 SCC 129], restricting jurisdiction over the offence under Section 138 Negotiable Instruments Act. Trial courts across the country have been returning complaints ever since, as the decision retrospectively applies to a certain class of pending cases. Here, I discuss this landmark case, looking at Justice Sen's approach to understanding the Section 138 offence for jurisdictional purposes.

Prelude

Lets not place the cart before the horse, and get a hand of Section 138 - the infamous cheque bouncing offence. The bouncing of cheques as unpaid is not sufficient: a proviso adumbrates several steps that must be fulfilled to enable one to file a complaint. These are:

• The drawer issues a negotiable instrument towards discharge of a legally enforceable debt;
• The instrument is subsequently presented by the /payee within six months of issue, and is dishonoured by the drawee bank;
• The payee issues a notice within thirty days of dishonour to the drawer regarding dishonour;
• The drawer fails to pay the amount fifteen days after receipt of notice.

The question before the Supreme Court in Dashrath was very specific: would courts at the place from where where statutory notice was sent have jurisdiction to entertain complaints? Conflicting decisions had been rendered by co-ordinate benches of the Supreme Court on the point, to resolve which a three judge bench had been constituted. But the leading judgment of Justice Sen answered a different question: were complaints complaints filed at places other than where the drawee bank is located maintainable? Overturning more than a decade of settled precedent, the Court answered this question in the negative. 

The Court's Approach to Jurisdiction

To understand this aspect better, we need to revisit the structuring of Section 138. A person is "deemed to have committed an offence" when the cheque issued is dishonoured upon presentment. But this is followed by a proviso, which states "nothing contained in this section shall apply unless" the steps discussed above are complied with in full.

Courts before Dashrath considered these conditions an integral part of the offence, and held them relevant for determining the jurisdiction of courts. Naturally, it meant a complaint could be filed at multiple places. All this changed with Dashrath, for the Court viewed the "offence" under Section 138 as separate from the "proviso", which only created conditions for maintainability of a complaint. Viewing this to be the 'offence' under Section 138, the Court turned to jurisdiction in Chapter XVII of the Cr.P.C. The common element therein was of jurisdiction being determined by the location of the 'offence', nothing else. Thus, as the offence itself was complete whenever the drawee bank returned the cheque as unpaid, jurisdiction would be restricted to that court alone.

Statutory Interpretation 2.0
If we accept this interpretation of Section 138, limiting jurisdiction seems the only correct conclusion possible. The Court goes to great lengths to remind us how the simple solution it offers would remedy the 'mischief' created by allowing for multiple avenues to file complaints. How simple the solution remained after ordering retrospective application of the judgment remains a controversial point, but that doesn't concern us here. A deeper look is warranted at the interpretation of Section 138 itself. There are two problems which emerge, one based on a holistic reading of the Negotiable Instruments Act, and another specific to the structure of Section 138 therein.

One: Reading the Act Holistically
The separate, concurring opinions of Thakur and Sen JJ. elaborate the point of construing the 'offence' of Section 138 shorn of its proviso, observing the latter imposed additional conditions on taking cognizance. To quote Sen J. "the cognizance of the crime ... can be taken only when the concomitants or constituents contemplated by the Section concatenate with each other". But when Section 142 of the Act specifically addresses the question of cognizance, is such interpretation not akin to re-writing the text of the statute? After all, the Legislature was open to place these conditions within Section 142, as opposed to Section 138. In ignoring the text, the Court re-wrote the statute, without due regard to established canons of judicial restraint.

Two: The Structure of Section 138
Are Provisos in the section creating an offence anomalous? No. These may be present in slightly different forms though. For instance, Section 300 IPC (defining culpable homicide amounting to murder) and Section 499 IPC (defining defamation), contain Exceptions, which carve out and protect conditions/situations from the broad definition of the offence. These have a direct bearing on the offence itself, for facts which fall within an exception make conduct a 'non-offence'. Cognizance is a step much ahead: it is the application of the judicial mind for determining whether or not proceedings should commence. The difference in stages is important: for instance, if its not an offence, the police may refuse to conduct an investigation; a quashing petition would be against the complaint and not a judicial order and so on.

The proviso to Section 138 tells us that mere bouncing of a cheque is not an offence, similar to how the exceptions to Section 300 tell us that simply killing another person is not murder. Admittedly, it so happens that the stage of taking cognizance is very close to the filing of a complaint in the case of Section 138. But the approach of separating provisos from the section may be transplanted to other statutes, with more onerous consequences.

Right End, Wrong Means
That is my take on the decision. Limiting avenues for filing complaints does indeed simplify the law and prevent its abuse by either party. This was undoubtedly needed in context of Section 138. But these desirable conclusions have been reached through troublesome paths. Petitions are currently pending in the Supreme Court which may result in re-assessing Dashrath [SLP (Cri) 8073/2014]. It would be interesting to see how the Court develops a fascinating, and hugely important area of law.