Union Cabinet approved proposal to promulgate the Negotiable Instruments (Amendment) Ordinance, 2015

In Uncategorized
June 11, 2015

The Union Cabinet, headed by the Prime Minister Shri Narendra Modi, has given its nod for the proposal to promulgate the Negotiable Instruments (Amendment) Ordinance, 2015. The proposed amendments to the Negotiable Instruments Act, 1881 has been done to focus on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the NI Act.

Advantage of the Amendment:

The will bring clarity on jurisdictional issue for trying the cases of cheque bouncing.
It will increase the credibility of the cheque as a financial instrument.
This would help the trade and commerce in general.
This will also allow the lending institution, including banks, to continue to extend financing to the economy, without the apprehension of the loan default on account of bouncing of a cheque.

Background of Section 138

Section 138 of Negotiable Instrument Act.

The Section 138 of the NI Act deals with the offences related to dishonor of cheque for insufficiency, etc., of funds in the drawers account.
Section 138 also provides for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque.

Object of the Negotiable Instrument Act

The object of the NI Act is to encourage the usage of cheque and enhancing the credibility of the instrument so that the normal business transactions and settlement of liabilities could be ensured.

Need to pass an Ordinance:

Various financial institutions and industry associations have find difficulties with respect to the recent legal interpretation of the place of jurisdiction for filing cases under Section 138 to be the place of drawers bank by the Supreme Court.
To address the issue faced by the payee or the lender of the money in filing the cases under Section 138 of the NI Act, the jurisdiction for offence under Section 138 has been proposed to be clearly defined as the large no. of cases were stuck.
Accordingly, the Negotiable Instruments (Amendment) Bill, 2015 in Parliament was introduced in Lok Sabha on 6th May, 2015 and passed by Lok Sabha on 13th May, 2015.
However, since the Rajya Sabha was adjourned sine die on 13th May, 2015, the Bill could not be discussed and passed by that House and the Bill could not be enforced.

Benefits of the Bill

The new Bill provides for filing of cases only by a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment is situated.
Further, 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.
Further, it has been provided that if more than one prosecution is filed against the same drawer of cheques before different courts, the court shall transfer the case to the court having jurisdiction as per the new scheme of jurisdiction.
In view of the urgency to create a suitable legal framework, the Government has decided to amend the law through the Negotiable instruments (Amendment) Ordinance, 2015.

Main Objective:

The objective is to ensure that a fair trial is conducted keeping in view the interests of the complainant by clarifying the territorial jurisdiction for trying the cases for dishonour of cheques.
The Ordinance is similar to the Bill in the sense that the substantive principle for determination of the jurisdiction of the cases under section 138 of the NI Act remains the same, except that that two distinct situations of payment of cheque
- by submitting the same for collection through an account
- payment of a cheque otherwise through an account, that is, when cheques are presented across the counter of any branch of drawee bank for payment, are covered under the Ordinance.

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