Does the Court Under Collection Bank's Jurisdiction Have Authority in Section 138 Cases?

In the world of business transactions, cheques remain a staple for payments, but when they bounce, the fallout under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) can lead to criminal proceedings. A common confusion arises: Whether Court under the Jurisdiction of Collection Bank has Jurisdiction under Section 138? This question often trips up complainants and accused alike, especially when cheques are presented at a distant collection bank branch.

This blog post breaks down the legal position, drawing from Supreme Court precedents and statutory amendments. We'll explore why jurisdiction typically lies with the drawee bank, exceptions involving collection banks, and practical tips. Note: This is general information based on judicial interpretations and not specific legal advice. Consult a lawyer for your case.

Core Legal Principle: Jurisdiction Tied to Place of Dishonour

The foundational rule is clear: jurisdiction under Section 138 is primarily determined by the place where the cheque was dishonoured, which is the location of the drawee bank (the bank on which the cheque is drawn), not merely where it was presented for collection. 2025 0 Supreme(SC) 460

Grandlay Electricals VS Ess Ess Enterprises - Dishonour Of Cheque (2011)

As held by the Supreme Court, the offence under Section 138 is committed where the cheque is dishonoured, i.e., where the drawee bank returns the cheque unpaid. 2025 0 Supreme(SC) 460 The expression 'the bank' in the proviso to Section 138 refers specifically to the drawee bank, not the collection bank. 2025 0 Supreme(SC) 460

Ramaswamy S. Iyengar VS State (Nct of Delhi) - Delhi (2011)

In Dashrath Rupsingh Rathod (2014), the Supreme Court emphasized that the place where the cheque is dishonoured (the drawee bank) is the relevant jurisdiction, not where the cheque was presented for collection. 2025 0 Supreme(SC) 460 Mere presentation at a collection bank in another jurisdiction does not confer trial rights there unless dishonour occurred at that branch.

Ramaswamy S. Iyengar VS State (Nct of Delhi) - Delhi (2011)

Grandlay Electricals VS Ess Ess Enterprises - Dishonour Of Cheque (2011)

Why Not the Collection Bank?

• Offence completes at dishonour: The criminal liability crystallizes when the drawee bank refuses payment. Presentation for collection is preparatory, not the offence site. 2025 0 Supreme(SC) 460
• Prevents forum shopping: Allowing jurisdiction based solely on collection bank location could enable manipulation by choosing distant branches.

  Grandlay Electricals VS Ess Ess Enterprises - Dishonour Of Cheque (2011)

• Statutory clarity: The law explicitly states that 'the bank' in the proviso to Section 138 refers to the drawee bank, not the collection bank. 2025 0 Supreme(SC) 460

  Ramaswamy S. Iyengar VS State (Nct of Delhi) - Delhi (2011)

Evolution Through Supreme Court Rulings

Earlier cases like Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001) AIR 2001 SC 1161 clarified that 'the bank' means the drawee bank where the cheque is drawn, and the offence is complete at the point where the cheque is dishonoured.

Ramaswamy S. Iyengar VS State (Nct of Delhi) - Delhi (2011)

Pre-Dashrath (2014), some High Courts leaned towards payee's bank jurisdiction, citing K. Bhaskaran v. Sankaran Vaidhyan Balan (AIR 1999 SC 3762), where multiple acts (drawing, presentation, etc.) could confer jurisdiction in any of five locations. 2014 0 Supreme(Bom) 475 2014 0 Supreme(Del) 959

However, Dashrath narrowed it to the drawee bank to curb abuse, overruling broader interpretations. 2025 0 Supreme(SC) 460 Post-Dashrath, cases reaffirmed: Mere issuance or presentation of the cheque at a collection bank in a different jurisdiction does not create jurisdiction.

Ramaswamy S. Iyengar VS State (Nct of Delhi) - Delhi (2011)

Impact of 2015 Amendment: Section 142(2) Nuances

The Negotiable Instruments (Amendment) Act, 2015 introduced Section 142(2), providing:

The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction: (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course maintains an account... 2023 0 Supreme(Ker) 734

This shifted dynamics. Now, jurisdiction may lie with:- The court where the payee maintains their account and the cheque was delivered for collection through that branch. 2023 0 Supreme(Ker) 734 2023 0 Supreme(Kar) 424- Or the drawee bank location.

For instance, in one case, even if presented at a different branch of the same bank (e.g., Tripunithura vs. Ambalamedu), the explanation to Section 142(2) deems the payee's account branch as the jurisdictional point. 2023 0 Supreme(Ker) 734

Another ruling held: Jurisdiction for initiating proceedings... lies in the territorial jurisdiction of the court where the cheque is delivered for collection. If the cheque is delivered through an account, the offence can be tried by the court within whose jurisdiction the branch of the bank where the payee maintains the account is situated. 2023 0 Supreme(Kar) 424

Yet, Supreme Court consistency prevails: collection bank alone doesn't suffice unless it's the payee's account branch and linked to dishonour/delivery. 2023 0 Supreme(Mad) 3179 In Nishant Aggarwal v. Kailash Kumar Sharma (2013), the Court queried: Whether the Court, where a cheque is deposited for collection, would have territorial jurisdiction... or would it be only the Court... over the drawee bank? Affirming payee's presentation bank in some contexts. 2014 0 Supreme(Bom) 475 2014 0 Supreme(Raj) 507

Post-amendment cases like 2025 0 Supreme(J&K) 187 state: Jurisdiction... is determined by the location of the bank where the cheque is presented for collection. But this aligns only if it's the payee's branch under 142(2)(a). 2025 0 Supreme(J&K) 187

Exceptions Where Collection Bank May Confer Jurisdiction

• Dishonour at collection bank's branch: If dishonour happens there (rare, as it's usually forwarded to drawee), jurisdiction applies. 2025 0 Supreme(SC) 460
• Payee's account branch: Per 142(2)(a), if cheque delivered through payee's account at that branch. 2023 0 Supreme(Ker) 734 2023 0 Supreme(Mad) 3179 (E.g., transfer to Kilpauk branch deemed jurisdiction there.)
• Deeming provisions: Same-bank different branches treated as payee's branch. 2023 0 Supreme(Ker) 734
• No jurisdiction from notices alone: Issuing/receiving demand notices doesn't establish it. 2025 0 Supreme(SC) 460

In 2025 Supreme(Online)(Guj) 12702, deposit at Axis Bank, Mahuva Branch under Cash Management System gave Mahuva Court jurisdiction.

Practical Implications and Recommendations

• For complainants: File where drawee bank is or your account branch under 142(2). Avoid distant collections to prevent dismissal.

  Grandlay Electricals VS Ess Ess Enterprises - Dishonour Of Cheque (2011)

• For accused: Challenge jurisdiction early if not drawee/payee account location. Courts must verify dishonour place.

  Ramaswamy S. Iyengar VS State (Nct of Delhi) - Delhi (2011)

• Transfers: Possible under CrPC Sections 406/407 if justice demands, especially post-amendment. 2023 0 Supreme(HP) 135

Example: Complaint returned for proper court if presented at non-jurisdictional branch. 2023 0 Supreme(Ker) 734 Or quashed if accused not signatory and wrong forum. 2023 0 Supreme(Kar) 424

Key Takeaways

| Aspect | Jurisdiction Lies Where ||--------|-------------------------|| Primary | Drawee bank (dishonour place) 2025 0 Supreme(SC) 460 || Exception | Payee's account branch (142(2)(a)) 2023 0 Supreme(Ker) 734 || Not Sufficient | Mere collection bank presentation

Ramaswamy S. Iyengar VS State (Nct of Delhi) - Delhi (2011)

In conclusion, the court under the jurisdiction of the collection bank does not have jurisdiction under Section 138 solely based on presentation there, unless tied to dishonour or payee's account branch. Focus on drawee location to ensure validity. Stay updated on amendments, as law evolves to balance convenience and prevent abuse.

Grandlay Electricals VS Ess Ess Enterprises - Dishonour Of Cheque (2011)

References include Supreme Court and High Court judgments like 2025 0 Supreme(SC) 460,

Grandlay Electricals VS Ess Ess Enterprises - Dishonour Of Cheque (2011)

Ramaswamy S. Iyengar VS State (Nct of Delhi) - Delhi (2011)