Whether Section 138 is Expeditious Disposal or Another Pendency?

Ashu Kansal | July 2021

3.64 CRORES. Yes. A grim figure of around Three Crore Sixty-Four Lakhs cases is presently pending across judicial fora for adjudication, as on 01.02.2020. What is noteworthy to highlight is the fact that during the period of outbreak, which continues till date, the Hon’ble Supreme Court, between 01.02.2020 to 31.08.2020, witnessed around 3.6% rise in pending cases whereas the Hon’ble High Courts and the District and Subordinate Courts witnessed rise of about 12.4% and 6.6% in pending cases, for the period between 29.01.2020 and September 2020.

The worrisome numbers also include matters, such as those falling under Section 138 of Negotiable Instruments Act, 1881 (Section 138 NI/said section), which were intended by the Legislature to be disposed off expeditiously as possible, without further ado. However, it appears to have defeated the objective, because, as per the data as on 31.12.2019, around 35.16 lakh cases, pertaining to Section 138, remains pending for adjudication. In simpler terms, Section 138 provides that in case of dishonour of cheque for insufficiency of funds or for any prescribed reasons, the defaulter can be punished with imprisonment for a term which may extend to two years, or fine, or both.

The objective of the Legislature behind introducing of the said section was to promote efficiency of banking operations and to ensure credibility in transacting business through cheques. It should not come as a surprise that a Public Interest Litigation filed by the Indian Banks Association (IBA) in 2013, had highlighted the fact that the total pending cheque bounce cases for adjudication, involved somewhere about Rs 1,200 crore. One could, at this point, only comprehend the total amount, which continues to be involved in Section 138 NI matters, as on date.

Such a long gestation period, required by the Ld. Courts in adjudicating the overflowing cheque bounce cases, was taken into account by the Hon’ble Supreme Court, in the case of Makwana Mangaldas Tulsidas vs. State of Gujarat, wherein it suggested various ways, including developing a mechanism for pre-litigation settlement, to deal with such a growing problem. Section 138 has an extensive bearing in the business/ commercial sector, as it intended to safeguard the faith of creditors in the drawing of the cheque, which is essential to the economic life.

Quite interestingly, even the Statement of Objects and Reasons appended to the Bill which became the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 took note of substantial delay behind disposal of Section 138 matters. It clearly stated that the existing provisions in the Negotiable Instruments Act, 1881, namely, sections 138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the Courts to deal with such matters has been found to be cumbersome. The Courts are unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act…. A large number of cases are reported to be pending under sections 138 to 142 of the Negotiable Instruments Act in various courts in the country…. The proposed amendments in the Act are aimed at early disposal of cases relating to dishonour of cheques, enhancing punishment for offenders, introducing electronic image of a truncated cheque and a cheque in the electronic form as well as exempting an official nominee director from prosecution under the Negotiable Instruments Act, 1881.”

This problem seemed to keep growing as the Former Finance Minister, Late Mr. Arun Jaitley, while introducing the Annual Budget for the year 2017–2018, also highlighted about the need to reduce the time taken to redress cheque bounce cases, besides remarking on the complexity of the litigation process and the length of time traders have to spend in litigation in order to recover money. Therefore, taking into account the dismal situation with respect to such important matter, the Hon’ble Supreme Court decided to step in and registered a Suo Motu Writ Petition (Criminal) captioned as “Expeditious Trial of Cases under Section 138 of N.I. Act 1881”. Besides, during the course of hearing, the Hon’ble Supreme also constituted a Committee, consisting Hon’ble Mr. Justice R.C. Chavan as the Chairman, to consider various suggestions for controlling the extensive pendency of Section 138 matters, which is proving to be quite tardy in nature.

Subsequently, the attention of the Hon’ble Court was brought behind the key factors, which amounts behind the overwhelming delay in disposal of the matters. Such reasons, amongst others, includes-Delay in Service of summons, need for Statutory amendment to Section 219 of the Code, mechanical conversion of Summary trials to summons trial, attachment of bank accounts, applicability of Section 202 of the Code, Need for Mediation and Inherent jurisdiction of the Magistrate. In lieu of the same, the Hon’ble Court, decided to make relevant recommendation to the Central Government and the High Courts to ensure speedy disposal of the matters, while certain issues were left for the consideration of the Committee.

During the course of hearing, the Hon’ble Court, on the recommendations received from the Amicus Curiae, observed as follows:

Mechanical method adopted behind converting the summary trials to summon trails, in terms of Section 143(2) of NI Act, without reasons being recorded, cannot be continued as it amounts to substantial delay in disposal of the cases. Thus, High Courts are required to issue practice directions to the Magistrates to record reasons before converting trial of complaints under Section 138 from summary trial to summons trial.
It is mandatory for the Magistrate to conduct an inquiry, as provided in Section 202 of the CrPC, before issuance of process in complaints filed under Section 138.
Section 202 (2) of CrPC is inapplicable to complaints under Section 138 in respect of examination of witnesses on oath. The evidence of witnesses on behalf of the Complainant shall be permitted on affidavit. If the

Magistrate holds an inquiry himself, it is not compulsory that he should examine witnesses. In suitable cases, the Magistrate can examine documents for satisfaction as to the sufficiency of grounds for proceeding under Section 202.

Another key suggestion was that an amendment be carried out to the effect that a person can be tried in one trial for offences of the same kind of transaction under Section 138 in the space of 12 months, notwithstanding the restriction in Section 219 of the CrPC. Though “same transaction” is not defined anywhere, it can include acts committed by a person show a unity of purpose that would be a strong circumstance to indicate that those acts form part of the same transaction.
High Courts, in order to save time, are to issue practice directions to the Trial Courts, to treat service of summons in one complaint 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.
Section 258 of CrPC is not applicable to a summons case instituted on a complaint. Therefore, Section 258 of CrPC cannot come into play in respect of the complaints filed under Section 138 of the Act. The judgment passed in Meters and Instruments Private Limited and Another v. Kanchan Mehta, with respect to the said issue therefore does not hold good. Therefore, Trial Court cannot be conferred with inherent power either to review or recall the order of issuance of process.
Further, when and wherever the Trial Court is informed that it lacks jurisdiction to issue process for complaints under Section 138 of the Act, the proceedings shall be stayed and the case shall be submitted to the Chief Judicial Magistrate or such other Magistrate having jurisdiction.
Lastly, as considerable complaints under Section 138 pending in Appellate Courts, High Courts and the Hon’ble Supreme Court, the High Courts is required to identify the pending revisions arising out of complaints filed under Section 138 of the Act and refer them to mediation at the earliest.

It has to be remembered that Section 138 of NI was introduced with the purpose of expeditious disposal of matters, which, as per the data available has gone for a toss. On account of substantial backlog of matters, it is incumbent to bring upon certain amendments in the working modalities of compliant under Section 138. However, if the same is not adopted/modified, it would have a wide spread ramification. It is being reiterated time and again that this provision was for the betterment of commercial industry. However, if such proceedings have such a huge gestation period, it nonetheless will prove to be futile. However, with several recommendation being made to the Central Government and the High Courts at large, if implemented at the earliest, one could expect to witness expeditious disposal or significant dip in such cases, thereby instilling confidence in business industry. Nonetheless to mention herein that at present, there exists substantial backlog of cases, which was further aggravated due to the outbreak of Covid-19. However, if the sections which were introduced by the Legislature, with the purpose of ensuring expeditious disposal also comes within such ambit, it would amount to complete failure of the machinery.

Tags: Adhita Advisors

About Author

Ashu Kansal

Ashu Kansal is a Partner at Adhita Advisors, having more than fifteen years of experience. His main areas of expertise are banking and finance laws, securitization - related matters, recovery of debts, suits, and arbitration matters. Apart from drafting various pleadings, he also advises/ gives opinions and strategies to clients on various litigation matters in various forums including the Supreme Court, High Courts and various other Tribunals across the Country. He has also briefed top Senior Counsels across the country for multinational clients.