Banks are filing cheque bounce cases in distant courts to pressure borrowers using a legal loophole. This rising trend raises serious questions about fairness and due process.
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NEW DELHI: An agricultural industry based in Coimbatore obtained a loan of Rs 2.74 crore from a bank branch in Coimbatore. The EMIs were paid in Coimbatore, and the loan default also occurred in Coimbatore.
However, the bank/payee deposited the security cheque at its Chandigarh branch, where it was dishonoured (returned unpaid). Subsequently, the bank filed a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881 (“the Act”) before the courts in Chandigarh.
In such a scenario, where no part of the cause of action arose in Chandigarh except for the presentation of the cheque,
- Is the bank justified in invoking the jurisdiction of the Chandigarh courts under Section 138 of the NI Act?
- Is this not a form of harassment by the bank? What does Indian cheque bounce law say in this regard?
Let’s explore.
What Is the Legal Framework for Determining Jurisdiction in Cheque Bounce Cases?
Section 138 was introduced to ensure credibility in business transactions and to uphold the integrity of banking operations in India. However, with the insertion of Sections 142(2) and 142A into the Negotiable Instruments Act through the 2015 Amendment, the definition of jurisdiction has created room for potential misuse—particularly by banks in cheque bounce cases.
Section 142(2) allows the payee or holder of a cheque to present the cheque at any bank branch where they hold an account. As a result, the courts of that location acquire jurisdiction to hear the case. Furthermore, Section 142A(1) validates the transfer of cases (even before the 2015 amendment) to the court where the cheque was deposited for collection, overriding previous judgments or legal positions.
Facts: Transfer Petition No. 608/2024 – “M/s Shri Sendhur Agro & Oil Industries vs. Kotak Mahindra Bank Ltd.”
Section 142(2) of the NI Act, 1881 provides:
“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 the account is situated; or
b) if the cheque is presented for payment otherwise than through an account, the branch of the drawee bank where the drawer maintains the account is situated.”
Section 142A(1) provides:
“Notwithstanding anything contained in the Code of Criminal Procedure, 1973, or any judgment, decree, or order, all cases transferred under the amended Section 142(2) shall be deemed valid as if that subsection had been in force at all material times.”
The intention of the 2015 Amendment is to offer convenience to the payee, enabling them to file complaints where they bank. However, in cases involving security cheques submitted for loan disbursement, national banks with multiple branches across India can present cheques for collection anywhere—often in locations unrelated to the transaction—to deliberately create jurisdiction.
This troubling trend has resulted in several complaints being filed in unrelated jurisdictions, raising questions about legal harassment under cheque bounce laws in India.
How Has the Supreme Court Addressed This Issue?
On 6th March 2025, the Division Bench of Justices J.B. Pardiwala and R. Mahadevan, in Transfer Petition No. 608/2024 (M/s Shri Sendhur Agro & Oil Industries vs. Kotak Mahindra Bank Ltd.), clarified the post-amendment legal position.
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After the 2015 Amendment and insertion of Section 142(2), it is clear that the jurisdiction to try an offence under Section 138 lies with the court where the payee’s bank branch—where the cheque was presented—is located.
Historical Legal Context
- K. Bhaskaran v. Sankaran Vaidhyan Balan (1999) 7 SCC 510:
The Court identified five components constituting a Section 138 offence:- Drawing of the cheque
- Presentation to the bank
- Dishonour of the cheque
- Service of notice to the drawer
- Non-payment within 15 days
- Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129:
A three-judge Bench clarified that only the place of the drawee bank—where the cheque is dishonoured—has jurisdiction, overruling Bhaskaran to this extent.
This legal evolution prompted the 2015 Amendment, which legally mandated that jurisdiction lies where the payee deposits the cheque, thus reverting partially to Bhaskaran’s flexibility but with clearer structure.
Why the Current Legal Position May Harm India’s Financial Ecosystem
A disturbing trend has emerged: banks deliberately depositing security cheques in remote or unrelated branches and filing criminal complaints in those jurisdictions under Section 138 NI Act.
Real Case Example:
A borrower took a Rs 1.59 crore loan from a Noida branch of a bank. The borrower’s bank was in Kasturba Gandhi Marg, Delhi, and their office and residence were also in Delhi. Despite this, the security cheque was deposited in Ludhiana, Punjab, and the complaint was filed in Ludhiana Court.
Reference: COMA 1664/2025 “Kotak Mahindra Bank Ltd. v. Maharishi Logistics Pvt. Ltd. & Ors” before Judicial Magistrate (Class-I), Ludhiana
This raises serious concerns. India’s economy depends on financial inclusion and access to credit. If banks create hurdles by initiating litigation in distant locations, borrowers may shift to informal, unregulated lending channels, which can undermine economic stability.
While loan default is a serious issue, excessive legal pressure through venue manipulation can be counterproductive, especially for small and medium enterprises or retail borrowers.
Conclusion
Retail borrowers are the backbone of the Indian economy and generally aim for timely repayments. Banks should engage with them in a supportive and legally fair manner.
The current legal position under Section 138 NI Act, while intended to provide convenience to the payee, should not be misused to harass borrowers by filing cases in jurisdictions with no real connection to the transaction.
It is imperative for the judiciary or the executive to issue Standard Operating Procedures (SOPs) or guidelines to curb this misuse. Legal enforcement must ensure due process, not harassment.
Unless addressed, such practices will erode trust in formal credit systems—ultimately damaging the very banking ecosystem they seek to protect.
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