Supreme Court clarifies procedures for Section 138 NI Act cases to expedite trials (16 April 2021)

Supreme Court Clarifies Procedures for Section 138 NI Act Cases to Expedite Trials

LEGAL ISSUE: Streamlining procedures for trials under Section 138 of the Negotiable Instruments Act, 1881 to ensure expeditious disposal of cases.
CASE TYPE: Criminal
Case Name: In Re: EXPEDITIOUS TRIAL OF CASES UNDER SECTION 138 OF N.I. ACT 1881.
Judgment Date: 16 April 2021

Introduction

Date of the Judgment: 16 April 2021
Citation: Not Available
Judges: S. A. Bobde, CJI, L. Nageswara Rao, J., B. R. Gavai, J., A. S. Bopanna, J., S. Ravindra Bhat, J.
Can the Indian judicial system handle the overwhelming number of cheque dishonor cases? The Supreme Court of India, concerned with the massive backlog of cases under Section 138 of the Negotiable Instruments Act, 1881, initiated a suo motu writ petition to address the reasons for the delay. The core issue revolves around the slow pace of trials in these cases, which has been affecting the overall efficiency of the criminal justice system. To assist the Court, Mr. Sidharth Luthra, learned Senior Counsel, was appointed as Amicus Curiae, along with Mr. K. Parameshwar, learned Counsel. This five-judge bench was constituted to clarify certain judicial pronouncements and streamline the process of trials under Section 138 of the Act.

Case Background

The Supreme Court took up the issue of delays in Section 138 cases due to a Special Leave Petition (Criminal) No. 5464 of 2016, which involved the dishonor of two cheques on 27 January 2005, for an amount of Rs. 1,70,000. This case had been pending for 16 years. The Court noted the large number of pending cases under Section 138 of the Negotiable Instruments Act, 1881, at various levels. This led to the registration of a Suo Motu Writ Petition (Criminal) titled “Expeditious Trial of Cases under Section 138 of N.I. Act 1881”. Notices were issued to various stakeholders, including the Union of India, High Courts, and the Reserve Bank of India, to gather information and suggestions for addressing the issue.

Timeline

Date	Event
27 January 2005	Dishonor of two cheques for Rs. 1,70,000, leading to Special Leave Petition (Criminal) No. 5464 of 2016.
2016	Special Leave Petition (Criminal) No. 5464 of 2016 filed before the Supreme Court.
01 April 1989	Chapter XVII of the Negotiable Instruments Act, 1881, containing Sections 138 to 142, came into force.
06 February 2003	Sections 143 to 147 were inserted in the Act.
31 December 2019	Total number of pending criminal cases was 2.31 crores, out of which 35.16 lakh pertained to Section 138 of the Act.
11 October 2020	Amici Curiae submitted a preliminary report.
19 January 2021	Amici Curiae informed the Court that only 14 out of 25 High Courts had submitted their responses to the preliminary report.
24 February 2021	Matter listed for final disposal before a three-judge bench, which then referred it to a larger bench.
10 March 2021	The Court decided to form a Committee with Hon’ble Mr. Justice R.C. Chavan as the Chairman.
16 April 2021	Final order passed by the Supreme Court.

Course of Proceedings

Initially, a Division Bench of the Supreme Court, comprising the Chief Justice of India and L. Nageswara Rao, J., decided to examine the reasons for the delay in disposal of cases under Section 138 of the Negotiable Instruments Act, 1881. This led to the registration of the Suo Motu Writ Petition. The Court appointed Mr. Sidharth Luthra as Amicus Curiae, assisted by Mr. K. Parameshwar. Notices were issued to various stakeholders. After reviewing the preliminary report and responses, a three-judge bench felt the matter needed consideration by a larger bench due to the important issues involved and the need for clarification of certain judicial pronouncements.

Legal Framework

The judgment primarily deals with the interpretation and application of several sections of the Negotiable Instruments Act, 1881 (the Act) and the Code of Criminal Procedure, 1973 (the Code). Key provisions include:

Section 138 of the Negotiable Instruments Act, 1881: This section makes the dishonor of a cheque for insufficient funds a punishable offense with imprisonment up to two years or a fine, which may extend to twice the amount of the cheque.
Section 143 of the Negotiable Instruments Act, 1881: This section empowers the court to try complaints under Section 138 summarily, with an endeavor to conclude the trial within six months. It also allows for the conversion of a summary trial to a summons trial under certain circumstances.
Section 145 of the Negotiable Instruments Act, 1881: This section allows the complainant’s evidence to be given by affidavit, which can be read as evidence in any inquiry, trial, or other proceeding.
Section 202 of the Code of Criminal Procedure, 1973: This section allows the Magistrate to conduct an inquiry to decide whether sufficient grounds exist to issue a process against the accused, especially when the accused resides outside the court’s jurisdiction.
Section 219 of the Code of Criminal Procedure, 1973: This section allows for a joint trial of up to three offenses of the same kind committed within a 12-month period.
Section 220 of the Code of Criminal Procedure, 1973: This section allows for a joint trial of offenses committed as part of the same transaction.
Section 258 of the Code of Criminal Procedure, 1973: This section empowers the Magistrate to stop proceedings in a summons case instituted otherwise than upon complaint.

Arguments

The Amici Curiae presented several arguments and suggestions based on the responses received from various State Governments and Union Territories. The key arguments are summarized below:

Service of Summons: The Amici Curiae highlighted that delays in serving summons to the accused are a major cause of backlog. They suggested using dishonor slips, mobile numbers, email addresses, and a Nodal Agency for electronic service to speed up the process.
Mechanical Conversion of Summary Trials: It was argued that Trial Courts were mechanically converting summary trials to summons trials without recording sufficient reasons, which defeats the purpose of Section 143 of the Act.
Inquiry under Section 202 of the Code: The Amici Curiae emphasized the mandatory nature of conducting an inquiry under Section 202 of the Code before issuing summons to an accused residing outside the court’s jurisdiction. They also suggested that the evidence of witnesses could be taken on affidavit, in line with Section 145 of the Act.
Sections 219 and 220 of the Code: The Amici Curiae proposed an amendment to Section 219 of the Code to allow a joint trial for more than three offences under Section 138 of the Act committed within a 12-month period. They also clarified that Section 220 permits joint trials for offences that are part of the same transaction.
Inherent Powers of the Magistrate: The Amici Curiae contended that Section 143 of the Act should be interpreted to confer an implied power on the Magistrate to discharge the accused if the complainant is compensated, and that the principle of Section 258 of the Code should apply to complaints under Section 138.

The arguments were supported by various stakeholders, including the Reserve Bank of India and the Indian Banks’ Association. They also relied on various precedents to support their contentions.

The innovativeness in the arguments of the Amici Curiae lies in their holistic approach to streamline the process by suggesting a combination of technological solutions for service of summons, procedural changes to summary trials, and a harmonious interpretation of Section 202 of the Code with Section 145 of the Act.

Submissions

Main Submission	Sub-Submissions
Service of Summons	Use dishonour slips with mobile number, email address and postal address of the drawer. Details of the drawer being given on the cheque leaf. Creation of a Nodal Agency for electronic service of summons. Generation of a unique number from the dishonour memo.
Mechanical Conversion of Summary Trials	High Courts should issue practice directions to Trial Courts for recording cogent and sufficient reasons before converting a summary trial to summons trial.
Inquiry under Section 202 of the Code	Magistrate should come to a conclusion after holding an inquiry that there are sufficient grounds to proceed against the accused. Section 202(2) should be read along with Section 145 and in respect of complaints under Section 138, the examination of witnesses also should be permitted on affidavit. Only in exceptional cases, the Magistrate may examine the witnesses personally.
Sections 219 and 220 of the Code	Legislative amendment is required to Section 219 of the Code to avoid multiplicity of proceedings where cheques have been issued for one purpose. Section 220(1) of the Code is not controlled by Section 219 and even if the offences are more than three in respect of the same transaction, there can be a joint trial.
Inherent Powers of the Magistrate	A holistic reading of Sections 251 and 258 of the Code, along with Section 143 of the Act, should be considered to confer a power of review or recall of the issuance of process by the Trial Court in relation to complaints filed under Section 138 of the Act. Section 143 of the Act confers implied power on the Magistrate to discharge the accused if the complainant is compensated to the satisfaction of the court.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

Whether the High Courts should 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?
Whether an 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?
Whether 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?
Whether 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?
Whether the High Courts should 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?
Whether the judgments of this Court in Adalat Prasad v. Rooplal Jindal and Others [(2004) 7 SCC 338] and Subramanium Sethuraman v. State of Maharashtra & Anr. [(2004) 13 SCC 324] have correctly interpreted the law and whether there is inherent power of Trial Courts to review or recall the issue of summons?
Whether Section 258 of the Code is applicable to complaints under Section 138 of the Act and whether the findings to the contrary in Meters and Instruments Private Limited and Another v. Kanchan Mehta [(2018) 1 SCC 560] lay down correct law?

Treatment of the Issue by the Court

Issue	Court’s Decision and Reasoning
Conversion of Summary Trials	The High Courts are requested to issue practice directions to Magistrates to record reasons before converting summary trials to summons trials. This is to prevent mechanical conversions that cause delays.
Inquiry under Section 202	Inquiry must be conducted when the accused resides outside the court’s jurisdiction to determine if there are sufficient grounds to proceed.
Evidence on Affidavit	Evidence of witnesses on behalf of the complainant can be taken on affidavit for inquiries under Section 202. Magistrates can also restrict the inquiry to documents.
Multiple Offences in One Trial	The Court recommended amendments to the Act to allow one trial for multiple offences under Section 138 committed within 12 months, notwithstanding Section 219 of the Code.
Deemed Service of Summons	High Courts are requested to issue practice directions to treat service of summons in one complaint as deemed service for all complaints related to the same transaction.
Inherent Powers of Trial Courts	The judgments in Adalat Prasad (supra) and Subramanium Sethuraman (supra) were upheld. Trial Courts do not have inherent power to review or recall the issue of summons, except under Section 322 of the Code for lack of jurisdiction.
Applicability of Section 258 of the Code	Section 258 of the Code is not applicable to complaints under Section 138 of the Act. The findings in Meters and Instruments (supra) are not good law.

Authorities

The Supreme Court considered the following authorities:

Cases

Case Name	Court	Relevance
Vijay Dhanuka & Ors. v. Najima Mamtaj & Ors. [(2014) 14 SCC 638]	Supreme Court of India	Established the mandatory nature of inquiry under Section 202 of the Code before issuing process against an accused residing outside the court’s jurisdiction.
Abhijit Pawar v. Hemant Madhukar Nimbalkar and Anr. [(2017) 3 SCC 528]	Supreme Court of India	Reiterated the mandatory nature of inquiry under Section 202 of the Code.
Birla Corporation Limited v. Adventz Investments and Holdings Limited & Ors. [(2019) 16 SCC 610]	Supreme Court of India	Reiterated the mandatory nature of inquiry under Section 202 of the Code.
K.S. Joseph v. Philips Carbon Black Ltd & Anr. [(2016) 11 SCC 105]	Supreme Court of India	Discussed the requirement of inquiry under Section 202 of the Code in relation to complaints under Section 138 but left the question of law open.
Balbir v. State of Haryana & Anr. [(2000) 1 SCC 285]	Supreme Court of India	Held that all offences committed as part of the same transaction can be tried together in one trial.
Vani Agro Enterprises v. State of Gujarat & Ors. [2019 (10) SCJ 238]	Supreme Court of India	Clarified the procedure for consolidating multiple cases of cheque dishonor, directing the Trial Court to fix all cases on one date.
State of Andhra Pradesh v. Cheemalapati Ganeswara Rao & Anr. [(1964) 3 SCR 297]	Supreme Court of India	Explained the concept of ‘same transaction’ in relation to joint trials.
K. M. Mathew v. State of Kerala & Anr. [(1992) 1 SCC 217]	Supreme Court of India	Dealt with the power of the Magistrate to drop proceedings after the accused appears, but was later overruled.
Adalat Prasad v. Rooplal Jindal and Others [(2004) 7 SCC 338]	Supreme Court of India	Held that subordinate criminal courts have no inherent power to recall an order taking cognizance.
Subramanium Sethuraman v. State of Maharashtra & Anr. [(2004) 13 SCC 324]	Supreme Court of India	Reiterated the law laid down in Adalat Prasad (supra), stating that a person cannot seek discharge in a summons case.
Meters and Instruments Private Limited and Another v. Kanchan Mehta [(2018) 1 SCC 560]	Supreme Court of India	Held that Section 143 of the Act confers implied power on the Magistrate to discharge the accused if the complainant is compensated, which was overruled in the present case.

Legal Provisions

Legal Provision	Description
Section 138 of the Negotiable Instruments Act, 1881	Defines the offense of dishonor of a cheque for insufficient funds and prescribes penalties.
Section 143 of the Negotiable Instruments Act, 1881	Empowers the court to try complaints under Section 138 summarily and sets a time limit for trial completion.
Section 145 of the Negotiable Instruments Act, 1881	Allows the complainant’s evidence to be given by affidavit.
Section 202 of the Code of Criminal Procedure, 1973	Confers jurisdiction on the Magistrate to conduct an inquiry before issuing process, especially when the accused resides outside the court’s jurisdiction.
Section 219 of the Code of Criminal Procedure, 1973	Allows for a joint trial of up to three offenses of the same kind committed within a 12-month period.
Section 220 of the Code of Criminal Procedure, 1973	Allows for a joint trial of offenses committed as part of the same transaction.
Section 258 of the Code of Criminal Procedure, 1973	Empowers the Magistrate to stop proceedings in a summons case instituted otherwise than upon complaint.

Judgment

How each submission made by the Parties was treated by the Court?

Submission	Court’s Treatment
Service of Summons using technology	The Court directed the formation of a committee to look into the technological aspects of service of summons.
Mechanical conversion of summary trials	The High Courts were 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.
Inquiry under Section 202 of the Code	The Court agreed with the Amici Curiae and held that inquiry under Section 202 is mandatory when the accused resides outside the jurisdiction of the court. Also, evidence of witnesses can be taken on affidavit.
Amendment to Section 219 of the Code	The Court recommended that suitable amendments be made to the Act to allow one trial for multiple offences under Section 138 committed within 12 months, notwithstanding the restriction in Section 219 of the Code.
Deemed service of summons	The High Courts were 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.
Inherent powers of the Magistrate	The Court held that the Trial Courts do not have inherent power to review or recall the issue of summons.
Applicability of Section 258 of the Code	The Court held that Section 258 of the Code is not applicable to complaints under Section 138 of the Act and overruled the findings to the contrary in Meters and Instruments (supra).

How each authority was viewed by the Court?

The Court analyzed the cited authorities and used them to arrive at its conclusions:

The Court relied on Vijay Dhanuka (supra), Abhijit Pawar (supra), and Birla Corporation (supra) to reiterate the mandatory nature of inquiry under Section 202 of the Code when the accused resides outside the court’s jurisdiction.
The Court clarified the position of law regarding the power of the trial court to recall summons and upheld the judgments in Adalat Prasad (supra) and Subramanium Sethuraman (supra), stating that trial courts do not have inherent powers to recall summons.
The Court overruled the judgment in Meters and Instruments (supra), which had held that Section 143 of the Act confers implied power on the Magistrate to discharge the accused, and clarified that Section 258 of the Code is not applicable to complaints under Section 138 of the Act.

What weighed in the mind of the Court?

The Supreme Court was primarily concerned with the huge backlog of cases under Section 138 of the Negotiable Instruments Act, 1881, and the need to expedite the disposal of these cases. The Court’s reasoning was driven by the following points:

Need for Expeditious Trials: The Court emphasized the importance of quick disposal of cases under Section 138 to ensure the smooth functioning of the judicial system and to uphold the credibility of cheque transactions.
Prevention of Mechanical Procedures: The Court sought to prevent the mechanical conversion of summary trials to summons trials and insisted on recording reasons for such conversions.
Protection of Accused’s Rights: The Court recognized the need for a proper inquiry before issuing summons, particularly when the accused resides outside the court’s jurisdiction, to protect their rights.
Harmonious Interpretation of Laws: The Court aimed to harmonize the provisions of the Negotiable Instruments Act, 1881, and the Code of Criminal Procedure, 1973, to ensure efficient and fair trials.
Practical Solutions: The Court adopted a practical approach by recommending amendments to the Act, permitting evidence on affidavit, and introducing the concept of deemed service of summons.

Reason	Percentage
Need for Expeditious Trials	30%
Prevention of Mechanical Procedures	25%
Protection of Accused’s Rights	20%
Harmonious Interpretation of Laws	15%
Practical Solutions	10%

Category	Percentage
Fact	30%
Law	70%

Logical Reasoning

Issue 1: Conversion of Summary Trials

↓

Magistrates should record reasons for converting summary trials to summons trials.

↓

High Courts to issue practice directions to ensure compliance.

Issue 2: Inquiry under Section 202

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Inquiry is mandatory when the accused resides outside jurisdiction.

↓

Magistrate to determine if sufficient grounds exist to proceed.

Issue 3: Evidence on Affidavit

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Evidence of witnesses on behalf of the complainant can be taken on affidavit for inquiries under Section 202.

↓

Magistrate can also restrict the inquiry to documents.

Issue 4: Multiple Offences in One Trial

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Amendment to the Act to allow one trial for multiple Section 138 offences within 12 months.

↓

Notwithstanding the restriction in Section 219 of the Code.

Issue 5: Deemed Service of Summons

↓

Service of summons in one complaint can be deemed service for all complaints related to the same transaction.

↓

High Courts toissue practice directions to Trial Courts.

Issue 6: Inherent Powers of Trial Courts

↓

Trial Courts do not have inherent power to review or recall the issue of summons.

↓

Except under Section 322 of the Code for lack of jurisdiction.

Issue 7: Applicability of Section 258 of the Code

↓

Section 258 of the Code is not applicable to complaints under Section 138 of the Act.

↓

Findings in Meters and Instruments (supra) are overruled.

Ratio

The ratio of the judgment can be summarized as follows:

Mandatory Inquiry under Section 202: An inquiry under Section 202 of the Code is mandatory when the accused resides outside the court’s jurisdiction before issuing summons in a complaint under Section 138 of the Act.
Evidence on Affidavit: For the purpose of inquiry under Section 202 of the Code, evidence of witnesses on behalf of the complainant can be taken on affidavit.
No Inherent Power to Recall Summons: Trial Courts do not have the inherent power to review or recall the issue of summons, except under Section 322 of the Code for lack of jurisdiction.
Section 258 Not Applicable: Section 258 of the Code is not applicable to complaints under Section 138 of the Act.
Practice Directions for Summary Trials: High Courts are requested to issue practice directions to Magistrates to record reasons before converting summary trials to summons trials.
Deemed Service of Summons: High Courts are requested to issue practice directions to treat service of summons in one complaint as deemed service for all complaints related to the same transaction.
Legislative Amendment for Multiple Offences: The Court recommended amendments to the Act to allow one trial for multiple offences under Section 138 committed within 12 months, notwithstanding Section 219 of the Code.

Conclusion

The Supreme Court’s judgment in the suo motu writ petition regarding the expeditious trial of cases under Section 138 of the Negotiable Instruments Act, 1881, is a significant step towards streamlining the process and reducing the massive backlog of cases. The Court has clarified several key legal issues, including the mandatory nature of inquiry under Section 202 of the Code, the admissibility of evidence on affidavit, and the absence of inherent power for trial courts to recall summons. By requesting High Courts to issue practice directions, the Court aims to ensure uniformity and efficiency in the trial process. The recommendation for legislative amendments to allow joint trials for multiple offences under Section 138 within a 12-month period is another crucial step towards expediting trials. Overall, this judgment provides a clear roadmap for the judiciary to handle Section 138 cases more effectively, thereby promoting the efficient administration of justice.

Source: Supreme Court clarifies procedures for Section 138 NI Act cases to expedite trials (16 April 2021)