Pale Horse Designs vs Natarajan Rathnam

P.R. Shivakumar, J.—Held: A combined reading of Sections 1, 11, 12 and 134 to 137 of the Negotiable Instruments Act, 1881, will make it clear that a cheque made/drawn in a foreign country on a drawee bank functioning in the foreign country and made payable therein shall be a foreign instrument and the law of the country wherein the cheque was drawn or made payable shall be the law governing the rights and liabilities of the parties and the dishonour of the cheque. As such the payee cannot select a country and present it through a bank therein for collection to confer jurisdiction on a court functioning therein. If the payee is given such a right to proceed criminally against the drawer by selecting the jurisdiction, the same will encourage forum shopping making the payees to go to a country wherein the dishonour of the cheque is made a criminal offence and wherein the law is more favourable to the payee enabling him to collect the amount covered by the cheque by way of fine or compensation by resorting to criminal prosecution. A person who is not a citizen of India for an act committed in a foreign country wherein it is not a punishable offence, cannot be prosecuted in India.

Negotiable Instruments Act, 1881, Sections 134, 135, 136, 137 and 138 - Acts constituting the offence namely issuance of cheque, its dishonour, failure to make payment of cheque after receipt of notice committed in U.S.A. cannot be prosecuted in India, on the ground that cheques were dishonoured on presentation in India - Criminal P.C. 1973, Sections 177 and 188.

A combined reading of Sections 1, 11, 12 and 134 to 137 of the Negotiable Instruments Act, 1881 will make it clear that a cheque made/drawn in a foreign country on a drawee bank functioning in the foreign country and made payable therein shall be a foreign instrument and the law of the country wherein the cheque was drawn or made payable shall be the law governing the rights and liabilities of the parties and the dishonour of the cheque. As such the payee cannot select a country and present it through a bank therein for collection to confer jurisdiction on a court functioning therein. If the payee is given such a right to proceed criminally against the drawer by selecting the jurisdiction, the same will encourage forum shopping making the payees to go to a country wherein the dishonour of the cheque is made a criminal offence and wherein the law is more favourable to the payee enabling him to collect the amount covered by the cheque by way of fine or compensation by resorting to criminal prosecution. The acts constituting the offence, namely issuance of the cheque, the dishonour of the cheque, the failure to make payment of the cheque after receipt of the statutory notice were all committed by them not in India, but in USA. Therefore, they cannot be prosecuted in India for the said act as an offence punishable u/s 138 of the Negotiable Instruments Act, 1881.

Negotiable Instruments Act, 1881, Sections 137 and 138 - Presumption enshrined in Section 137 regarding position of foreign law shall not be extended to penal provision found in Section 138.

Section 137 also deals with the presumption of law of foreign country regulating civil rights and liabilities in respect of negotiable instruments. When an Act is not generally recognised by the international community, by a general convention, treaty or a universal declaration to be an offence, no presumption can be made that, simply because such an act made is punishable as an offence under the law of India, the same shall have also been made punishable under the law of any foreign country. It must be kept in mind that though the liability is civil in nature, by a special provision u/s 138 of the Negotiable Instruments Act, 1881, the dishonour of a cheque when the cheque amount is not paid within a specified time after the receipt of statutory notice of demand, it is made an offence. The section has been placed in Chapter XVII of Negotiable Instruments Act, 1881. Therefore, the presumption enshrined in Section 137 i.e., found in Chapter XVI regarding the position of foreign law shall not be extended to the penal provision found in Section 138 of the Negotiable Instruments Act, 1881.

Negotiable Instruments Act, 1881, Section 134 - Liability of a foreign negotiable instrument shall be governed by law of the place where the instrument was made in all essential matters.

Section 134 is to the effect that the liability of the maker or drawer of a foreign negotiable instrument, in the absence of a contract to the contrary, shall be regulated in all essential matters by the law of place where the instrument was made. In respect of such instruments, the liabilities of acceptor or indorse alone shall be governed by the law of the place where the instrument is made payable. From Section 134 it is quite clear that the liability of a foreign negotiable instrument shall be governed by law of the place where the instrument was made in all essential matters. In this case, it is not in dispute that the cheques were drawn in Massachusetts, United States of America. Therefore, in all essential matters the law in the United States of America shall be attracted towards any action against the drawer. It is again reiterated that the said section deals with the question of civil liability and not criminal liability.