SUPREME COURT OF INDIA CLARIFIES: TERRITORIAL JURISDICTION UNDER NI ACT LIES WHERE PAYEE MAINTAINS BANK ACCOUNT, NOT WHERE CHEQUE IS DEPOSITED
Introduction
The Hon’ble Supreme Court of India (“SC”), in Prakash Chimanlal Sheth v. Jagruti Keyur Rajpopat (2025 INSC 897), has by its order dated 25th July 2025, declared that territorial jurisdiction under Section 138 of the Negotiable Instruments Act, 1881 (“N.I. Act”) lies where the payee maintains the bank account through which the cheque is presented for collection. The Court clarified that the physical location of the bank branch where the cheque is deposited does not determine jurisdiction.
Facts
Parties Involved:
Appellant: Prakash Chimanlal Sheth
Respondent: Jagruti Keyur Rajpopat
Conflict:
The core conflict concerns territorial jurisdiction under Section 138 of the N.I. Act. Mr. Prakash Chimanlal Sheth (“Appellant that Mr. Keyur Lalitbhai Rajpopat borrowed Rs.38,50,000/- (Rupees thirty-eight lakh and fifty thousand only), and his wife, Mrs. Jagruti Keyur Rajpopat (“Respondent”), stood as guarantor and issued 4 (four) cheques in September 2023 towards discharge of joint liabilities. Upon dishonour of the Cheques for insufficient funds at Kotak Mahindra Bank, Opera House Branch, Mumbai, the Appellant filed complaints before the Judicial Magistrate, Fifth Court, Mangalore (“Magistrate”). The Magistrate returned the complaints for want of territorial jurisdiction, citing that the location of the Bank where the cheques were dishonoured is in Mumbai. Aggrieved thereby, the Appellant approached the High Court of Karnataka at Bengaluru (“HC”). However, the HC upheld the Magistrate’s order and dismissed the petitions.
Issues:
- Where should the Appellant file complaints for offences under Section 138 of the NI Act when the cheques were deposited in a branch different from the Appellant’s bank account branch?
- Whether the learned Magistrate and the HC erred in dismissing the complaints on grounds of territorial jurisdiction?
Arguments
Appellant’s Arguments:
The Appellant contended that he maintained his bank account with Kotak Mahindra Bank’s Bendurwell, Mangalore Branch, and that the cheques issued by the Respondent were deposited at the Opera House Branch, Mumbai, solely for the purpose of crediting his Mangalore account. The Appellant argued that both the learned Magistrate and the HC erred in assuming that his account was maintained at the Mumbai branch, which led to an incorrect conclusion on territorial jurisdiction. Relying on Section 142(2)(a) of the N.I. Act, and maintained that the proper jurisdiction for filing complaints lies where the payee’s account is held, in this case Mangalore, and therefore his complaints were rightly filed before the Mangalore court.
Respondent’s Arguments:
The Respondent, in her counter-affidavit, acknowledged that while the Appellant initially maintained an account at the Kotak Mahindra Bank, Opera House Branch, Mumbai, it had been transferred to the Bendurwell Branch, Mangalore, prior to the presentation of the cheques. Though she initially implied that the Appellant’s account was in Mumbai, she later accepted through bank records and a letter that his account was with the Mangalore branch. Nonetheless, she contested the jurisdiction of the Mangalore Court on the ground that the cheques were physically presented at the Mumbai branch. She also submitted her own bank account details with Kotak Mahindra Bank but did not dispute the current status of the Appellant’s account being held in Mangalore.
Held:
The SC held that, the learned Magistrate and the HC had both erred in their understanding of the applicable legal framework governing territorial jurisdiction under Section 138 of the N.I. Act. Relying on Section 142(2)(a) of the N.I. Act, and the authoritative judgment in Bridgestone India Pvt. Ltd. vs. Inderpal Singh, (2016) 2 SCC 75, the Court reiterated that jurisdiction lies with the court within whose local limits the payee maintains the account through which the cheque is presented for collection. It was clearly established through documentary evidence that the Appellant maintained his account at the Bendurwell, Mangalore Branch of Kotak Mahindra Bank, and had merely presented the cheques at the Mumbai branch for collection purposes. Accordingly, the SC concluded that the Magistrate’s decision to return the complaints on grounds of lack of jurisdiction, and the HC’s affirmation of that view, were legally unsustainable and contrary to the statutory mandate.
Conclusion:
In conclusion, the SC allowed the appeals and set aside the impugned orders passed by the HC and the Magistrate. The SC directed the Magistrate to entertain the complaint cases filed by the Appellant and to adjudicate them expeditiously in accordance with law. It was further ordered that all pending applications, if any, shall stand closed.
Takeaway:
- The Court clarified that territorial jurisdiction lies where the payee maintains the bank account through which the cheque is presented for collection, not where the cheque is physically deposited.
- As per Section 142(2)(a) of the N.I. Act, the place where the payee’s account exists determines jurisdiction, not the drawee bank’s branch.
- Simply presenting the cheque at a different branch does not confer jurisdiction on the courts in that area.