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IN THE HIGH COURT OF KERALA AT ERNAKULAM
V.G. ARUN, J.
Prabhakaran P.V. S/o T.C. Velayudhan - Appellant
Versus
Jeena P.P W/o Anish Kumar - Respondent
Crl. M.C. No. 1612 of 2023
Decided On : 27-05-2025
Based on the provided legal document, the key argument notes are as follows:
Invalidity of Cheques Drawn on a Defunct Bank:
Cheques issued on a bank that has ceased to exist due to amalgamation or merger are not considered valid negotiable instruments. Specifically, cheques drawn on the State Bank of Travancore after its amalgamation with the State Bank of India are invalid because they are not drawn on a "specified banker" as required by the definition of a cheque (!) (!) .
Definition of a Cheque and Banking Status:
A cheque must be drawn on a recognized and specified banker for it to be valid. After the amalgamation, the erstwhile bank (SBT) ceased to be a bank and, therefore, any cheques issued on it post-amalgamation do not qualify as valid cheques under the law (!) (!) (!) - (!) .
Legal Implication of Bank Amalgamation:
The transfer of business, assets, and liabilities, including cheques, from the defunct bank to the acquiring bank does not retroactively validate cheques issued on the defunct bank after the merger. Consequently, cheques issued on the defunct bank are not legally recognized as valid negotiable instruments (!) .
Liability Under Section 138 of the Negotiable Instruments Act:
For liability to arise under Section 138, the cheque must be valid, drawn on a recognized banker, and maintained in an active account at the time of issuance. Since the account was not in existence or not maintained with a recognized banker when the cheques were issued, liability under Section 138 does not attach (!) (!) .
Effect of the Bank Merger on Existing Cheques:
The endorsement "funds insufficient" on dishonoured cheques does not establish validity if the cheques themselves are invalid due to being issued on a bank that no longer exists. Therefore, such cheques cannot serve as a basis for criminal liability under Section 138 (!) (!) .
Legal Consequence and Court's Decision:
All proceedings related to these cheques are to be quashed due to the invalidity of the cheques issued on a defunct bank. The court emphasizes that the mere dishonour and the endorsement of "funds insufficient" do not establish criminal liability when the underlying instrument (the cheque) is invalid (!) (!) .
Regulatory Framework and Recognition of Banks:
The definition of a bank under relevant legislation and the regulatory framework for banking operations confirm that only recognized banking institutions are authorized to issue valid negotiable instruments. Post-merger, the original bank's cheques are not recognized as valid unless issued by the successor bank (!) - (!) .
Conclusion:
Cheques issued after the bank's amalgamation, which are not drawn on a recognized banker, are invalid and do not attract liability under the law. The proceedings based on such cheques are to be dismissed accordingly (!) (!) .
These notes should assist in framing arguments that emphasize the importance of the bank's legal status at the time of cheque issuance and the criteria for the validity of negotiable instruments under applicable law.
| Table of Content |
|---|
| 1. details concerning the complaints and dishonoured cheques. (Para 2) |
| 2. arguments regarding the lack of validity of cheques post-amalgamation. (Para 4 , 5) |
| 3. counsel's arguments for validity based on acquisition. (Para 6 , 7) |
| 4. court's observations on validity and regulatory framework. (Para 8 , 9) |
| 5. conclusion leading to the quashing of proceedings. (Para 10 , 11) |
ORDER :
1. The petitioner is the accused in S.T. Nos.894, 895, 896, 897, 898, 899, 900 and 901 of 2021 pending on the files of the Special Judicial Magistrate of First Class (NI Act Cases), Kozhikode. The cases originated from complaints filed by the 1st respondents alleging commission of the offence punishable under Section 138 of the Negotiable Instruments Act (“the N.I.Act” for short) by the petitioner. Briefly stated, the allegations are to the following effect. The accused borrowed a total amount of Rs.1,12,25,000/- from the complainants in tranches and towards discharge of that liability, issued 19 cheques. The cheques, on presentation through the complainants’ Bank, viz; the Punjab National Bank, were returned dishonoured for insufficiency of funds in the account of the accused. Although notices demanding payment of the amounts covered by the cheques were issued and served on the accused, instead of paying the amount, the accused sent replies denying the liability.
2. On receipt of summons, the petitioner entered appearance and thereafter filed petitions under Sections 2 04 and 461 of the Code of Criminal Procedure with the prayer to drop the proceedings, since the averments in the complaints did not disclose the offence under Section 138 of the N.I.Act. The learned Magistrate found that the petition for dropping the proceedings is not maintainable, since cognisance is taken based on private complaints. Having thus found the petition to be not maintainable, the Magistrate proceeded to consider and dismiss them on merits. Aggrieved, the Crl.M.Cs are filed.
3. Heard Adv.Veena Hari for the petitioner, Senior Advocate Lakshminarayanan and Adv.Sharan Shahier for the 1st respondents. Adv.P.Gopal, the learned Amicus Curiae also made detailed submissions.
4. Learned Counsel for the petitioner contended that the impugned orders are ex facie illegal since, after finding the petitions to be not maintainable, the court below should not have decided those petitions on merits. It is submitted that, out of 19 cheques issued, 18 cheques were of the year 2021 and drawn on the State Bank of Travancore, which had ceased to exist on acquisition by the State Bank of India. By reason of the acquisition made with the sanction of the Central Government as per Order No.GSR 160(E) dated 22.02.2017, the business of the subsidiary bank is carried out by the State Bank of India in accordance with the State Bank of India Act, 1955 with effect from the 1st day of April, 2017. It is contended that upon acquisition, the State Bank of Travancore ceased to exist and the acquiring Bank, the State Bank of India, had fixed the validity of cheques of the erstwhile subsidiary bank only upto 31.03.2018. Being so, the cheques drawn on the State Bank of Travancore in the year 2021 had no legal validity.
5. It is then contended that as per Section 6 of the Negotiable Instruments Act, 'a cheque’ is a Bill of Exchange drawn on a specified banker. The State Bank of Travancore, on which the subject cheques were drawn was not a specified Banker in 2021, the bank itself having ceased to exist. It is the submission of the learned counsel that the Punjab National Bank had committed gross illegality by returning the cheques along with dishonour memos bearing the endorsement 'funds insufficient'. Referring to the decision in Archana Singh Gautam v. State of U.P. and Another, 2024 SCC OnLine All 4599, it is pointed out that under identical circumstances, the Allahabad High Court had quashed the complaint filed under Section 138 of the N.I.Act.
6. Learned Counsel for the complainants argued that the endo
Cheques drawn on a defunct bank do not attract liability under Section 138 of the Negotiable Instruments Act.
Cheques drawn on a non-existent bank are invalid, and dishonour of such cheques does not result in liability under Section 138 of the Negotiable Instruments Act.
Cheques drawn on a non-existent bank are legally invalid and cannot attract liability under Section 138 of the Negotiable Instruments Act.
An invalid cheque, due to bank merger, does not attract liability under Section 138 of the Negotiable Instruments Act; courts can quash proceedings lacking legal enforceability.
Cheques post-bank merger returned 'Funds Insufficient' attract Section 146 presumption; validity expiry defence triable at trial, not quashable under Section 482 CrPC despite potential non-compliance....
A cheque drawn on a bank that has ceased to exist loses its identity as a negotiable instrument, rendering any related criminal proceedings invalid.
A cheque must be valid at the time of presentation to attract liability under Section 138 of the N.I. Act; an invalid cheque, due to bank merger, does not incur such liability.
The legal presumption under Section 139 of the NI Act favors the complainant, and factual disputes must be resolved at trial, not pre-trial.
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