1. Complaint under Negotiable Instruments Act — Cheque dishonour — Cheque issued by merged bank — Validity of cheque challenged. (Para 2 , 3 , 6 )
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2024 Supreme(Online)(ALL) 3202
HIGH COURT OF ALLAHABAD
Hon'ble Arun Kumar Singh Deshwal,J.
Smt Archana Singh Gautam – Appellant
Versus
State Of U.P. And Another – Respondent
APPLICATION U/s 482 No. - 9536 of 2024 at Allahabad
Important Points
Dishonouring a cheque that is invalid on the date of presentation (e.g., due to the expiration of a validity window following a bank merger) does not attract liability under Section 138 of the Negotiable Instruments Act, as Proviso (a) requires presentation within its validity.
Subject
Criminal Law - Negotiable Instruments Act
Act Referred
N.I. Act, 1881: S.138, S.118(b)
Headnote
(A) Negotiable Instruments Act, 1881 - Section 138, Proviso (a) and Section 118(b) - Dishonour of cheque - Period of validity - In a case where a bank has merged with another bank and a specific deadline was set for honoring cheques of the erstwhile bank, any cheque presented after such deadline is considered invalid - Proviso (a) to Section 138 requires that the cheque must be presented to the bank within its period of validity - Bouncing of an invalid cheque does not attract liability under Section 138 of the Act (Paras 6, 7 and 11).
(B) Date of Cheque - Section 118(b) of the Act provides that a cheque shall be deemed to be drawn on the date mentioned in the cheque, even if the same may be post-dated (Para 8).
Facts of the case:
A cheque dated 02.06.2023 was issued from an account maintained in a bank that had merged into another bank on 01.04.2020. The successor bank had stipulated that cheques of the erstwhile bank would be honored only until 30.09.2021. The cheque in question was presented on 21.08.2023 and returned with the endorsement “wrongly delivered not drawn on us”.
Findings of Court:
The cheque was invalid on the date of presentation because it was issued from the account of the erstwhile bank after the date until which such cheques were to be honored. Consequently, the mandatory conditions for initiating proceedings under Section 138 of the Act were not satisfied.
Issues: Whether the dishonor of a cheque issued from a merged bank after the prescribed validity period for such cheques has lapsed attracts criminal liability under Section 138 of the Negotiable Instruments Act.
Ratio Decidendi: For Section 138 to be attracted, the cheque must be presented within its period of validity as per Proviso (a). If a cheque is invalid on the date of presentation due to the terms of a bank merger, its dishonor does not lead to criminal liability under Section 138.
Result: Application allowed and the proceeding is hereby quashed.
(B) Date of Cheque - Section 118(b) of the Act provides that a cheque shall be deemed to be drawn on the date mentioned in the cheque, even if the same may be post-dated (Para 8).
Facts of the case:
A cheque dated 02.06.2023 was issued from an account maintained in a bank that had merged into another bank on 01.04.2020. The successor bank had stipulated that cheques of the erstwhile bank would be honored only until 30.09.2021. The cheque in question was presented on 21.08.2023 and returned with the endorsement “wrongly delivered not drawn on us”.
Findings of Court:
The cheque was invalid on the date of presentation because it was issued from the account of the erstwhile bank after the date until which such cheques were to be honored. Consequently, the mandatory conditions for initiating proceedings under Section 138 of the Act were not satisfied.
Issues: Whether the dishonor of a cheque issued from a merged bank after the prescribed validity period for such cheques has lapsed attracts criminal liability under Section 138 of the Negotiable Instruments Act.
Ratio Decidendi: For Section 138 to be attracted, the cheque must be presented within its period of validity as per Proviso (a). If a cheque is invalid on the date of presentation due to the terms of a bank merger, its dishonor does not lead to criminal liability under Section 138.
Result: Application allowed and the proceeding is hereby quashed.
Legal Category Hierarchy
- banking law
- crime and sentencing
- practice and procedure
-
mergers and acquisitions
-
bank merger
-
post-merger obligations
- cheque exchange and validity period (Para 6)
-
post-merger obligations
-
bank merger
Advocates:
Petitioner: Diwakar Tiwari and Gyanendra Singh
Respondent: Ashish Pandey , G.A. and Vivek Kumar Singh
Petitioner: Diwakar Tiwari and Gyanendra Singh
Respondent: Ashish Pandey , G.A. and Vivek Kumar Singh
Table of Contents
2. Invalid cheque after bank merger does not attract Section 138 liability versus dishonour of invalid cheque still attracts offence. (Para 3 , 4 , 5 )
3. Cheque from erstwhile Allahabad Bank was invalid after 30.09.2021 merger cut-off; proviso (a) of Section 138 requires presentation within validity period. (Para 6 , 7 , 8 , 9 )
4. Dishonour of an invalid cheque, presented beyond its validity period, does not attract liability under Section 138 of the NI Act. (Para 7 , 11 )
5. Application allowed; criminal proceedings and summoning order under Section 138 NI Act quashed. (Para 13 )
6. Does Section 138 of the Negotiable Instruments Act apply when a cheque is dishonoured because it is invalid due to a bank merger?
No. If the cheque is invalid and presented after its validity period, its dishonour does not attract liability under Section 138 NI Act. (Para 7 , 11 )
7. What is the legal effect of a cheque issued by a bank that has merged into another bank, after the cut-off date for validity?
Such a cheque is invalid and cannot be the basis for a complaint under Section 138 NI Act if dishonoured after the cut-off date. (Para 6 , 7 , 9 )
8. Can the reasoning in NEPC Micon Ltd. be applied to cases where a cheque is returned as 'invalid' rather than for 'insufficient funds'?
No. NEPC Micon addressed reasons for dishonour under insufficient funds, not the fundamental validity of the cheque itself under proviso (a). (Para 10 )
1. Heard learned counsel for the applicant, learned counsel for the opposite party no. 2 and Sri Brijesh Kumar Dwivedi, learned AGA for the State.
2. The present application has been filed for quashing the entire criminal proceeding, including the impugned summoning order dated 15.02.2024 passed by the learned Special Judicial Magistrate-II, Banda in Complaint Case No. 712 of 2023 (Brajesh Kumar Singh Vs. Smt. Archana Singh Gautam and others), under Section 138 N.I. Act, 1881 , P.S. Kotwali Nagar, District Banda, pending in the Court of learned Special Judicial Magistrate-II, Banda.
3. The counsel for the applicant contends that the Bank returned the cheque in question because the cheque was invalid as the cheque in question was issued from the account maintained in Allahabad Bank on 02.06.2023, though the Allahabad Bank had already merged into the Indian Bank on 01.04.2020, and the cheque of the Allahabad Bank was valid till 30.09.2021; therefore, on the date of issuance as well as presentation of the cheque, it was invalid. Therefore, bouncing of such invalid cheque will not attract the liability u/s 138 N.I. Act.
4. Per contra, learned counsel for the opposite party no. 2 has relied upon the judgment of Hon'ble Apex Court in the case of NEPC Micon Ltd. V. Magma Leasing Ltd ( 1999) 4 SCC 253 in the judgment the Apex Court observed in paragraph no. 7 that the expression “insufficient to honour the cheque is a genus of which the expression” that account being” is species and paragraph no. 9 of the above judgment the Hon'ble Apex Court has observed that “the interpretation which sought for, were given, then it would only encourage dishonest persons” should be avoided. On relying on the above judgment, the counsel for the opposite party no. 2 has submitted that the invalid cheque issued by a person is also covered u/s 138 N.I. Act. He also relied upon the judgment of Delhi High Court in the case of Sri Premanand Prusty Vs. Smt. Sita Devi passed in CRL.M.C. No. 1566 of 2023, in that case the Delhi High Court had observed that once the signature on the cheque is not disputed then the cheque if returned on the ground of its validity then the prima facie the offence u/s 138 N.I. Act will be attracted.
5. Learned AGA has also adopted the argument of counsel for the opposite party no. 2 and submitted that if the applicant was aware that the cheque in question has been declared invalid as the Allahabad Bank has already been merged into Indian Bank then just to cheat the opposite party no. 2, he had issued this cheque; therefore, the offence u/s 138 N.I. Act, will be attracted.
6. After hearing the rival submission of the counsel for the parties and perused the record, it is clear that the Allahabad Bank had merged into the Indian Bank on 01.04.2020. Thereafter, a wide circular was made by the Indian Bank in newspapers mentioning the fact that all the cheques issued by Allahabad Bank can be exchanged with the cheques of Indian Bank by 30.09.2021, and the cheque from Allahabad Bank will be honoured by 30.09.2021. Therefore, the cheque issued by the Allahabad Bank was valid till 30.09.2021, and all the cheques of Allahabad Bank which were presented before the Indian Bank till 30.09.2021, were honoured by the Indian Bank, and after 30.09.2021, cheques issued from the account maintained by the erstwhile Allahabad Bank were declared invalid for honouring. Section 138 N.I. Act prescribes the condition for initiation of proceeding on bouncing the cheque in the proviso (a) of Section 138 N.I. Act. As per the proviso (a) of Section 138 N.I. Act, cheque must be presented to the Bank during its validity. Section 138 N.I. Act is being quoted as under:-
“138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt o
