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No liability under NI Act for dishonoured cheques of merged banks presented after validity period [Read Order]

By Saket Sourav      11 June, 2024 11:29 AM      0 Comments
No liability under NI Act for dishonoured cheques of merged banks presented after validity period

Allahabad: The Allahabad High Court has recently issued a significant ruling regarding cheque bounce cases involving merged bank accounts. The court held that dishonoured cheques from a bank that has undergone a merger cannot attract liability under Section 138 of the Negotiable Instruments Act, 1881.

The court was hearing an application seeking to quash criminal proceedings initiated against the petitioner in a complaint case under Section 138 of the Negotiable Instruments Act, 1881.

"If a cheque is presented after the validity period for cheques of a merged bank, dishonouring it will not attract liability under Section 138 of the NI Act," the court observed while allowing the application.

FACTS:

The case pertained to a cheque dated 02.06.2023, issued by Smt. Archana Singh Gautam from her account with the erstwhile Allahabad Bank. However, the Allahabad Bank had already merged with the Indian Bank on 01.04.2020. The cheque was presented to the Indian Bank on 21.08.2023 after the validity period for Allahabad Bank cheques had expired on 30.09.2021.

The Indian Bank dishonoured the cheque on 25.08.2023 with the endorsement "wrongly delivered, not drawn on us." After this, a complaint case was filed against her under Section 138 of the Negotiable Instruments Act in the court of the Special Judicial Magistrate-II, Banda.

ARGUMENTS:

The counsels appearing on behalf of the applicant argued that the cheque was invalid as it was issued from an account of the erstwhile Allahabad Bank, which had already merged with the Indian Bank. Therefore, dishonouring such an invalid cheque would not attract liability under Section 138 of the NI Act.

Also Read -  Demand Notice via courier valid in cheque bounce cases: Allahabad High Court [Read Order]

Per contra, the counsel appearing for the opposite party relied on the Supreme Court's judgment in NEPC Micon Ltd. v. Magma Leasing Ltd. and a Delhi High Court ruling in Sri Premanand Prusty v. Smt. Sita Devi to contend that an invalid cheque issued by a person is also covered under Section 138 of the Negotiable Instruments Act, 1881. 

Additionally, it was submitted that if the applicant was aware that the cheque in question had been declared invalid as the Allahabad Bank had already merged into the Indian Bank, then just to cheat the opposite party, such a cheque was issued. Therefore, they argued that the offence under Section 138 of the NI Act can be made out against the applicant.

DECISION:

The court, after hearing the submissions of both parties, referred to the provisions of Section 138 of the NI Act and observed:

"From the perusal of Section 138 of the NI Act, it is clear that if any invalid cheque is presented before the bank and the same is dishonoured, then no liability under Section 138 of the NI Act would be attracted, and the cheque of Allahabad Bank is invalid after 30.09.2021 following the merger of Allahabad Bank into Indian Bank on 01.04.2020. Therefore, dishonouring such cheques after 30.09.2021 will not attract liability under Section 138 of the NI Act."

Further, it also observed that the cheque in question, which was issued from the account maintained in the erstwhile Allahabad Bank after its merger with Indian Bank, was not a valid cheque on the date of presentation before Indian Bank as required by proviso (a) of Section 138 of the NI Act; therefore, dishonouring the same will not attract liability under Section 138 of the NI Act.

The court further stated, "This Court is also of the view that the above analogy will also be applicable to the cheques of all banks which had merged with other banks."

In conclusion, the court allowed the application and quashed the proceedings in the complaint case against the applicant. 

 

[Read Order]



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Saket is a final-year law student at The National Law University and Judicial Academy, Assam. He has...Read more

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