Section 138 of the Negotiable Instruments Act, 1881 penalizes the drawer of a cheque for the dishonour of a cheque issued by him for either insufficient funds or that the cheque exceeds the amount arranged to be paid from such account. The said provision was added so that the people who are issuing cheques as a mode of payment honour the said cheques and there are no defaults in making the payment.
There is a proviso added to Section 138 Negotiable Instruments Act whereby which the Cheque must be presented to the bank within a period of 6 months (now 3 months after the RBI circular of 2011), or within the period of its validity, whichever is earlier. The said proviso (a) is being reproduced hereunder:
“(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;”
Hence, offence under Section 138 NI Act will be made out only if the cheque in question is presented to the bank either within a period of 3 months from the date mentioned on the cheque or through its validity, whichever is earlier.
Recently, the RBI has merged various Banks to mitigate the risks of smaller finance banks. Due to such mergers, the cheques of the erstwhile bank have been discontinued. Public notices have been issued by the Bank concerned and the RBI and all the consumers / account holders have been informed well in advance regarding the merger of the bank because of which the cheques of the erstwhile bank would be inoperative with effect from a particular date.
In such a scenario, will a cheque bounce case be made out against the drawer of the cheque if the cheque of the erstwhile bank which is drawn on / dated after the date of merger / last date of the validity of the cheque (because of the bank merger) is presented in the bank and is dishonoured?
The Allahabad High Court in the case of Archana Singh Gautam v. State of UP & Anr., 2024 SCC OnLine All 4599 : Application u/s 482 No. 9536 of 2024 has held that in case a cheque is presented after the date of the merger of the bank and the said cheque is returned dishonoured due to the merger of the bank since the cheque ceases to be valid, an offence under Section 138 NI Act will not be made out. The Allahabad High Court after discussing the provision of Section 138 NI Act and also the proviso appended thereto has held that the cheque of the erstwhile bank after merger with another bank will not be a valid cheque on the date of the presentation and hence the dishonouring will not attract liability under Section 138 NI Act. The relevant paragraphs of the judgment are being reproduced hereunder:
“7. From the perusal of Section 138 N.I. Act, it is clear that if any invalid cheque is presented before the Bank and the same was dishonoured, then there is no liability under Section 138 N.I. Act would be attracted, and the cheque of Allahabad Bank is invalid after 30.09.2021 after merging the Allahabad Bank into the Indian Bank on 01.04.2020. Therefore, dishonouring such cheques after 30.09.2021 will not attract liability u/s 138 N.I. Act.
8. It is also relevant to mention here that as per Section 118(b) of N.I. Act a cheque shall be deemed to be drawn on the date which is mentioned in the cheque even if same may post dated.
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11. In view of the above analysis, the cheque in question, which was issued from the account maintained in erstwhile Allahabad Bank after its merger with Indian Bank, was not the valid cheque on the date of presentation before the Indian Bank as required by proviso (a) of Section 138 of N.I. Act; therefore, dishonouring the same will not attract the liability u/s 138 N.I. Act.
12. 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.”
While the Allahabad High Court relies upon proviso (a) to Section 138, it also places reliance upon Section 118(b) of the NI Act which states as under:
“118. Presumptions as to negotiable instruments.—Until the contrary is proved, the following presumptions shall be made:—
(b) as to date:—that every negotiable instrument bearing a date was made or drawn on such date;”
Hence, by virtue of Section 118(b), even if there is a post dated cheque / security cheque wherein the holder of the cheque enters the date before presentation in the bank, it will be considered that the cheque was drawn on such date and if the date is after the date of merger / beyond the period of validity, the dishonour of such cheque will not attract liability under Section 138 NI Act.
It is interesting to note that the Allahabad High Court has in the abovementioned judgment directed that the abovementioned analogy will apply to all cases of cheques where banks have been merged. It is pertinent to mention herein that the Allahabad High Court Judgment was impugned before the Supreme Court of India in SLP (Crl.) No. 11392 of 2024 and the Supreme Court has dismissed the said SLP. As such, the judgment of the Allahabad High Court has attained finality.
Similarly, the Andhra Pradesh High Court in the case of Ganta Kavitha Devi v. State of Andhra Pradesh, 2024 SCC OnLine AP 5115 : Criminal Petition No. 8827/2022 has relying upon the judgment of the Allahabad High Court held that offence under Section 138 NI Act will not be made out in case of merger of bank. The relevant paragraphs are being reproduced hereunder:
“9. From the perusal of above provision, it is clear that if any invalid cheque is presented before the Bank and the same is dishonoured, it can be said that there is no liability under Section 138 of NI Act. Admittedly, in the instant case, the subject cheque was issued on 20.09.2021 and the same was drawn on State Bank of Hyderabad. By that date, State Bank of Hyderabad was merged with State Bank of India and the cheques of the said bank were valid till 31.03.2018 only. As per the proviso (a) of Section 138 of N.I. Act, if the cheque itself is invalid, the Bank is bound to dishonour the same. As such, on presentation of the said cheque before ICICI Bank, the same was returned on 22.09.2021 with an endorsement “Invalid cheque (SBH)”. Therefore, it can be presumed that the cheque in question was invalid on the date of presentation before the ICICI Bank.
10. In view of the above discussions, the subject cheque, which was issued from the account maintained in erstwhile State Bank of Hyderabad after its merger with State Bank of India, was not a valid cheque on the date of its presentation before the ICICI Bank as required by proviso (a) of Section 138 of N.I. Act. Hence, dishonouring the same will not attract the liability under Section 138 of N.I. Act. Therefore, this Court is of the view that, it is a fit case to exercise the jurisdiction under Section 482 Cr. P.C., for quashing the proceedings against the Petitioner.”
The High Court of Jharkhand in the case of Md. Nasim Ansari v. State of Jharkhand, 2021 SCC OnLine Jhar 482 : Cr. Rev. No. 685 of 2012 in a case where the cheque was returned dishonoured because of it being a non-MICR cheque, has held that an offence under Section 138 NI Act will not be made out. The relevant paragraph is being reproduced hereunder:
“18. … Accordingly, the petitioner had no role to play in return of cheques upon second presentation, but the same were not acceptable by the bank itself on account of technical reasons. As per proviso (a) of section 138 of the Negotiable Instrument Act, 1881, the cheque has to be presented within six months from the date it is drawn or within the period of its validity, whichever is earlier. This Court is of the considered view that bouncing of cheques upon second presentation on account of them being not acceptable by the bank (on account of being non-MICR cheque) was not on account of any act or omission of the petitioner. Accordingly, the said bouncing of cheques on second presentation cannot be a ground for prosecution under Section 138 of the Negotiable Instruments Act, 1881 as one of the conditions precedent for prosecution i.e. the cheque itself should be valid on the date of its presentation, is not satisfied when the cheques are returned as not acceptable to the bank on account of being non-MICR cheques.”
In contrast to the abovementioned three judgments of the Allahabad High Court, Andhra Pradesh High Court and Jharkhand High Court, the Delhi High Court has expressed a different opinion in the case of Premanand Prusty v. Sita Devi, 2023 SCC OnLine 7745 : Crl. M.C. 1566 of 2023. The relevant paragraph is being reproduced hereunder:
“15. In this regard, this Court finds merit in the contention of the learned counsel for the complainant that even if the cheque was not encashed and had returned unpaid for the reasons that Bank was not accepting the MICR Code, the petitioner after receipt of legal notice could have made the payment to the complainant or could have issued a fresh cheque towards the discharge of his liability. The fact remains that the cheque in question, which has been undisputedly signed by the petitioner, was presented for encashment with the Bank by the complainant towards discharge of debt, which the complainant claims is reflected from the promissory notes and undertakings signed by the petitioner, and upon its presentation, the cheque had been returned unpaid by the Bank to the complainant. Thereafter, the petitioner had also failed to make payment of the amount in question to the complainant after service of legal notice and therefore, the present complaint was filed under Section 138 of NI Act.”
The Delhi High Court has thus observed that irrespective of the fact whether the cheque was valid or not, the cheque once issued by the drawer must be honoured by him and if a cheque is returned dishonoured for whatever reason, a duty is cast upon the drawer of the cheque to reissue the cheque to the holder.
It is interesting to note that while the decision of the Delhi High Court is contrary to 3 different High Courts, it is also contrary to its own judgment of 2009 passed in Ganpati Oil Pvt. Ltd. v. K. S. Consupro India Pvt. Ltd., 2009 SCC OnLine Del 4282 : Crl M.C. 1478 of 2008, wherein the Delhi High Court had held that a cheque returned dishonoured for the reason that it was not presented to the bank concerned would not attract the provision of Cheque Bounce under Section 138 NI Act. Interestingly, while the Delhi High Court in 2009 has held that no offence will be made out merely because the non-clearance of cheque was due to the fact because it was not presented at the proper branch of the Bank, in 2023, diverting from the previous binding precedent without distinguishing it, the Delhi High Court has held that even if the cheque was invalid because of the merging of the bank and the erstwhile bank not being in existence, an offence would be made under Section 138 NI Act. The relevant paragraph of the said judgment reproduced hereunder:
“5. The submissions of Counsel for the parties have been considered. The admitted position is that the cheque in question did not get dishonoured either due to insufficiency of funds or that the cheque amount exceeded the arrangement with the drawer’s Bank. Section 138, NI Act cannot be said to be attracted when the cheque is returned unpaid on the ground that it was not presented at the proper branch of a Bank. In fact the title to Chapter XVII of NI Act reads: “On penalties in case of dishonour of certain cheques for insufficiency of funds in the accounts.” The title to Section 138, NI Act also reads: “Dishonour of cheque for insufficiency, etc. of funds in the account.” It is, therefore, not possible for this Court to agree with the submission of learned Counsel for the respondent that the dishonour for some other reason like the cheque not being presented at the proper branch of the Bank of the drawer would attract the offence under Section 138, NI Act. Since the above facts are not really in dispute, no purpose will be served in sending the petitioners to face trial if ultimately there is no likelihood of their being convicted.”
Interestingly, the judgment of the Delhi High Court in Premanand Prusty (supra) has been distinguished the Allahabad High Court in Archana Singh Gautam (supra) wherein the Allahabad High Court has observed that, “So far as the judgment of the Delhi High Court in Sri Premanand Prusty (Supra) relied upon the counsel for the opposite party no. 2 is concerned, this Court is of the view that this judgment has not been correctly decided”.
Informative!