The Allahabad High Court has ruled that cheques from former banks (those merged with another bank on April 1, 2020) became invalid after September 30, 2021. As a result, the dishonor of such cheques does not constitute an offence under Section 138 of the Negotiable Instruments Act, 1881.
Justice Arun Kumar Singh Deshwal made this observation while allowing a petition filed by Archana Singh Gautam seeking the quashing of the entire criminal proceeding, including the summoning order in a Complaint Case under Section 138 of the NI Act.
“According to Section 138 of the Negotiable Instruments Act, if an invalid cheque is presented and dishonored, no liability under Section 138 N.I. Act would be incurred. Since the cheque from Allahabad Bank became invalid after September 30, 2021, following its merger into Indian Bank on April 1, 2020, dishonoring such cheques after this date does not attract liability under Section 138 N.I. Act,” observed the court.
In this case, a cheque was presented to ‘Indian Bank’ by the opposite party on August 21, 2023, and was returned on August 25, 2023, with the endorsement “wrongly delivered not drawn on us.” The opposite party then filed a complaint against the petitioner in the Court of Special Judicial Magistrate-II, Banda.
Before the High Court, the applicant’s counsel argued that the bank returned the cheque because it was invalid at the time of issuance and presentation. Therefore, bouncing such an invalid cheque does not incur liability under Section 138 NI Act.
Conversely, the counsel for the opposite party and the Additional Government Advocate (AGA) argued that if the applicant knew the cheque was invalid due to the merger, issuing it was an attempt to deceive the opposite party, thus constituting an offence under Section 138 NI Act.
The Court, while allowing the petition, clarified that this ruling also applies to cheques from all banks that have merged with other banks.
