Dishonour of cheque issued by erstwhile bank after expiry of its validity: no criminal liability under negotiable instruments law.

A cheque drawn on an account of an erstwhile bank presented after the date on which that bank publicly ceased honouring its cheques is invalid for purposes of the condition precedent requiring presentation within the cheque's period of validity; therefore dishonour in such circumstances does not attract criminal liability under the negotiable instruments regime. The legal basis is that presentation within the period of validity is essential and expiry caused by a bank merger/public notice defeats that condition, and rules treating a cheque as drawn on a particular date do not cure invalidity arising from expiry of honour.

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Issues: Whether dishonour of a cheque issued from an account of an erstwhile bank (post-merger) and presented after the period of validity attracts liability under Section 138 of the Negotiable Instruments Act, 1881.

Analysis: Section 138 of the Negotiable Instruments Act, 1881 requires, as a condition for liability, that the cheque be presented to the bank within six months of drawing or within the period of its validity, whichever is earlier (proviso (a)). Evidence of merger and the subsequent public communication fixing the last date for honour of erstwhile-bank cheques establish that cheques of the erstwhile bank became invalid after the stated cutoff. A cheque drawn on an account of an erstwhile bank and presented after the date on which such cheques ceased to be honoured is therefore invalid for the purpose of proviso (a). In such circumstances the bank is bound to dishonour the instrument on the ground of invalidity rather than on grounds that engage Section 138 liability. Section 118(b) treating the cheque as drawn on the date mentioned does not cure invalidity arising from expiry of the cheque's period of honour following a bank merger.

Conclusion: Liability under Section 138 of the Negotiable Instruments Act, 1881 is not attracted where a cheque drawn on an account of an erstwhile bank is presented after the period during which that bank's cheques were validly honoured; dishonour of such an invalid cheque does not constitute an offence under Section 138.

Ratio Decidendi: Where proviso (a) of Section 138 of the Negotiable Instruments Act, 1881 is not satisfied because the cheque was presented after the expiry of its period of validity (including expiry caused by a bank merger and public notice), Section 138 liability does not arise.

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