Validity of cheque after bank merger results in quashing of criminal proceedings for invalid presentation under negotiable instruments law.

Whether criminal proceedings under the negotiable instruments framework could be sustained when a cheque drawn on a merged bank was invalid on presentation was decided by applying the High Court's inherent power to prevent abuse of process. The court held that presentation must fall within the cheque's validity; a cheque drawn on an institution whose cheques ceased to be valid post merger was returned as invalid on presentation and therefore could not attract liability under the negotiable instruments offence. Consequently, the court quashed the criminal proceedings under its inherent jurisdiction.

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Issues: Whether the proceedings in C.C.No.911 of 2022 under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881 should be quashed on the ground that the cheque dated 20.09.2021 was invalid due to the prior merger of the issuing bank and therefore did not attract liability under Section 138.

Analysis: The Court examined the scope of Section 482 of the Code of Criminal Procedure, 1973 as enabling the High Court to exercise inherent powers to prevent abuse of process and secure ends of justice, and noted that such powers should be invoked for compelling reasons. The Court analysed the proviso (a) to Section 138 of the Negotiable Instruments Act, 1881 which requires presentation within the cheque's validity. It found that State Bank of Hyderabad had merged with State Bank of India with cheques of the former remaining valid only until 31.03.2018. The subject cheque was drawn on the erstwhile bank on 20.09.2021 and was returned by the presenting bank with an endorsement "Invalid Cheque (SBH)", indicating the cheque was invalid on presentation. The Court applied precedent reasoning that cheques issued by banks after merger, when no longer valid on the date of presentation, cannot support liability under Section 138.

Conclusion: The Court concluded that the cheque in question was invalid on the date of presentation and therefore dishonour thereof does not attract liability under Section 138 of the Negotiable Instruments Act, 1881. Exercising its inherent powers under Section 482 Cr.P.C., the Court allowed the petition and quashed the criminal proceedings in C.C.No.911 of 2022.

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