2026 (2) TMI 662 - HC - Indian Laws

Period of validity for cheques governs presentation; alleged invalidity from bank merger is a disputed fact for trial, not pre trial quash.

Presentation of a cheque within the proviso to Section 138 requires the cheque to have been capable of being honoured; where the bank's return memo ... Negotiable Instruments Act, 1881 - Dishonour of cheque - Presentation within the period of its validity under the proviso to Section 138 - Rebuttable presumption - effect of merger/acquisition of drawee bank on cheque validity - presumption u/s 139 and 146 - quashing of criminal proceedings u/s 482 of the Code of Criminal Procedure, 1973 - HELD THAT:- It is pertinent to note that, in the case of Archana Singh Gautam [2024 (6) TMI 1549 - ALLAHABAD HIGH COURT], as well as Gantha Kavitha Devi [2024 (10) TMI 1770 - ANDHRA PRADESH HIGH COURT], the cheques were returned by the drawee bank by making an endorsement which reflected upon the validity of the cheque. In the case of Archana Singh Gautam (supra), the cheque was returned with the remarks, 'wrongly delivered not drawn on us' by the Indian Bank, into which the Allahabad Bank had merged. Whereas, in the case of Ganta Kavitha Devi (supra), the cheque was returned with the remarks, 'invalid cheque (SBH)'. Yet, the process for an offence punishable under Section 138 of the N. I. Act, 1881 was issued in those cases. The position in law is that, it is the dishonour of the cheque that assumes importance and the reason for dishonour, especially 'stop payment', 'refer to drawer', 'account closed', 'exceeds agreement' and the like, are not of decisive significance. This factor also deserves to be kept in view. In a case of the present nature, however, the reason for the return of the cheque assumes significance. If the cheque is not returned with a specific endorsement that, the cheque is invalid, but on account of insufficiency of funds, then as rightly submitted by Mr. Karia, the presumption contained in Section 146 of the N. I. Act, 1881, comes into play and the onus would shift on the drawer to rebut the presumption that, the dishonour of the cheque was not on account of insufficiency of funds. The presumption contained in Section 146 of the N. I. Act, is also a presumption of law and the Court is enjoined to presume the said fact, as it is a mandatory and not a permissive presumption. It is true, the Acquisition order issued by the Central Government and the order/circular issued by the RBI, cannot be brushed aside lightly. However, when the cheque is returned with the remarks, 'Insufficient Funds', the presumption contained in Section 146 of the N. I. Act, 1881, would be required to be rebutted by demonstrating that, the drawee bank could not have honoured the cheque in question as its period of validity had expired. The legal position has crystallized to the effect that, even if a blank signed cheque leaf is delivered to the payee, towards debt or liability, and the payee fills in the particulars, the cheque is not rendered invalid and the presumption contained in Section 139 of the N. I. Act, 1881 is attracted. Therefore, in a situation of the present nature, where the cheques have been returned with the remarks, 'funds insufficient', and not on account of alleged invalidity of the cheques, the question as to whether, the cheques were dishonoured for insufficiency of funds becomes a tribal issue and must be adjudicated at the trial. Different High Courts have also adopted similar approach in a variety of fact- situations. In the case of M/s. K. K. Tractors & Ors [2023 (2) TMI 1445 - PUNJAB AND HARYANA HIGH COURT] again in the context of the presentation of the cheque, beyond the stipulated period after the merger of the SBI's Associate Bank with State Bank of India, a learned Single Judge declined to quash the complaint opining that, the notifications and documents annexed to the applications under Section 482 of the Code, cannot be considered as evidence so as to quash the complaint in exercise of inherent power. Though the expression 'within the period of its validity' used in the later part of the clause (a) of the proviso to Section 138 of the N. I. Act, 1881, is elastic enough to cover in its fold a case where the validity of the cheque, is affected by the factors like acquisition by or merger with another bank, despite the validity period specifically mentioned on the cheque not having come to an end, yet, the attendant circumstances bear upon the question whether the cheque has been presented within its validity period. In cases where despite the original drawee bank having ceased to be 'the bank' within the meaning of clause (a) of the said proviso the cheque is returned unencashed with the remarks 'insufficiency of funds' and the like, the investigation into facts becomes necessary, and the question whether the drawee bank could have honoured the cheque as it was rendered invalid, would warrant adjudication at the trial. Whereas, in cases where the cheque has been returned with the remarks, 'invalid' or 'presented on the successor bank after the period of the validity of the cheque' and the like, compliance of clause (a) of the proviso to Section 138 of the N. I. Act, 1881, in the matter of presentation of the cheque within the validity period, could be examined by the Court, in the light of the attendant facts and circumstances of the case. No straight- jacket formula that, since the cheque appeared to have been presented after expiry of the period of validity of the cheque drawn on the earstwhile drawee bank, no offence punishable under Section 138of the N. I. Act, is made out, can be adopted. The facts of the case at hand appear to fall in the category of cases where on account of the return of the cheque with the remarks, 'Funds Insufficient', the question as to whether the cheque was presented beyond its validity period warrants adjudication at the trial. Resultantly, the prayer of the applicants to quash the complaints for the offence punishable under Section 138 r/w 141 of the N. I. Act, 1881, cannot be countenanced. Hence, the applications stand dismissed. Issues: Whether applications under Section 482 CrPC to quash complaints under Section 138 r/w Section 141 of the Negotiable Instruments Act, 1881, on the ground that the cheques had become invalid due to merger/acquisition of the drawee bank and were thus not presented within their period of validity as required by clause (a) of the proviso to Section 138, should be allowed at the pre-trial stage.Analysis: The proviso to Section 138 of the Negotiable Instruments Act, 1881 requires presentation within six months from the date drawn or within the period of the cheque's validity, whichever is earlier; the concept of 'period of its validity' can include circumstances that render a cheque invalid before an expressed expiry. However, when the cheque return memo records dishonour with the endorsement 'Funds Insufficient', the statutory presumption in Section 146 of the Negotiable Instruments Act, 1881 operates and the onus shifts to the drawer to rebut that presumption. Where the return memo does not indicate invalidity of the cheque (for example, an explicit endorsement that the cheque is invalid), the question whether the cheque was incapable of being honoured due to merger/acquisition is a disputed factual issue requiring evidence and trial adjudication. Prior decisions allowing quashment where the bank's memo expressly recorded invalidity are distinguishable from cases where the memo records insufficiency of funds. The inherent jurisdiction under Section 482 CrPC is discretionary and ordinarily should not be used to decide contested factual matters which are triable and subject to statutory presumptions under the Negotiable Instruments Act.Conclusion: The applications to quash the complaints are not maintainable at the pre-trial stage; the question whether the cheques were invalid by reason of merger/acquisition and whether that rebuts the presumption of dishonour for insufficiency of funds must be adjudicated at trial. The applications are dismissed.