M/S. B.S. Enterprises, v. M/S. Sree Rama and Co

ORDER

i) Accordingly, the criminal petition is allowed.

1 Criminal Petition No.101615 of 2023 decided on 6th February, 2025

ii) The criminal proceedings in C.C. No.237/2023 pending on the file of the II Additional Civil Judge & JMFC II, Gadag, against the petitioner herein, is hereby quashed."

10.2. The High Court of Allahabad in the case of ARCHANA SINGH GAUTAM v. STATE OF U.P.2 holds as follows: "…. …. ….

¶6After hearing the rival submission of the counsel for the parties and perused the record, it is clear that the Allahabad Bank had merged into the Indian Bank on 01.04.2020. Thereafter, a wide circular was made by the Indian Bank in newspapers mentioning the fact that all the cheques issued by Allahabad Bank can be exchanged with the cheques of Indian Bank by 30.09.2021, and the cheque from Allahabad Bank will be honoured by

30.09.2021.

Therefore, the cheque issued by the Allahabad Bank was valid till 30.09.2021, and all the cheques of Allahabad Bank which were presented before the Indian Bank till

30.09.2021, were honoured by the Indian Bank, and after

30.09.2021, cheques issued from the account maintained by the erstwhile Allahabad Bank were declared invalid for honouring. Section 138 N.I. Act prescribes the condition for initiation of proceeding on bouncing the cheque in the proviso

(a) of Section 138 N.I. Act. As per the proviso (a) of Section 138 N.I. Act, cheque must be presented to the Bank during its validity. Section 138 N.I. Act is being quoted as under:—

"138. Dishonour of cheque for insufficiency, etc., of funds in the account.— Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another

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person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the Bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that Bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for [a term which may be extended to two years'], or with fine which may extend to twice the amount of the cheque, or with both : Provided that nothing contained in this section shall apply unless—

(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;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, [within thirty days] of the receipt of information by him from the Bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice."

¶7From 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.

¶8It 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.

¶9In the present case, a cheque dated 02.06.2023 of erstwhile Allahabad Bank was presented to the Indian Bank on 21.08.2023, and the same was returned on

25.08.2023 with the endorsement "wrongly delivered not drawn on us". Therefore, the cheque in question was invalid on the date of presentation before the Indian Bank.

¶10So far as the judgment of NEPC Micon Ltd. (Supra) relied upon by the counsel for the opposite party No. 2 is concerned, that judgment relates to the different kinds of reasons for dishonouring the cheque that would come under the category of insufficient funds, but in the present case, the question is not simply the reason for dishonouring the cheque, but the question is validity of the cheque as mentioned in proviso (a) of Section 138 of N.I. Act because if the cheque itself is invalid, then the Bank is bound to dishonour the same. So far as the judgment of the Delhi High Court in Sri PremanandPrusty (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.

¶11In 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.

¶12This 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."

10.3. The High Court of Andhra Pradesh in the case of GANTA KAVITHA DEVI v. STATE OF ANDHRA PRADESH3, holds as follows: "…. …. ….

¶4Learned counsel for the Petitioner/Accused would submit that the subject cheque dated 20.09.2021 was issued from State Bank of Hyderabad, which was merged with State Bank of India w.e.f., on 01.04.2017 and hence, the same is invalid. Learned counsel would further submit that the subject cheque is valid up to Rs. 10 lakhs and when a cheque has no negotiability beyond the said amount, it is improbable to say that the same was issued towards payment of legally enforceable debt. Learned counsel would further submit that the ingredients of Section 138 of NI Act do not attract to the present case. In support of his contention, learned counsel has placed reliance on the judgment of Allahabad High Court in Premanand Prusty v. Sita Devi3 and High Court of Delhi in Archana Singh Gautam v. State of U.P.4.

¶5Now the point that would emerge for determination is:

Whether there are any justifiable grounds for quashment of the proceedings against the Petitioner/Accused in C.C. No. 911 of 2022 on the file of the Court of II Additional Metropolitan Magistrate, Vijayawada, for the offence punishable under Section 138 read with 142 of Negotiable Instruments Act?

¶6A bare perusal of Section 482 makes it clear that the Code envisages that inherent powers of the High Court are not limited or affected so as to make orders as may be necessary; (i) to give effect to any

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order under the Code or, (ii) to prevent abuse of the process of any Court or, otherwise (iii) to secure ends of justice. A court while sitting in Section jurisdiction is not functioning as a court of appeal or a court of revision. It must exercise its powers to do real and substantial justice, depending on the facts and circumstances of the case. These powers must be invoked for compelling reasons of abuse of process of law or glaring injustice, which are against sound principles of criminal jurisprudence.

¶7In the case on hand, it is the contention of the Petitioner/Accused that the subject cheque was drawn on State Bank of Hyderabad, whereas, State Bank of Hyderabad was merged with State Bank of India w.e.f.,

01.04.2017 and the cheques of State Bank of Hyderabad were valid till

31.03.2018 and from

01.04.2018, the cheques of said Bank became invalid. Since the subject cheque was given on 20.09.2021, the same is invalid. As such, it cannot be said that the Petitioner had issued a negotiable instrument and therefore, the ingredients of Sect. 138 of N.I. Act do not attract to the present case.

¶8At this stage, it is beneficial to extract Section 138

(a) of NI Act, which reads as follows:

"138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years', or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—

(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."

¶9From 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.

¶10In 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.

¶11Resultantly, the criminal petition is allowed and the proceedings against the Petitioner in C.C. No. 911 of 2022 on the file of the Court of II Additional Metropolitan Magistrate, Vijayawada, for the offence punishable under Section 138 read with 142 of

the Negotiable Instruments Act, 1881, are hereby quashed."

(Emphasis supplied at each instance)

The coordinate Bench of this Court and the High Courts of Allahabad and Andhra Pradesh in the afore-quoted judgments have consistently held that, cheques presented after the merger of banks would be invalid cheques and therefore would not attract liability under Section 138 of the Act.

¶11Therefore, if the facts obtaining in the case at hand are considered on the touchstone of the principles laid down in the afore-quoted judgments, what would unmistakably emerge is that, the instrument before the concerned Court does not create any liability for the offence punishable under Section 138 of the Act.

¶12The cheque admittedly was invalid as on the date of presentation for realization. The primary ingredients of Section 138 of the Act are that the cheque should be dishonoured for want of sufficient funds and the cheque should be valid as on the date of its presentation. The cheque admittedly is rendered invalid due to

delayed presentation on the merger of the Banks. The merger did not happen two days prior to the presentation of the cheque but, after 3 years 10 months and 19 days after the last date for presentation i.e., 30-06-2021. If the transaction has happened in the year 2025 it was always open to the complainant to seek a fresh cheque from the hands of the petitioners. In the light of the law laid down by the coordinate Bench of this Court and the High Courts of Allahabad and Andhra Pradesh and owing to the admitted fact that the last date for validation of the cheque was 30-06-2021, the cheque itself having been declared to be invalid, permitting further proceedings to continue on an invalid instrument would be an abuse of the process of law and result in miscarriage of justice. Leaving open the remedy to the complainant to avail of any law except the one that is considered in the case at hand, the petition deserves to succeed.

¶13For the aforesaid reasons, the following:

O R D E R

(i) Criminal petition is allowed.

(ii) Proceedings in C.C.No.40325 of 2025 pending before the XII Additional Chief Judicial Magistrate (ACJM), Bengaluru stand quashed.

(iii) However, the complainant is reserved liberty to avail of any remedy available in law except the one that is considered in the present case.

I.A.No.1/2026 stands disposed, as a consequence.

Sd/- (M.NAGAPRASANNA) JUDGE NVJ CT:MJ

Reserved on :14.08.2026 Pronounced on : 28.08.2026 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28TH DAY OF AUGUST, 2026 BEFORE THE HON'BLE MR. JUSTICE M.NAGAPRASANNA CRIMINAL PETITION NO.4240 OF 2026 BETWEEN: 1. M/S. B.S. ENTERPRISES, A PARTNERSHIP FIRM, REPRESENTED BY ITS PARTNERS SRI A. SHANKAR @ AMMANA SHANKAR KUNDAR AND SRI K. BASAVARAJU @ K. BASAVA. 2. SRI A. SHANKAR @ AMMANA SHANKAR KUNDAR S/O AMMANNA AGED ABOUT 64 YEARS. 3. SRI K. BASAVARAJU @ K. BASAVA S/O SRI KORAGA AGED ABOUT 63 YEARS HAVING THEIR OFFICE NO.1073/784/785, VANDANA GARDENIA AND UDUPI GRAND, 16TH 'B' CROSS, SECTOR-B, YELAHANKA NEW TOWN, R Digitally signed by CHETAN B C Location: High Court of Karnataka BENGALURU – 560 064. …PETITIONERS (BY SRI JANARDHANA REDDY B.J., ADVOCATE) AND: M/S. SREE RAMA AND CO., A PROPRIETORSHIP CONCERN, REPRESENTED BY ITS PROPRIETOR SRI PARTHASARATHY K.S AGED ABOUT 65 YEARS. HAVING ITS OFFICE AT NO.167/3, 6TH CROSS, AMPC YARD, YESHWANTPUR, BENGALURU – 560 022. …RESPONDENT (BY SRI SRIRAMKISHAN B.R., ADVOCATE) THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF CR.P.C.,/ UNDER SECTION 528 OF BNSS, PRAYING TO QUASH THE PROCEEDINGS IN PRIVATE COMPLAINT DATED 19.07.2025 FILED BY THE COMPLAINANT IN C.C.NO.40325/2025 (PCR NO.13298/2025), FOR THE OFFENCES P/U/S 138 AND 142 OF N.I. ACT, 1881 PENDING BEFORE THE HON'BLE XII ADDL. CJM BENGALURU, AT ANNEXURE- B, AGAINST THE PETITIONERS. THIS CRIMINAL PETITION HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 14.08.2026, COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING:- CORAM: HON'BLE MR. JUSTICE M.NAGAPRASANNA CAV ORDER Petitioners/accused Nos.1 to 3 are before this Court calling in question proceedings in C.C.No.40325 of 2025 (arose out of a private complaint registered by the complainant in P.C.R.No.13298 of 2025) for the offences punishable under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881, pending before the XII Additional Chief Judicial Magistrate, Bengaluru. 2. Heard Sri Janardhana Reddy, learned counsel appearing for the petitioners and Sri Sriramkishan B.R., learned counsel appearing for the respondent. 3. Facts, in brief, germane are as follows: - The petitioners are a partnership firm. Petitioner No.1 - accused No.1 is the firm and petitioner Nos.2 and 3 - accused Nos.2 and 3 are its partners. The respondent is the complainant, a proprietorship concern. The two have a transaction. In furtherance of the said transaction, it is the case of the complainant that a cheque is issued by the petitioners amounting to `80,30,106/- and the drawee bank of the cheque being Syndicate Bank. The same when presented gets dishonoured not on account of want of sufficient funds but, on account of merger of the drawee bank – Syndicate Bank with the Canara Bank. It was, therefore, returned unpaid with an endorsement in the form of a letter from Union Bank indicating that 'Syndicate Bank is merged with Canara Bank'. The complainant then initiates proceedings as obtaining in law and finally approaches the concerned Court by filing a private complaint under Section 223 of the BNSS. The concerned Court registers PCR No.13298 of 2025 for offences punishable under Sections 138 and 142 of the Negotiable Instruments Act, 1881 (hereinafter referred to as 'the Act' for short). The matter is pending consideration before the concerned Court. The accused have now knocked at the doors of this Court on the score that the cheque so presented before their Bank - Union Bank and now the instrument before the concerned Court is an invalid cheque. Therefore, the petitioners call in question the entire proceedings instituted by the complainant before the concerned Court. 4. The learned counsel appearing for the petitioners submits that there was no transaction between the petitioners and the respondent for the petitioners - accused to hand over a cheque for `80,30,106/- in the year 2025, as the entire amount is for purchase of groceries. The complainant is a distri