Bank merger does not invalidate cheques or defeat Section 138 proceedings.

Respondent No. 2 filed a private complaint under Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023, read with Section 138 of the Negotiable Instruments Act, alleging that a cheque issued by the petitioner had been dishonoured with the endorsement “no such bank.”

After recording the sworn statement, the Magistrate took cognizance and registered C.C. No. 43740/2024, issuing summons to the petitioner.

The petitioner contended that the cheque had been misplaced, that she had lodged a police complaint regarding it, and that the cheque had been misused by the complainant.

She further argued that the cheque was drawn on Vijaya Bank, which had merged with Bank of Baroda in 2019, and was therefore invalid when presented.

1. Whether a cheque drawn on an account maintained with a bank that has subsequently merged with another bank becomes invalid so as to exclude liability under Section 138 of the Negotiable Instruments Act

2. Whether the petitioner’s allegations that the cheque was misplaced and misused, and that the dishonour endorsement stated “no such bank,” justified quashing the criminal proceedings under Section 482 of the Code of Criminal Procedure, corresponding to Section 528 of the Bharatiya Nagarik Suraksha Sanhita

The Court considered Section 138 of the Negotiable Instruments Act, which creates liability for dishonour of a cheque issued towards a legally enforceable debt or liability, subject to the statutory conditions concerning presentation, dishonour, notice and failure to pay.

It applied the principles governing the High Court’s inherent jurisdiction under Section 482 Cr.P.C., now invoked under Section 528 BNSS, observing that disputed factual defences ordinarily cannot be adjudicated in proceedings for quashing.

The governing principle adopted by the Court was that merger of a bank does not, by itself, invalidate cheques drawn on accounts maintained with the transferor bank, because the successor bank assumes the transferor bank’s assets, liabilities and customer accounts.

The Court held that the petitioner’s assertion that the cheque had been misplaced and misused was a disputed question of fact requiring evidence at trial and could not be determined in a petition under Section 482 Cr.P.C./Section 528 BNSS.

It rejected the argument that the merger of Vijaya Bank with Bank of Baroda rendered the cheque invalid. Since Bank of Baroda had assumed Vijaya Bank’s assets, liabilities and customer accounts, the underlying account did not cease to exist merely because the bank’s name or corporate identity had changed.

The Court further observed that the endorsement “no such bank” was itself legally questionable: Bank of Baroda, as the successor entity, ought to have serviced the account, and could not ordinarily rely on the merger to deny the existence of the account.

Finally, the fact that the petitioner had closed the account did not assist her, since issuance of a cheque on a closed account could not constitute a ground for quashing the proceedings; the petitioner was free to raise all available defences before the trial court.

The allegations of misplacement or misuse of the cheque were matters for trial, and the closure of the account did not warrant interference under the High Court’s inherent jurisdiction.

Consequently, the petition seeking quashing of the proceedings in C.C. No. 43740/2024 was dismissed, while liberty was reserved to the petitioner to raise all her defences in the pending proceedings.