Dishonour of Cheque from a Merged Bank Cannot Attract Liability Under Section 138 of the Negotiable Instruments Act, 1881 — Andhra Pradesh High Court

Case Overview

Case Name: Ganta Kavitha Devi Vs State of Andhra Pradesh (Andhra Pradesh High Court)
Criminal Petition No: 8827 of 2022
Date of Order: 25/10/2024
Court: Andhra Pradesh High Court

Background and Factual Matrix

The Andhra Pradesh High Court, in the above-captioned matter, was called upon to adjudicate whether the dishonour of a cheque drawn on a bank that had already ceased to exist as a separate entity — owing to its merger with another bank — could give rise to a criminal prosecution under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter "N.I. Act").

The facts giving rise to the petition are as follows:

  • On 20.11.2018, the petitioner/accused borrowed a sum of Rs. 25,00,000/- from the complainant (Respondent No. 2) for family and personal expenses, executing a promissory note on the same date, agreeing to repay the amount with interest at 24% per annum.
  • On repeated demands from the complainant, the accused issued cheque bearing No. 032824, dated 20.09.2021, for Rs. 42,00,000/-, drawn on State Bank of Hyderabad, Mahabubabad Branch, Warangal District.
  • When this cheque was submitted for collection through ICICI Bank, Vijayawada, it was returned on 22.09.2021 with the endorsement "Invalid Cheque (SBH)", as recorded in the return memo of the same date.
  • The complainant thereafter issued a legal notice dated 30.09.2021. The accused responded on 07.10.2021, requesting attested copies of the promissory note and the cheque. A rejoinder followed on 16.10.2021, and the accused replied again on 19.10.2021 raising what the complainant characterised as false and frivolous allegations, without making any payment.
  • The complainant then filed a private complaint, which was numbered as C.C. No. 911 of 2022 before the Court of II Additional Metropolitan Magistrate, Vijayawada, for the offence punishable under Section 138 read with Section 142 of the N.I. Act.
  • Aggrieved by the initiation of criminal proceedings, the petitioner/accused filed Criminal Petition No. 8827 of 2022 before the Andhra Pradesh High Court, seeking quashment of the said proceedings under Section 482 of the Code of Criminal Procedure, 1973 (hereinafter "Cr.P.C.").

The core question that emerged for determination was:

Whether justifiable grounds existed for quashing 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 Section 142 of the Negotiable Instruments Act, 1881?

Arguments Advanced

Learned counsel Sri Varun Byreddy, appearing for the petitioner, advanced the following submissions:

  1. The cheque dated 20.09.2021 was drawn on State Bank of Hyderabad, which had been merged with State Bank of India with effect from 01.04.2017. Consequently, the cheque was invalid by the date of its issuance.
  2. The cheques issued by State Bank of Hyderabad were valid only up to 31.03.2018, and from 01.04.2018 onwards, all such cheques became invalid instruments.
  3. Furthermore, the subject cheque was valid up to Rs. 10 lakhs only, making it improbable that a cheque for Rs. 42,00,000/- could have been issued towards discharge of a legally enforceable debt.
  4. In light of the above, the essential ingredients of Section 138 of the N.I. Act were not satisfied in the present case.