Karnataka High Court: Bank Merger Does Not Extinguish Cheque-Bounce Liability — Account Continuity Prevails

Overview of the Judgment

A significant question has emerged in the context of banking consolidation in India: can a person who issued a cheque on an account with a bank that has since been merged into another institution escape liability under Section 138 of the Negotiable Instruments Act simply because the original bank no longer operates under its former name? The Karnataka High Court, in Smt. Bhadramma Vs State of Karnataka and Another, has conclusively answered this in the negative, refusing to quash the cheque-bounce proceedings initiated against the petitioner.

Justice Suraj Govindaraj delivered the ruling, holding that a bank merger transfers all assets, liabilities, and accounts to the successor entity — and that the mere cessation of the original bank's independent identity cannot render a cheque drawn on that bank's account invalid. The petition was dismissed under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), with liberty granted to the petitioner to raise all defences before the trial court.

Background and Facts of the Case

The Vijaya Bank–Bank of Baroda Merger

The petitioner, Smt. Bhadramma, held an account with Vijaya Bank. In 2019, Vijaya Bank was merged with Bank of Baroda as part of the government's banking consolidation programme. A cheque linked to her Vijaya Bank account was presented by the complainant on 7 November 2024. The cheque was returned with the endorsement "no such bank".

Following the dishonour, the complainant issued a statutory notice as required under Section 138 of the Negotiable Instruments Act. Although the notice was duly served upon the petitioner, no reply was sent. A private complaint was subsequently filed under Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023, read with Section 138 of the Negotiable Instruments Act. The Magistrate, after recording the sworn statement, registered the case as C.C. No. 43740/2024 arising from PCR No. 16035/2024 before the XVI Additional Chief Judicial Magistrate, Bengaluru City, and issued summons to the petitioner.

Petition Before the High Court

Aggrieved, the petitioner approached the Karnataka High Court seeking to quash the proceedings. Her challenge was built on two distinct pillars:

  1. The lost cheque argument — The petitioner contended that the cheque had not been issued by her to the complainant. She claimed it had been misplaced and that she had lodged a police complaint. Her position was that the complainant had dishonestly misused this cheque.

  2. The invalid cheque argument — The petitioner argued that since Vijaya Bank had merged with Bank of Baroda in 2019, any cheque drawn on a Vijaya Bank account was no longer a valid instrument on the date of presentation. The endorsement "no such bank" was cited as proof of the instrument's invalidity, which, in her submission, meant that no offence under Section 138 of the Negotiable Instruments Act could be made out.

Precedents Cited by the Petitioner

To bolster her second argument, the petitioner's counsel relied upon decisions from three courts.

Ms. Ganta Kavitha Devi v. State of Andhra Pradesh and Another

(Crl.P. No. 8827/2022, Andhra Pradesh High Court, decided on 25.10.2024)

In this case, a cheque had been drawn on the erstwhile State Bank of Hyderabad, which had merged with State Bank of India. The cheques of State Bank of Hyderabad were stated to be valid only until 31 March 2018. When the cheque was presented before ICICI Bank on 22 September 2021, it was returned with the endorsement "Invalid cheque (SBH)". The Andhra Pradesh High Court, relying on proviso (a) to Section 138 of the Negotiable Instruments Act, held as follows: