Karnataka High Court Refuses To Quash NI Case Over Cheque After Vijaya Bank Merger With Bank of Baroda

The Karnataka High Court on 17 September refused to quash proceedings against Bhadramma under Section 138 of the Negotiable Instruments Act, holding that the merger of Vijaya Bank with Bank of Baroda did not invalidate the cheque in question.

Justice Suraj Govindaraj held that a cheque drawn on a bank that has merged with another bank cannot be treated as invalid merely because of the merger. The Bench observed:

“….. a cheque which had been issued on a bank which has merged with another bank cannot become invalid only on account of the said merger.”

Bhadramma had approached the High Court seeking quashing of criminal proceedings arising from a complaint filed by Leelavathi Venkatesh Punjali under Section 138 of the NI Act.

The complaint followed the dishonour of a cheque allegedly issued by Bhadramma with the endorsement “no such bank”. Although the statutory notice was served, she did not respond. The complainant thereafter initiated proceedings, following which the trial court issued summons.

Bhadramma contended that the cheque had been misplaced and was not issued by her. She said she had also lodged a police complaint alleging its misuse. She further argued that the cheque was drawn on Vijaya Bank, which had merged with Bank of Baroda in 2019. Therefore, she contended, its dishonour with the endorsement “no such bank” could not constitute an offence under Section 138.

She relied on decisions of the Andhra Pradesh High Court in Ganta Kavitha Devi v. State of Andhra Pradesh, the Allahabad High Court in Archana Singh Gautam v. State of UP, and an earlier Karnataka High Court decision in Savithriamma v. M.S. Ramachandra.

The Court held that whether the cheque had in fact been misplaced was a matter for the trial court to determine. It disagreed with the view taken in the Andhra Pradesh and Allahabad High Court decisions relied upon by Bhadramma and held:

“Merely because a bank has merged with another bank would not mean that the cheque has become invalid inasmuch as on the merger of the banks, all the assets and liabilities of the bank which has been merged are taken over by the resultant entity.”

Further, the Bench noted that Bhadramma's Vijaya Bank account had been transferred to Bank of Baroda following the merger, along with its assets, liabilities and account balances. The account had therefore not ceased to exist so as to render the cheque invalid.

It also questioned the “no such bank” endorsement in the dishonour memo. It observed that Bank of Baroda, having taken over Vijaya Bank's assets and liabilities, could not have issued such an endorsement on that basis. If Vijaya Bank had issued the endorsement without approaching Bank of Baroda, the resultant entity, that too would be improper.

Accordingly, the High Court dismissed the petition and declined to quash the Section 138 proceedings, leaving Bhadramma at liberty to raise her defences before the trial court.

For Petitioner: Advocate Prabhakara T.C

For Respondents: Advocate Rashmi Patel, HCGP