The Bombay High Court has refused to quash cheque bounce proceedings at the threshold, holding that dishonour of cheques with the endorsement “Funds Insufficient” attracts the statutory presumption under Section 146 of the Negotiable Instruments Act.
The applicants had sought quashing of complaints filed under Sections 138 and 141 of the NI Act, contending that the cheques drawn on the erstwhile State Bank of Patiala and presented in March 2021 had become invalid after its merger with the State Bank of India in 2017, with validity allegedly expiring on 31 December 2017. They argued that this amounted to non-compliance with clause (a) of the proviso to Section 138, which mandates presentation within the period of validity.
Justice N. J. Jamadar, however, noted that the cheques were returned unpaid with the remark “Funds Insufficient” and not as “invalid cheque.” In such circumstances, the statutory presumption under Section 146 operates in favour of the complainant, and the burden shifts to the accused to rebut it at trial. The Court observed that where the return memo does not reflect invalidity, the issue of whether the cheque had become legally unenforceable due to merger cannot be adjudicated in proceedings under Section 482 CrPC.
Distinguishing Archana Singh Gautam v. State of U.P., 2024 SCC OnLine All 4599, and Ganta Kavitha Devi v. State of Andhra Pradesh, 2024 SCC OnLine AP 5115, where cheques were returned with endorsements explicitly reflecting invalidity, the Court held that no straight-jacket formula could be applied merely because the drawee bank had merged.
The Court also referred to Supreme Court precedents including Dalmiya Cement (Bharat) Ltd. v. Galaxy Traders & Agencies Ltd., (2001) 6 SCC 463; NEPC Micon Ltd. v. Magma Leasing Ltd., (1999) 4 SCC 253; Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998) 3 SCC 249; Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197; and Kalamani Tex v. P. Balasubramanian, (2021) 5 SCC 283, underscoring that the object of Section 138 is to preserve the credibility of cheque transactions and the statutory presumptions cannot be lightly displaced.
Hounding that since the cheque was returned with the remark “Funds Insufficient,” the issue of whether it was presented beyond its validity period requires adjudication at trial. Consequently, the plea to quash the complaints under Sections 138 read with 141 of the Negotiable Instruments Act, 1881 was rejected, and the applications were dismissed.
Appearances
Mr. Mahendra Svar i/by Ms. Prachi Patel, for the Applicants in all.
Mr. Jatin Karia (Shah) a/w Ms. Snehankita Munj, Ms. Shraddha Kamble & Ms. Dipti J. Karia, for the Respondent.
