HP High Court Refuses to Quash Section 138 Case Where Cheque Was Returned as “Old Cheque” After Bank Merger

Himachal Pradesh High Court holds that a cheque returned as “88-Old Cheque” following the Oriental Bank of Commerce-Punjab National Bank merger does not bar a Section 138 complaint; the question of sufficient funds must go to trial.

The High Court of Himachal Pradesh at Shimla has dismissed a petition seeking to quash a Section 138 Negotiable Instruments Act complaint, rejecting the accused's argument that the cheque's return with the bank's endorsement “88-Old Cheque” placed the matter outside the reach of Section 138. Justice Sandeep Sharma, sitting singly, held that whether the accused had sufficient funds in his account at the time the cheque was presented is a disputed question of fact that must be decided by the trial court on the basis of evidence. The accused had issued a cheque drawn on Oriental Bank of Commerce after that bank had merged with Punjab National Bank, and the new bank returned the cheque unpaid on the ground that it was an old cheque. The court found that the merger-related dishonour did not, at the threshold, insulate the accused from prosecution.

The Dispute Before the High Court

The complainant, Smt. Sunita, filed a complaint under Section 138 of the Negotiable Instruments Act before the Additional Chief Judicial Magistrate, Court No. 1, Paonta Sahib, District Sirmaur, Himachal Pradesh, registered as Criminal Case No. 465 of 2022. She alleged that the accused, Jasmer Singh, had borrowed Rs. 1,30,000 from her and, towards repayment, issued cheque No. 004038 dated 8 June 2022 for Rs. 1,30,000, drawn at Oriental Bank of Commerce, Branch Nahan Road, Paonta Sahib.

When the cheque was presented for encashment, Punjab National Bank—into which Oriental Bank of Commerce had by then merged—returned it unpaid vide memo dated 10 June 2022 with the remarks “88-Old Cheque”. The complainant served a legal notice on the accused demanding payment, but the demand went unmet. She then instituted proceedings under Section 138 of the Act.

The trial court took cognisance and issued summons. Before the matter could proceed further, the accused approached the High Court under Section 528 of the Bharatiya Nagrik Suraksha Sanhita, 2023 (which corresponds to the erstwhile Section 482 of the Code of Criminal Procedure) seeking to quash the complaint.

The Legal Issue: Can “Old Cheque” Trigger Section 138?

The accused's primary argument was that Section 138 of the Negotiable Instruments Act applies only where a cheque is returned because the amount in the account is insufficient to honour it, or because it exceeds the amount arranged to be paid under an agreement with the bank. These are the two express contingencies set out in the provision. Since the return memo recorded neither of those reasons—only the endorsement “88-Old Cheque”—the accused contended that no offence under Section 138 was made out and the complaint was bound to fail.

Counsel for the accused also relied on Balaji Traders v. State of Uttar Pradesh & Anr., (2025) 10 Supreme Court Cases 638, for the proposition that in the absence of clear, compelling language, a statutory provision should not be given a wider interpretation than its terms support.

Counsel for the complainant countered that the issuance of the cheque and the signatures upon it were not in dispute. He urged that the accused had full knowledge of the merger of Oriental Bank of Commerce with Punjab National Bank and had nonetheless tendered an old Oriental Bank of Commerce cheque towards discharge of his liability. He pressed into service M/s Laxmi Dyechem v. State of Gujarat and Ors., (2012) 13 SCC 375, arguing that the expression “insufficient funds” in Section 138 is a genus, of which various modes of dishonour—including account closed, payment stopped, referred to drawer—are merely species.

How the Bench Reasoned

Justice Sandeep Sharma surveyed the settled position on the scope of the High Court's quashing jurisdiction under Section 528 of the BNSS, drawing on State of Karnataka v. L. Muniswamy and others, 1977 (2) SCC 699, State of Haryana and others v. Bhajan Lal and others, 1992 Supp (1) SCC 335, and Vineet Kumar and Ors. v. State of U.P. and Anr. (arising out of Criminal Appeal No. 577 of 2017). The court noted that a complaint may be quashed at the pre-trial stage only where no prima facie offence is made out and continuation of proceedings would be an abuse of the process of the court.

The court then turned to the substantive question. It accepted the principle from Laxmi Dyechem that the expression “amount of money standing to the credit of that account is insufficient to honour the cheque” in Section 138 is not to be read narrowly. The Supreme Court in that case had held that dishonour on grounds such as “account closed”, “payment stopped”, “referred to the drawer”, or “signatures do not match” all fall within the genus of insufficient funds. The object of Sections 138 to 142 of the Act, as identified in Laxmi Dyechem, is to punish those who know fully well that they have no amount in the bank and yet issue a cheque in discharge of a debt or liability.

Applying that framework, the court held that the central question—whether the accused had sufficient funds in his account at the time of presentation—could not be resolved at the quashing stage. The accused had not specifically denied issuing the cheque or signing it. His only ground was that the return endorsement was “88-Old Cheque” rather than “insufficient funds”. The court found this insufficient to warrant quashing.

The court addressed the merger-related facts with care. The bank account of the accused with Oriental Bank of Commerce remained the same account after the merger with Punjab National Bank. The accused was aware of the merger but issued a cheque of the erstwhile Oriental Bank of Commerce. The court observed that the complainant could not reasonably have been expected to know the legal or contractual consequences flowing from the merger, including whether Punjab National Bank was under an obligation to honour cheques issued on Oriental Bank of Commerce accounts, or what the terms of the amalgamation scheme provided. These were matters lying within the exclusive knowledge of the banking institutions.

The court drew support from two Punjab and Haryana High Court decisions involving analogous bank-merger scenarios. In Surjit Kumar v. Sunil Kumar Dalmia (CRM-M No. 51125 of 2023, decided 9 October 2023), a cheque had been returned because the erstwhile State Bank of Patiala had merged with State Bank of India. The Punjab and Haryana High Court held that the relevant question was whether the cheque had been misused by the complainant, which was a matter of trial. In Balkour Singh v. State of Punjab and others (CRM-M No. 36565 of 2019), a cheque of the then State Bank of Bikaner and Jaipur was returned as “account closed” after that bank merged into State Bank of India. The court held that invalidation of a cheque on account of merger raised a disputed question of fact to be resolved at trial, and that the complainant could not be non-suited at the threshold without an opportunity to lead evidence.

The court dealt specifically with the accused's reliance on Balaji Traders. It acknowledged that a statutory provision should not be given a wider interpretation in the absence of clear, compelling language, but distinguished that decision. The court reasoned that the Supreme Court in Laxmi Dyechem—which directly and elaborately construed Section 138 of the Act—had already authoritatively held that the expression “insufficient funds” is entitled to a wider interpretation. The observation in Balaji Traders was made in a different context and did not displace the specific interpretation given to Section 138 in Laxmi Dyechem.

The court further noted the rebuttable presumption under Section 139 of the Act. Even where dishonour occurs for a reason other than express insufficiency of funds, the accused may rebut the presumption by showing that at the time of presentation there were sufficient funds and that there was a valid cause for the dishonour, including the absence of any debt or liability. That is a defence to be raised before the trial court, not a ground to quash the complaint at the outset.

Outcome

Justice Sandeep Sharma dismissed Cr.MMO No. 971 of 2024 and found no merit in the quashing petition. The court held that a prima facie case under Section 138 of the Negotiable Instruments Act was made out and that sufficient material existed to connect the accused with the alleged offence. Any interim order passed in the proceedings was disposed of.

Counsel for both parties undertook to ensure the presence of their respective clients before the learned trial court on 3 August 2026, so that the trial court could proceed with the matter. The court clarified that the observations and findings in the judgment were made solely for the purpose of deciding the quashing petition and would have no bearing on the final outcome of the complaint, which would be decided by the trial court on the basis of the pleadings and the totality of the evidence led by the parties.