The Karnataka High Court has ruled that a cheque issued from an account with a bank that later merged with another bank does not become invalid only because of the merger.
Justice Suraj Govindaraj passed the order on September 17 and said that when a bank merges with another bank, its assets and liabilities are taken over by the new entity. Therefore, the merger does not automatically make cheques issued from the old bank invalid.
Case Involving Vijaya Bank Cheque
The court was hearing a petition filed by a woman named Bhadramma. A case had been filed against her after a cheque allegedly issued by her from her Vijaya Bank account was dishonoured by Bank of Baroda.
Vijaya Bank had merged with Bank of Baroda in 2019. After the merger, Bank of Baroda reportedly told the person who presented the cheque that it could not honour the cheque because Vijaya Bank no longer existed.
Complaint Under Negotiable Instruments Act
Leelavathi Venkatesh Punjali had initiated proceedings against Bhadramma under Section 138 of the Negotiable Instruments Act.
Bhadramma approached the High Court seeking cancellation of the proceedings. She argued that she had not issued the cheque to Leelavathi. She also claimed that the cheque had been misplaced and was allegedly being misused.
Bhadramma further argued that she should not be held responsible because the cheque was drawn on Vijaya Bank, which no longer existed after its merger with Bank of Baroda.
Court Rejects Argument That Cheque Became Invalid
The High Court did not accept this argument. The court noted that it was not disputed that Bhadramma had an account with Vijaya Bank and that the cheque was connected to that account.
The court explained that after the merger, Bhadramma’s Vijaya Bank account was transferred to Bank of Baroda. Bank of Baroda took over the accounts, assets, liabilities and balances of Vijaya Bank.
Therefore, the court said that the bank account did not disappear because of the merger, and the cheque could not be treated as invalid simply because it carried the name of the earlier bank.
Proceedings Against Woman Will Continue
The High Court refused to cancel the proceedings against Bhadramma. It said that her claim that she had misplaced the cheque would have to be examined and proved during the trial.
The court also observed that after the merger, Bank of Baroda became responsible for servicing the accounts taken over from Vijaya Bank. This responsibility also included servicing Bhadramma’s account.
What the Court Held
The Karnataka High Court made it clear that a bank merger does not by itself make an existing cheque invalid. When the new bank takes over the accounts, assets and liabilities of the merged bank, it also becomes responsible for servicing those accounts.
The court therefore held that the fact that Vijaya Bank had merged with Bank of Baroda could not, by itself, be used as a reason to treat the cheque as invalid.
