Bank Letting Your Cheques Go Stale Is Deficiency in Service: Supreme Court

"A bank receiving cheques for collection acts as an agent of the customer and is under an obligation to exercise due diligence in presenting the instruments within the prescribed validity period", Supreme Court.

The Supreme Court has delivered a significant ruling holding that a bank's failure to re-present cheques within their validity period — causing them to become stale — constitutes deficiency in service under consumer protection law, and deprives the depositor of the right to prosecute the cheque drawer under Section 138 of the Negotiable Instruments Act, 1881.

A bench of Justice B.V. Nagarathna and Justice Ujjal Bhuyan upheld the finding of deficiency in service against Canara Bank, while partially modifying the compensation awarded by the National Consumer Disputes Redressal Commission from 10% to 6% of the total cheque amount.

Kavita Chowdhary held a savings bank account at Canara Bank's Maharani Bagh Branch, New Delhi. On 29.05.2018, she deposited two CTS cheques dated 03.03.2018 — totalling Rs. 1,06,10,768 — issued by Assotech Limited and drawn on Vijaya Bank, Noida. The cheques were returned on 30.05.2018 on account of a bank strike. Two full working days — 01.06.2018 and 02.06.2018 — remained before the cheques' validity expired on 02.06.2018 (the following day, 03.06.2018, being a Sunday). The bank failed to re-present the cheques on either of those days. They were eventually re-presented only on 04.06.2018 and 08.06.2018, by which time both cheques had become stale. Aggrieved, Kavita Chowdhary filed a consumer complaint before the National Commission. Vide order dated 24.09.2024, the Commission found deficiency in service and directed Canara Bank to pay 10% of the cheque amount with interest at 8% per annum. The bank appealed to the Supreme Court.

The Court was called upon to decide: whether the bank's failure to re-present the cheques within the validity period, despite available working days, amounted to deficiency in service under the Consumer Protection Act; whether Section 75A of the NI Act — which excuses delay caused by circumstances beyond the holder's control — provided a valid defence to the bank; and whether the compensation of 10% of the cheque face value was just and reasonable.

The Section 75A Defence Falls Flat

The bank's primary argument was that the bank strike on 30.05.2018 and 31.05.2018 constituted circumstances beyond its control, attracting the excuse under Section 75A of the NI Act. The Court acknowledged the provision but firmly rejected the plea in the facts of the case.

Section 75A itself provides that "as and when the cause of delay ceases to operate, presentment must be made within a reasonable time." The bench noted that the bank strike ended by 01.06.2018, leaving two clear working days — 01.06.2018 and 02.06.2018 — before the cheques expired. The bank offered no satisfactory explanation for its inaction on either of those days. During the hearing before the Commission, counsel for the bank had orally raised a plea of "technical failure" on 02.06.2018 — a contention the Commission rightly rejected as beyond the bank's own pleadings and unsupported by any of the three affidavits filed by the bank's managers.

"No explanation whatsoever" — The Commission's Damning Finding

The Court extracted at length the Commission's findings, which noted that the bank had made contradictory statements on oath. The bank's compliance affidavit claimed the cheques were returned on the evening of 01.06.2018 — directly contradicting the return memo dated 30.05.2018 already on record. The Commission had observed: "This false statement made under oath warrants penalization." The Court upheld this assessment, finding that no explanation whatsoever had been offered as to why the cheques were not re-forwarded to the payee bank on 02.06.2018.

The Core Legal Principle: Bank as Agent, Due Diligence is Mandatory

Laying down the governing legal principle, the Supreme Court held:

"A bank receiving cheques for collection acts as an agent of the customer and is under an obligation to exercise due diligence in presenting the instruments within the prescribed validity period. Failure to do so resulting in the instrument becoming stale, in the absence of any reasonable explanation, would result in negligence in the discharge of banking duties which would constitute deficiency in rendering service within the meaning of the consumer protection law."

The Court also noted the ease with which re-presentment could have been done in the CTS (Cheque Truncation System) era — the bank had already captured and uploaded the cheque data digitally on 29.05.2018. All that was required was "to punch a few keys on its computer."

Section 138 NI Act — The Extinguished Remedy

The Court underscored that Assotech Limited, which had issued the cheques, was undergoing corporate insolvency resolution. The Commission had rightly held that even during insolvency proceedings, the directors of the company continued to face personal criminal liability under Section 138 of the NI Act, since Section 14 of the IBC's moratorium does not stay criminal proceedings.

Referring to the three-Judge Bench ruling in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Limited, the Court affirmed that Section 138 NI Act proceedings are penal in character and distinct from recovery proceedings, and the IBC process does not extinguish criminal liability of directors as drawer-signatories.

The bank's negligence had therefore extinguished the respondent's last available remedy — prosecution under Section 138 — even as civil recovery from an insolvent company was near impossible.

Why 10% Compensation Was Too High — Reduced to 6%

The Court then turned to the quantum of compensation. The Commission had awarded 10% of the face value of the cheques as "token compensation," acknowledging that the final outcome of a Section 138 proceeding — had it been available — was itself uncertain.

Citing the three-step test for an offence under Section 138 NI Act as laid down in MSR Leathers v. S. Palaniappan, the Court reiterated that mere dishonour of a cheque does not by itself constitute an offence. The payee must also: (i) issue a demand notice within 30 days of information of return; and (ii) the drawer must fail to pay within 15 days of receipt of such notice. It is only upon satisfaction of all three conditions that an offence is made out.

"Even if the cheques were presented within time and would have been dishonoured, that would not have ipso facto led to commission of an offence under Section 138 of the NI Act."

Given that the ultimate outcome of any Section 138 proceeding remained entirely speculative — particularly given the insolvency of Assotech Limited — the Court held that 10% was on the higher side for a loss that was itself indeterminate. The compensation was reduced to 6% of the total cheque amount to each complainant, with interest at 6% per annum from the date of filing of the complaints.

The Court reiterated the governing standard for consumer compensation: "The computation of compensation has to be fair, reasonable and commensurate to the loss or injury. There is a duty cast on the Consumer Forum to take into account all relevant factors for arriving at the compensation to be paid."

The civil appeals were partly allowed. The finding of deficiency in service recorded by the National Consumer Disputes Redressal Commission was upheld. Compensation was reduced from 10% to 6% of Rs. 1,06,10,768 to each complainant, with interest at 6% per annum from the date of filing of the complaints. The rest of the Commission's order was left undisturbed. No order as to costs.

Date of Decision: April 15, 2026