Bank Of India vs R.K. Shrivastava & Ors.

Per: Pradeep Mittal

This appeal is directed against the order dated 12.02.2026 passed by the learned Single Judge whereby the writ petition filed by the writ petitioner/respondent herein, has been allowed holding that the review filed by the appellant Bank was barred by limitation and no opportunity of hearing has been given to the respondent/writ petitioner.

The brief facts leading to the filing the present appeal are that writ respondent /writ petitioner filed W.P. No. 5823 of 2005 challenging the communication dated 06.05.2003 issued by the appellant Bank, and the orders dated 19.01.2005 passed by the Reviewing Authority and 15.04.2005 passed by the Banking Ombudsman under the Banking Ombudsman Scheme, 2002. The writ petitioner also sought compensation equal to the value of two dishonoured cheques along with interest.

The dispute relates to two cheques of Rs.1,00,000/- each dated 15.04.2003 issued by Shri Girdhar Daga in the name of M/s Daga Commerce, drawn on the appellant Bank, which were returned unpaid with the remark Title of Account Modified.

The appellant Bank contended that M/s Daga Commerce, originally a partnership firm, had been dissolved on 20.12.2002 and reconstituted as a proprietorship concern. The cheques were issued in the name of the erstwhile firm after its dissolution, and were therefore defective and not properly drawn.

The appellant Bank further submitted that upon dissolution, the account of the partnership firm was stopped and a fresh cheque book was issued to the reconstituted proprietorship concern after due formalities. Despite this, the drawer issued cheques in the name of a non-existent firm, over which the Bank had no control.

The Banking Ombudsman, by award dated 24.06.2004, directed the Bank to pay compensation to Respondent/writ petitioner. The Bank challenged the award before the Reviewing Authority under Clause 17 of the Scheme.

The Reviewing Authority remanded the matter to the Banking Ombudsman. Upon reconsideration, the Banking Ombudsman held that there was no deficiency in service on the part of the Bank and that the complaint was not maintainable as Respondent was not a customer of the Bank. The complaint was accordingly rejected on 15.04.2005.

Aggrieved by the said orders, Respondent /writ petitioner filed W.P. No. 5823 of 2005, which was allowed by the learned Single Judge vide judgment dated 12.02.2026.

Challenging the said order, the appellant Bank has preferred the present Writ Appeal on the following grounds.

It is stated by the learned counsel for the appellant that the Banking Ombudsman’s award was legal and valid and the learned Single Judge erred in interfering with it. That the cheques were issued by a partnership firm which had already been dissolved and reconstituted as a proprietorship concern at the time of presentation. That the appellant Bank rightly returned the cheques as defective due to mismatch in account title and advised presentation of properly drawn cheques. That the remedy, if any, lay against the drawer Shri Girdhar Daga and not against the appellant Bank, and the Banking Ombudsman’s jurisdiction was wrongly invoked.

It is further submitted by the learned counsel for the appellant that impleadment of Shri Girdhar Daga was later deleted pursuant to court order dated 02.03.2006. That the Banking Ombudsman initially issued an advice treated as an award, followed by review proceedings which were duly considered. That even assuming procedural lapse of notice, the matter ought to have been remanded rather than allowing the writ petition. That Section 31 of the Negotiable Instruments Act, 1881 limits the liability of the Bank to the drawer and not the payee. That a partnership firm and proprietorship concern are distinct legal entities. That the respondent was not a customer/constituent of the Bank and the complaint was not maintainable under the Banking Ombudsman Scheme. That the proper remedy lay against the drawer and not the Bank. That the respondent failed to rectify defects in the cheques, hence no enforceable claim arose. That the Reviewing Authority rightly held the complaint to be not maintainable. That the impugned judgment dated 12.02.2026 is illegal and unsustainable and is liable to be set aside.

Learned counsel for Bank submits that upon reconstitution and subsequent dissolution of the partnership firm, the bank account was not closed but was merely stopped/broken in accordance with established banking practice to crystallise the liabilities of the partners. A fresh cheque book was thereafter issued to the reconstituted proprietorship concern after due request and completion of formalities.

It is contended that the cheques in question were issued in the name of the erstwhile partnership firm, despite its dissolution, and therefore suffered from a fundamental defect relating to the title of the account. The Bank had no control over the conduct of the drawer, and the responsibility for issuing valid instruments lay solely with the drawer. The cheques were returned on the ground of defective title and not for insufficiency of funds or signature mismatch. The payee was advised to rectify the defect and re-present the cheques, which was not done. It is further submitted that the complainant, not being a customer of the Bank, could not maintain a complaint under the Banking Ombudsman Scheme, which applies only to disputes between a bank and its constituents.

Relying on Sections 6 and 31 of the Negotiable Instruments Act, 1881, it is argued that a valid cheque must disclose a certain and identifiable drawer. Since the cheques were issued on behalf of a dissolved firm, they were defective and not enforceable against the Bank, and there was no negligence or deficiency in service. It is further contended that the Banking Ombudsman’s award dated 24.06.2004 was rightly challenged in review, which was allowed by the Reviewing Authority, and the matter was remanded. Upon reconsideration, the complaint was correctly dismissed by order dated 15.04.2005. It is also submitted that the review application was filed within limitation and with due approval of the competent authority. The Bank’s actions were lawful and in accordance with established banking practice.

Per contra, the respondent/writ petitioner submitted before the learned Single Judge that the writ petitioner challenged the impugned review order on four principal grounds. Firstly, it was contended that the review application filed by the Bank on 03.08.2004 was barred by limitation under Clause 17(1) of the Banking Ombudsman Scheme, 2002, as it was filed beyond the prescribed period of one month and was not accompanied by any application for condonation of delay. Secondly, it was argued that the review proceedings were vitiated for violation of the principles of natural justice, as no notice or opportunity of hearing was afforded to the writ petitioner as required under Clause 17(3) of the Scheme. It was further contended that the review application was not maintainable in the absence of proof of approval by the competent authority as mandated under the proviso to Clause 17(1) of the Scheme. Thirdly, the writ petitioner submitted that the appellant Bank was liable to compensate him for the wrongful dishonour of the cheques despite the availability of sufficient funds in the account. It was argued that the Bank had erroneously relied upon Section 31 of the Negotiable Instruments Act, 1881, whereas the matter was governed by Section 77 of the Act. Since the account continued to remain operative with the same account number and authorised signatory, the dishonour of the cheques was arbitrary and unjustified. Lastly, it was contended that the Banking Ombudsman erred in holding that the complaint was not maintainable on the ground that the writ petitioner was not a customer of the Bank. Reliance was placed on Clauses 12 and 13 of the Banking Ombudsman Scheme, which permit any person aggrieved by non-payment or delay in payment of cheques to file a complaint before the Banking Ombudsman. Accordingly, it was submitted that the complaint was maintainable and had been wrongly dismissed.

The learned Single Judge held that the review application was barred by limitation as it was filed beyond one month from the award dated 24.06.2004 without any application for condonation of delay. It was further held that the mandatory requirement of notice and hearing under Clause 17(3) of the Banking Ombudsman Scheme, 2002, and the requirement of prior approval under Clause 17(1), were not complied with, thereby violating principles of natural justice. On merits, the Writ Court found that the Banking Ombudsman wrongly applied Section 31 instead of Section 77 of the Negotiable Instruments Act, 1881, and failed to note that the cheques were returned due to alleged account-related defects rather than insufficiency of funds. It further held that the complaint was maintainable under Clauses 12 and 13 of the Scheme and that the finding that the writ petitioner was not a customer of the Bank was erroneous. The Writ Court also noted improper appreciation of the distinction between a partnership firm and a proprietorship concern.

Heard the learned counsel for appellant.

For ready reference, Sections 5,6 31 and 77 of the Negotiable Instruments Act, 1881 are reproduced below:-

Having heard the learned counsel for the appellant and upon perusal of the material available on record, we find no merit in the present Writ Appeal. The learned Single Judge has rightly held that the review petition preferred by the appellant Bank against the award of the Banking Ombudsman was not maintainable, having been filed beyond the period prescribed under Clause 17(1) of the Banking Ombudsman Scheme, 2002, without any application seeking condonation of delay. The record further reveals that the mandatory requirement of affording notice and an opportunity of hearing to the writ petitioner under Clause 17(3) of the Scheme was not complied with. The absence of compliance with these mandatory procedural safeguards vitiates the review proceedings and renders the consequential orders unsustainable.

We also find ourselves in agreement with the conclusion reached by the learned Single Judge on the issue of maintainability of the complaint before the Banking Ombudsman. Clauses 12 and 13 of the Banking Ombudsman Scheme confer a right upon an aggrieved person to lodge a complaint in respect of non-payment or delay in payment of cheques, and therefore the complaint could not have been rejected solely on the ground that the writ petitioner was not a customer of the appellant Bank.

On merits as well, the authorities failed to properly appreciate the legal distinction between a partnership firm and a proprietorship concern. While a partnership firm may undergo dissolution or reconstitution, a proprietorship concern does not possess a separate legal identity distinct from its proprietor. The record indicates that the account continued with the same account number and authorised signatory, and the cheques in question were dishonoured solely on the ground that the title of the account had been modified. The authorities below proceeded on an erroneous assumption that the change in the constitution of the business automatically rendered the cheques invalid, without examining the true nature of the transaction and the continuity of the banking relationship. Such an approach reflects an improper appreciation of the distinction between a partnership firm and a proprietorship concern and resulted in an erroneous conclusion regarding the Bank's liability.

The cheque was issued from a partnership account. Subsequently, the account was converted into a proprietorship firm account. The bank never directed the account holder, prior to such conversion, to surrender the unused cheque leaves, nor did it cancel the cheques already issued by the account holder. This indicates that the bank permitted the use of previously issued cheques even after the modification of the account.

When the cheque was presented for encashment, the bank had no authority to refuse its honour merely on the ground that the account had been modified. The account holder had neither issued any stop-payment instructions nor cancelled the cheque. Therefore, the dishonour of the cheque by the bank constituted a deficiency in service.

The holder of the cheque is also a consumer of the bank, as the bank is under an obligation to honour a valid cheque issued by its customer. The bank was at fault in dishonouring the cheque, and therefore the provisions of Section 77 of the Negotiable Instruments Act are squarely applicable.

The writ court rightly held that the bank was at fault and was liable to compensate the cheque holder. There is no ground to interfere with the order of the writ court. The learned Single Judge has meticulously examined the factual and legal aspects of the matter and has assigned cogent and convincing reasons for setting aside the impugned orders. We find no perversity, illegality, or jurisdictional error in the judgment under appeal warranting interference in exercise of appellate jurisdiction.

Accordingly, the writ appeal is dismissed. The order dated 12.02.2026 passed by the learned Single Judge is affirmed. No order as to costs.