The Supreme Court of India has affirmed that a bank, acting as an agent for its customer, is under a legal obligation to exercise due diligence in presenting cheques for collection within their validity period. The Court held that a failure to do so, resulting in the instrument becoming stale without a reasonable explanation, constitutes “deficiency in service” under consumer protection laws. However, the Bench modified the quantum of compensation awarded by the National Consumer Disputes Redressal Commission (NCDRC), reducing it from 10% to 6% of the cheque amount.
Background
The case arose from two appeals filed by Canara Bank against an NCDRC order dated September 24, 2024. The respondents, Kavita Chowdhary and Priya Chowdhary, held savings accounts at the bank’s Maharani Bagh branch. On May 29, 2018, Kavita Chowdhary deposited two cheques totaling ₹1,06,10,768, issued by Assotech Limited and drawn on Vijaya Bank.
The bank initially credited the amounts on June 1, 2018, but debited them the same day with the caption “online cheque return.” It was later revealed that the cheques were returned due to a “bank strike” on May 30 and 31, 2018. When the bank eventually re-presented the cheques on June 5 and June 11, 2018, they were returned with the endorsement “instrument out dated/stale,” as their validity had expired on June 2, 2018.
Arguments of the Parties
Canara Bank (Appellant): The bank argued that the delay was excused under Section 75A of the Negotiable Instruments (NI) Act, 1881, as it was caused by circumstances beyond its control (the strike). They contended that the cheques were re-presented within a “reasonable time” as defined under Section 105 of the NI Act. Furthermore, the bank argued that since the drawer, Assotech Limited, was under liquidation, no actual loss was caused as the respondents could not have recovered the money anyway.
Respondents: The respondents argued that the bank captured the cheque data digitally on May 29 and should have re-presented them immediately after the strike ended on June 1 or June 2. They contended that the bank’s negligence deprived them of their right to initiate criminal proceedings under Section 138 of the NI Act against the directors of the drawer company, which remains a valid remedy even during insolvency.
Court’s Analysis and Observations
The Bench comprising Justice B.V. Nagarathna and Justice Ujjal Bhuyan examined the definitions of “service” and “deficiency” under the Consumer Protection Acts of 1986 and 2019. The Court noted that the term “service” includes banking facilities and is of “wide amplitude.”
Regarding the bank’s duty, the Court observed:
“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.”
The Court found that while the strike occurred on May 30 and 31, the bank was open on June 1 and June 2. The bank failed to explain why the cheques were not re-presented on those working days before they became stale. The Court dismissed the bank’s oral plea of “technical failure” as it was not part of their original pleadings.
On the issue of Section 138 of the NI Act, the Court referred to Ajay Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India Limited, noting that criminal proceedings under Section 138 are not barred by the Insolvency and Bankruptcy Code (IBC). By failing to present the cheques, the bank “nipped in the bud” the respondents’ possibility of seeking this legal remedy.
Decision
The Supreme Court upheld the NCDRC’s finding of “deficiency in service.” However, regarding the compensation, the Court noted that since the final outcome of a Section 138 proceeding is “within the realm of imponderability,” the compensation should be moderate.
The Court held:
“10 percent of the face value of the cheque amount as a token compensation would not accurately reflect the nature of the loss suffered by the complainant because the loss itself is indeterminate despite the finding of deficiency in service.”
Consequently, the Court modified the NCDRC order, directing Canara Bank to pay:
- 6% of the total cheque amount (₹1,06,10,768) to each complainant as compensation.
- Interest at 6% per annum from the date of filing the complaints.
- Litigation costs of ₹50,000 to each complainant.
Case Details Block
Case Title: Canara Bank v. Kavita Chowdhary (and connected appeal)
Case No.: Civil Appeal No. 2587 of 2025
Bench: Justice B.V. Nagarathna and Justice Ujjal Bhuyan
Date: April 15, 2026
