Introduction:
The case of Clara Dominic v. Tomy Eapen and Ors., Criminal Miscellaneous Case No. 1782 of 2026, reported as 2026 LiveLaw (Ker) 199, came before the Kerala High Court and was decided by Justice C.S. Dias. The matter raised a significant legal question concerning the interpretation of the term “cheque” under Section 6 of the Negotiable Instruments Act, 1881 (NI Act), particularly in the context of cooperative societies engaged in banking activities.
The petitioner approached the High Court seeking to quash a criminal complaint filed against her under Section 138 of the NI Act, which penalizes dishonour of cheques. The central contention was that the instrument in question was not a cheque but merely a withdrawal slip issued by a cooperative society, and therefore, the provisions of the NI Act were not attracted.
This case required the Court to examine whether a cooperative society performing banking functions can be treated as a “banker” under the NI Act, and whether a withdrawal slip drawn on such a society can be considered a cheque. The judgment ultimately clarified the legal position by emphasizing substance over form and expanding the applicability of the NI Act to instruments issued in cooperative banking transactions.
Arguments by the Petitioner:
The petitioner challenged the maintainability of the complaint on the ground that the essential ingredients of Section 138 of the NI Act were not satisfied. Her primary contention was that the instrument relied upon by the complainant was not a cheque within the meaning of Section 6 of the Act.
It was argued that the document in question was merely a withdrawal slip issued by the Kanjirapally Central Service Cooperative Bank Ltd., which, according to the petitioner, does not qualify as a “banker” under the NI Act. The petitioner emphasized that the society was not licensed by the Reserve Bank of India (RBI) and therefore could not be equated with a banking institution governed by the Banking Regulation Act, 1949.
The petitioner further relied on Section 5(b) of the Banking Regulation Act, which defines “banking,” to argue that cooperative societies do not fall within the same category as commercial banks unless specifically recognized under the regulatory framework.
It was also contended that a withdrawal slip, by its very nature, is not a negotiable instrument like a cheque. Unlike a cheque, which is a bill of exchange drawn on a specified banker and payable on demand, a withdrawal slip is simply an internal instrument used by account holders to withdraw money from their accounts.
On these grounds, the petitioner submitted that the complaint under Section 138 NI Act was not maintainable, and the proceedings deserved to be quashed.
Arguments by the Respondents:
The respondents, represented by their counsel, opposed the petition and supported the maintainability of the complaint.
They argued that cooperative societies engaged in banking activities are indeed part of the broader banking system and are governed by statutory frameworks that recognize their role in accepting deposits and facilitating withdrawals.
The respondents contended that the essence of banking lies in the acceptance of deposits from the public and the provision of facilities for withdrawal through instruments such as cheques, drafts, and similar documents. Cooperative societies that perform these functions should be treated as “bankers” for the purposes of the NI Act.
It was further submitted that the nomenclature of the instrument is not decisive. What matters is the function it performs. If a withdrawal slip operates as an order directing the bank to pay a specified sum from the account of the drawer, it effectively performs the same function as a cheque.
The respondents relied on judicial precedents that have recognized cooperative banks and societies engaged in banking as falling within the ambit of “banker.” They argued that excluding such institutions from the purview of the NI Act would defeat the purpose of the legislation, which is to ensure the credibility and reliability of financial transactions.
Court’s Judgment:
Justice C.S. Dias, after considering the rival submissions and examining the relevant statutory provisions and precedents, dismissed the petition and upheld the maintainability of the complaint.
The Court framed two key questions for determination: first, whether the withdrawal slip in question could be treated as a cheque; and second, whether the complaint under Section 138 NI Act was maintainable.
On the first issue, the Court undertook a detailed analysis of the definition of “cheque” under Section 6 of the NI Act and the meaning of “banker” under Section 3. It noted that the term “banker” is not limited to institutions licensed by the RBI but can include entities that perform core banking functions.
The Court referred to authoritative precedents which have held that cooperative societies engaged in banking activities fall within the ambit of “banker.” It emphasized that the essence of banking is not determined by regulatory labels but by the nature of the functions performed.
The Court observed:
“The substance of the transaction, and not its form or nomenclature, is determinative. If the instrument operates as a mandate for payment drawn on an account maintained with an institution carrying on banking functions, it would fall within the ambit of the N.I. Act.”
Applying this principle, the Court held that the withdrawal slip in question functioned as an instruction to the cooperative society to pay a specified amount from the account of the drawer. Therefore, it possessed the essential characteristics of a cheque.
On the second issue, the Court concluded that since the instrument qualifies as a cheque and the cooperative society qualifies as a banker, the complaint under Section 138 NI Act is maintainable.
The Court rejected the petitioner’s arguments as devoid of merit and refused to quash the proceedings. However, it clarified that the petitioner would be at liberty to raise all other legally permissible defences before the Trial Court.
The Court also directed that the Trial Court should decide the matter on its own merits, without being influenced by the observations made in the present order.
Analysis:
This judgment marks an important development in the interpretation of the NI Act, particularly in the context of cooperative banking.
By recognizing cooperative societies as “bankers” and withdrawal slips as “cheques,” the Court has expanded the scope of the Act to cover a wider range of financial transactions. This approach aligns with the underlying objective of the NI Act, which is to promote the reliability of negotiable instruments and ensure accountability in financial dealings.
The Court’s emphasis on substance over form is particularly significant. It ensures that parties cannot evade liability by merely changing the nomenclature of instruments, thereby preventing misuse of legal technicalities.
At the same time, the judgment maintains procedural fairness by allowing the petitioner to raise other defences during trial, thereby preserving the balance between enforcement and due process.