Missed Cheque Validity? Supreme Court Says Bank Negligence Is Deficiency in Service

The Supreme Court recently observed that when a bank receives a cheque for collection, it acts as an agent of the customer and must exercise due diligence in presenting the cheque within its validity period. If the bank fails to do so and the cheque becomes stale without any reasonable explanation, it would amount to negligence and deficiency in service under consumer protection law.

Court said banks are covered under the Consumer Protection Act and consumers can seek compensation if they suffer loss due to a bank's negligent conduct. However, while upholding the finding of deficiency in service against Canara Bank, court reduced the compensation awarded by the consumer forum.

A Bench of Justices B V Nagarathna and Ujjal Bhuyan passed the judgment while dealing with two appeals filed by Canara Bank against a 2024 order of the National Consumer Disputes Redressal Commission (NCDRC).

The commission had allowed two complaints against the bank and directed it to pay compensation equivalent to 10 percent of the total cheque amount of Rs 1,06,10,768 along with 8 percent annual interest from the date of filing of the complaints. It had also awarded litigation costs of Rs 50,000 to each complainant.

Why did the Supreme Court hold Canara Bank guilty of deficiency in service?

Court examined two issues: whether there was deficiency in service on the part of the bank and whether the compensation awarded by the Commission was reasonable.

Referring to Section 75A of the Negotiable Instruments Act, 1881 relating to delay in presentment of cheques, Court noted that delay can be excused only when it is caused by circumstances beyond the control of the holder and is not attributable to default, misconduct or negligence.

In the present case, the Bench found that Canara Bank had failed to provide any explanation for not presenting the two cheques before the drawer's bank on June 1 and June 2, 2018, despite being fully aware that the cheques were valid only till June 2, 2018.

"There is no explanation at all, not to speak of any reasonable explanation, as to why the two cheques of the respondent were not represented by the appellant before the drawer's bank on 01.06.2018 and 02.06.2018, knowing fully well that the validity of the two cheques was only till 02.06.2018," Court observed.

The Bench further noted that the commission's finding of deficiency in service was based on pleadings and evidence on record. It said the bank had failed to show any patent error or perversity in that finding.

Holding that there was negligence on the part of the bank in presenting the cheques within their validity period, Court concluded that such negligence resulted in deficiency in service towards the customer.

Court also referred to its earlier decisions in Lucknow Development Authority v. M.K. Gupta (1994), Managing Director, Maharashtra State Financial Corporation v. Sanjay Shankarsa Mamarde (2010), and Arun Bhatia v. HDFC Bank (2022) to reiterate that the terms "service" and "deficiency" under consumer protection law have a wide scope and include banking services provided by both public and private sector banks.

Why did the Supreme Court reduce the compensation awarded by the NCDRC?

Court said that once deficiency in service is proved and a consumer has suffered loss or injury, consumer forums are under a statutory obligation to award compensation.

However, it found that the compensation fixed by the commission was excessive. According to the bench, awarding 10 percent of the cheque amount as compensation did not accurately reflect the nature of the loss suffered because the actual loss remained indeterminate despite the finding of deficiency in service.

"In our considered opinion, the compensation fixed by the commission appears to be on the higher side," Court said.

Considering the overall facts and circumstances of the case, Court modified the Commission's order and held that compensation equivalent to 6 percent of the total cheque amount of Rs 1,06,10,768 for each complainant, along with interest at 6 percent per annum from the date of filing of the complaints, would be reasonable and would meet the ends of justice.

Case Title: Canara Bank Vs Kavita Chowdhary

Bench: Justices B V Nagarathna and Ujjal Bhuyan

Date of Judgment: April 15, 2026