[S.138 NI Act] Complaint Is Maintainable Even If Cheque Is Dishonoured Due To 'Frozen Account': J&K High Court

Justice Rajnesh Oswal, hearing the matter, examined whether the complaint for dishonour of a cheque on the ground of 'Account Frozen' is maintainable under Section 138 of the Act.

Delivering the judgement on the matter, Justice Oswal emphasised that “this court is of the considered view that the complaint under section 138 of the Act is maintainable even if the cheque is dishonoured due to reason 'Account frozen'.”

The petitioner had originally filed a complaint at a trial court under Section 138 of the Act after the bank returned the respondent's cheque, issued to discharge a liability, with the endorsement 'Account Frozen', alleging that the respondent had fraudulently issued the cheque knowing that there were no sufficient funds in the account and that the account was intentionally frozen to avoid payment, causing wrongful loss to the petitioner.

Contrarily, the respondent argued that the account was frozen by investigative agencies, and the situation was beyond his control. Despite this, the trial court had issued the process, dismissing the respondent's application to drop the proceedings.

Aggrieved by the order of the trial court, the respondent had then approached the revisional court, which quashed both the trial court's order issuing the process and the order dismissing the application, leading to the dismissal of the complaint.

The J&K High Court, while restoring the trial court's decision, relied on the precedent set by the Supreme Court in Laxmi Dyechem v. State of Gujarat, where it was held that cheque dishonour could form a ground for prosecution under Section 138 of the Act even in situations beyond insufficient funds, such as account closure or payment stoppage.

The Apex Court, while adjudicating the matter had noted, "The expression 'amount of money…is insufficient' appearing in Section 138 of the Act is a genus, and dishonour for reasons such as account closed, payment stopped, referred to the drawer are only species of that genus."

The High Court clarified that while Section 138 of the Negotiable Instruments Act specifies only two grounds—insufficient funds or exceeding the arrangement with the bank—for initiating proceedings against the accused, judicial precedents have expanded the scope of the provision.

The Court noted, "The accused can be prosecuted under section 138 of the Act for dishonour of cheques on account of account closed, payment stopped by the drawer, signature mismatch and image not found, as it would fall within the first contingency as provided under the Act."

On orders passed by the revisional court which had led to the dismissal of the complaint, the high court held that once the Magistrate has taken cognizance and issued process, the proceedings cannot be dropped at the request of the accused, as there is no provision in the Code of Criminal Procedure allowing the Magistrate to recall such an order.

Relying on Adalat Prasad v. Rooplal Jindal (2004), the Court highlighted the Supreme Court's observation that "in the absence of any review power or inherent power with the subordinate criminal courts, the remedy lies in invoking Section 482 of the Code." Consequently, the Revisional Court's orders were found contrary to established legal principles.

The High Court ultimately set aside the order of the revisional court and restored the trial court's earlier decision to issue the process. The case was remanded to the trial court for further proceedings.

Case Title: Sheikh Owais Tariq Vs Satvir Singh

Citation: 2024 LiveLaw (JKL) 255

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