The High Court of Jammu and Kashmir and Ladakh recently ruled that a complaint under Section 138 (dishonor of a cheque) of the Negotiable Instrument Act (NI Act) is maintainable even if the reason why a cheque has bounced was because the drawer's bank account was frozen (Sheikh Owais Tariq V/s Satvir Singh).
Justice Rajnesh Owsal acknowledged that Section 138 of the NI Act only provides two contingencies when a cheque bounce complaint can be filed, that is, either the account has insufficient funds or it exceeds the amount arranged to be paid from the account by an agreement made with the bank.
However, the judge noted that there are numerous cases where it has been held that the accused can be prosecuted under Section 138 of the NI Act if a cheque bounces because the drawer's account is closed, or payment is stopped by the drawer, or where there is a signature mismatch, etc.
All of these scenarios were interpreted to fall under the first contingency (insufficient funds) under Section 138.
Similarly, the High Court concluded that a Section 138 complaint can also be filed if the cheque bounces because of the drawer's account being frozen.
"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 Court held in its September 9 ruling.
The High Court was hearing a plea challenging the dismissal of a cheque bounce complaint.
The dispute stemmed from the issue of a cheque in 2014 to clear a debt of around Rs8.6 lakh. The cheque bounced as the account of the drawer (accused) was frozen by investigating agencies.
The lender filed a cheque bounce complaint before a magistrate (trial court), who took cognisance of the same in August 2014 and, in 2017, also rejected an application to dismiss the complaint.
The accused challenged the trial court's orders before a sessions court which set aside the trial court's decision in 2018 and dismissed the cheque bounce complaint as not maintainable.
Aggrieved, the lender moved the High Court for relief. He challenged the accused man's argument that a Section 138 NI Act complaint was not maintainable if the cheque was dishonoured because of a frozen account.
The accused man had contended that the cheque was dishonoured due to circumstances beyond his control.
The lender asserted that the accused was trying to cheat him and had got his own account frozen to avoid repaying the debt and cause wrongful loss for the lender.
The High Court eventually ruled in the lender's favour on two grounds.
Firstly, the High Court held that once the magistrate (trial court) had taken cognisance of the case, it rightly dismissed the accused man's plea to "put the clock back and drop the proceedings."
"There is no such provision in the Code of Criminal procedure, permitting the Magistrate to recall his order whereby he has taken the cognizance and issue process against the accused," the High Court explained.
Secondly, it held that a complaint under Section 138 of the NI Act is maintainable even if the cheque was dishonoured because of a frozen account.
Viewed from this perspective as well, the High Court faulted the revisional court (sessions court) for halting the cheque bounce proceedings without a proper trial.
"The learned Revisional Court has put the cart before the horse and has returned a finding which could have been returned only after the full-fledged trial. Rather, the onus would be on the respondent to prove that he was not aware about the freezing of the account when the cheque was drawn, the account was frozen due to reasons beyond his control and the account was having sufficient balance when the cheque was dishonoured," the High Court said.
Accordingly, the lender's plea was allowed and the matter was sent back to the magistrate for trial.
