2017 (5) TMI 587 - HC - Indian Laws

Bouncing of cheques - offence committed under Section 138 of NI Act - memos indicating reasons for return to be account blocked - Held that - The view taken by the Metropolitan Magistrate in the two complaint cases cannot be faulted. The provision contained in Section 138 of the N.I. Act makes it clear that it is not every return of a cheque unpaid which leads to prosecution of an offence under the said provision of law. For such purposes, the cheque must have been returned unpaid either because the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank. The bank which returned the cheques unpaid had made it clear that the accounts had been blocked. It is clear that the complainant itself was aware that the accounts had been frozen in terms of directions by some statutory authority. In these circumstances, the reasons for return of the cheques unpaid being not what is envisaged in Section 138 of the N.I. Act, these petitions are devoid of merit and, therefore, dismissed.

Summary

Issues:
1. Prosecution under Section 138 of the Negotiable Instruments Act, 1881.
2. Legal implications of cheques being returned unpaid due to frozen accounts.
3. Validity of complaints and acquittal judgments.

Analysis:

Issue 1: Prosecution under Section 138 of the Negotiable Instruments Act, 1881
The petitioner filed two complaint cases under Section 138 of the Negotiable Instruments Act, alleging offences related to two cheques issued against the account of the second respondent. The cheques were returned unpaid by the bank, leading to legal demand notices and subsequent complaints. The respondents pleaded not guilty after being summoned and put to trial.

Issue 2: Legal implications of cheques being returned unpaid due to frozen accounts
The main defense raised by the respondents was that the cheques were returned unpaid because the accounts were frozen, not due to insufficient funds. The complainant acknowledged in the demand notice that the cheques were returned due to the account being "freezed." The court noted that the reason for return mentioned in the return memos was "account blocked," which was accepted by the Metropolitan Magistrate as a valid reason to dismiss the complaints.

Issue 3: Validity of complaints and acquittal judgments
The court emphasized that not every return of a cheque unpaid leads to prosecution under Section 138 of the N.I. Act. For prosecution under this provision, the cheque must be returned unpaid due to insufficient funds or exceeding the arranged amount. Since the bank clarified that the accounts were blocked, and the complainant was aware of the frozen accounts, the court upheld the judgments of acquittal, stating that the reasons for return did not meet the criteria under Section 138 of the N.I. Act. Consequently, the petitions were dismissed for being devoid of merit.

In conclusion, the judgment highlighted the importance of the specific reasons for the return of cheques unpaid under Section 138 of the Negotiable Instruments Act, ultimately leading to the dismissal of the complaints due to the accounts being frozen, not due to insufficient funds.