2024 (11) TMI 44 - HC - Indian Laws

Dishonour of Cheque - account from which the cheque drawn was frozen and for that reason the subject cheque returned unpaid - offence under Section 138 of NI Act attracted or not - complainant is the Bank which freezed the account due to the default of loan by the account holder - presentation of the cheque for collection and consequential complaint amounts to malicious prosecution or not. HELD THAT - The clarification of the Hon ble Supreme Court in M/S LAXMI DYECHEM VERSUS STATE OF GUJARAT ORS. 2012 (12) TMI 106 - SUPREME COURT makes clear that, account block or freezed are a species. Insufficient fund is one of the two contingencies mentioned in section 138 of the NI Act. If the issuance of cheque without sufficient fund which is the genus, same will give cause of action to prosecute. The test is whether the fund in the account not sufficient or exceed the limit arranged. Account blocked or freezed is species. It is not so material whether the drawer of the cheque aware or not aware of the fact about his account freeze at the time of issuing cheque. If with knowledge that the account is freezed nevertheless he issue the cheque from the account freezed, the intention to cheat is manifestly seen. From the facts and circumstances of the instant case, obviously on the date of cheque (08/11/2019) fund in the account was not sufficient to honour. Thus, the first contingency to attract section 138 of NI Act gets satisfied. The account being freezed, the petitioner company had a opportunity to pay the cheque amount within 15 days from the date of receipt of the statutory notice. In this case, the petitioner company had disputed the liability and not paid the cheque amount. Hence, the question whether the Bank which has freezed the account can initiate the complaint for dishonor of the cheque due to account freeze and the dispute regarding liability to discharge enforceable debt, it is necessary to consider the plea of the petitioners regarding the circumstances the subject cheque purportedly given to the complainant Bank. This Criminal Original Petition stands dismissed.

Issues Involved:

1. Whether the freezing of the account from which the cheque was drawn affects the applicability of Section 138 of the Negotiable Instruments Act, 1881.
2. Whether the presentation of the cheque by the complainant bank, which had frozen the account, constitutes malicious prosecution.
3. Whether the cheque was issued for the discharge of an enforceable debt or merely as security.
4. The implications of the statutory notice and the failure to pay the cheque amount within the stipulated period.

Issue-wise Detailed Analysis:

1. Freezing of Account and Applicability of Section 138 of NI Act:

The primary issue is whether the freezing of the account from which the cheque was drawn affects the applicability of Section 138 of the Negotiable Instruments Act, 1881. The court examined the statutory provision under Section 138, which states that dishonour of a cheque constitutes an offence if the amount in the account is insufficient to honour the cheque or if it exceeds the arranged amount. The court referred to the Supreme Court's clarification in Laxmi Dyechem v. State of Gujarat, which expanded the interpretation to include situations like "account closed" or "payment stopped" as species of the genus "insufficient funds." The court concluded that "account freezed" is a species under the genus of insufficient funds, and thus, the freezing of the account does not exempt the drawer from liability under Section 138 if the cheque is dishonoured for this reason.

2. Presentation of Cheque and Malicious Prosecution:

The petitioners argued that the presentation of the cheque by the complainant bank, which had previously frozen the account, amounted to malicious prosecution. The court considered whether the bank's actions constituted an abuse of process. It was noted that the bank had frozen the account due to the petitioners' default on loan repayment. The court opined that the presentation of the cheque and subsequent complaint did not amount to malicious prosecution, as the cheque was issued to discharge a legally enforceable debt, and the petitioners failed to make the payment within the statutory period after receiving notice of dishonour.

3. Cheque Issued for Discharge of Debt or as Security:

The petitioners contended that the cheque was given as security and not for the discharge of any enforceable debt. The court examined the circumstances under which the cheque was issued and noted that the cheque in question was different from those allegedly given as security in 2015. The court found that the cheque dated 08/11/2019 was issued from an account known to be frozen, and the petitioners failed to demonstrate that it was not meant to discharge a debt. The court emphasized that such factual disputes are to be resolved during the trial, not in a quash petition.

4. Statutory Notice and Failure to Pay:

The court addressed the implications of the statutory notice issued after the cheque's dishonour. Under Section 138, the drawer is obligated to pay the cheque amount within 15 days of receiving the notice to avoid prosecution. In this case, the petitioners did not pay the amount within the stipulated period and instead disputed the liability. The court highlighted that the failure to pay the cheque amount within the statutory period provided a cause of action for the complainant to file the complaint.

Conclusion:

The court concluded that the freezing of the account and the subsequent dishonour of the cheque attracted the provisions of Section 138 of the NI Act. The petitioners' arguments regarding malicious prosecution and the cheque being issued as security were not sufficient to quash the proceedings. The court emphasized that disputed facts regarding the cheque's purpose and the petitioners' liability should be addressed during the trial. Consequently, the petition to quash the complaint was dismissed, and the connected miscellaneous petitions were closed.

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