2024 (10) TMI 318 - HC - Indian Laws

Dishonour of cheque - maintainability of proceedings - account of the drawer company was blocked/frozen by the order of IT Department prior to the presentation of cheques - whether the petitioners can be held liable under Section 138 of the NI Act on the dishonour of cheque due to the account being frozen/blocked by the order of IT department? HELD THAT - Section 138 of the NI Act makes it clear that it is not every return of a cheque unpaid which leads to prosecution for an offence under the Act. For the said purposes, the cheque must have been returned unpaid by the banker either because the amount of money standing to the credit of that account is insufficient to honour the cheque or that the cheque exceeds the amount arranged to be paid from that account by an agreement between the account holder and the bank - The complaint, in the present case, does not state that the cheque was dishonoured on account of either of the two grounds on which liability under Section 138 of the NI Act can be made out. A person commits an offence under Section 138 of the NI Act when he draws a cheque from an account maintained by him in a bank for discharge of any debt or any liability and the cheque is returned unpaid for the reason of the insufficient credit in the account. It is an admitted case as stated in the complaint filed by the complainant before the learned MM that the cheque was dishonoured for the reason that the account was blocked by the order of IT department - attachment of the bank account of the drawer company had the effect of disabling the petitioners from operating or maintaining the said account. The petitioners could not exercise his right either to make a deposit or withdraw any money from the said account. A person commits an offence under Section 138 of the NI Act when he draws a cheque on an account maintained by him for discharge of any debt or liability and the said cheque is returned unpaid for the reason of insufficient funds. In the present case, the account of the drawer company was blocked / frozen by the order of the IT department thus, the said account at the time of dishonour of cheque cannot be held to be maintained in the bank. Drawing a cheque for discharge of any debt or liability from an account which is not maintained by a person for the reason of it being frozen may amount to an offence under other statutes but cannot be termed as an offence under Section 138 of the NI Act. For an account to be called as maintained by the drawer, it is essential that the he is in a position to operate the said bank account by either depositing the money or withdrawing the money therefrom. The account holder should be in a position to give effective instructions to his banker with whom the account is being maintained - In the present case, once the bank account has been attached by an order of the IT department, the same could not have been operated by the petitioners or be called to have been maintained by him. The complaint being CC No. 29073/2016 filed by the respondent before the learned Metropolitan Magistrate for offence under Section 138 of the NI Act along with the consequential proceedings arising therefrom, is quashed - Petition allowed.

Summary

Issues:
Challenge to order framing notice under Section 251 of CrPC and summoning order under Section 138 of NI Act based on dishonored cheque due to account freezing by IT department.

Analysis:

1. Liability under Section 138 of NI Act:
The petitioners contested their liability under Section 138 of the NI Act, arguing that the dishonored cheque was due to the account being blocked by the IT department before its presentation. The defense emphasized the necessity for the cheque to be returned unpaid due to insufficient funds or exceeding the arranged amount. The petitioners relied on various judgments to support their stance.

2. Adjudication of Disputed Facts:
The respondent opposed the petition, asserting that disputed facts require trial and cannot be resolved through a Section 482 CrPC petition. The respondent cited judgments to bolster this argument.

3. Court's Consideration:
The court deliberated on whether the petitioners could be held liable under Section 138 of the NI Act for the dishonored cheque resulting from the account freezing by the IT department.

4. Evidence Supporting Petitioners' Case:
The court noted evidence supporting the petitioners' claim, including the return memo, bank official's deposition, IT department's attachment order, and the bank's confirmation of the frozen account.

5. Legal Interpretation of Section 138:
The court highlighted that liability under Section 138 arises when a cheque is returned unpaid due to insufficient funds in the account. It emphasized the specific requirements for invoking Section 138.

6. Purpose of NI Act:
The court underscored the NI Act's objective of expeditious resolution of cheque dishonor cases to bolster public confidence in the banking system.

7. Precedent and Legal Principles:
Referring to legal precedents, the court emphasized the need to fulfill specific elements to establish a case under Section 138 of the NI Act.

8. Conclusion and Decision:
The court concluded that the petitioners could not be held liable under Section 138 as the account freezing by the IT department rendered the account non-operational, precluding the petitioners from fulfilling their payment obligations. The court allowed the petition and quashed the complaint filed by the respondent along with related proceedings.

9. Legal Precedent Application:
The court applied legal precedents to affirm that maintaining an account frozen by external orders does not constitute an offense under Section 138 of the NI Act.

10. Order and Disposition:
In the final order, the court directed the quashing of the complaint and related proceedings, providing relief to the petitioners. The judgment highlighted the essentiality of operational control over an account to establish liability under Section 138 of the NI Act.