Dishonour Of Cheque Due To Subsequent Freezing Of Drawer's Bank Account Can't Lead To Prosecution U/S 138 NI Act: Delhi High Court

The Delhi High Court recently granted relief to an entity being prosecuted under Section 138 of the Negotiable Instruments Act 1881, for dishonor of a cheque issued by it— due to subsequent freezing of its bank account.Justice Ravinder Dudeja observed that under Section 138 of the NI Act, an offence is committed when a cheque is returned unpaid due to insufficient funds in the account “maintained by the drawer”. However, when the bank account is frozen, it cannot be said that the drawer was maintaining the account and hence, the precondition of Section 138 is not satisfied. In the facts of the case, the bench observed,“Even though the cheque return memo may mention its reason for dishonor as “insufficient funds”, the fact remains that, the petitioners' account was frozen by the CGST Department, and thus, it could not be said to be "maintained" by them at the relevant time. Since the petitioners were unable to operate the account or issue valid instructions to the bank due to the attachment, the essential ingredients of Section 138 are not fulfilled.”The Court also noted that the Petitioner was not aware that its bank account would be frozen, when it had given the cheques to the respondent. However, as soon as it got the information about the account being attached by the CGST Department, it informed the respondent to avoid any trouble for either side.Thus the Court held that the trial court erred in summoning the Petitioner.“Even if the funds in the account were insufficient at the time of presentation of the cheques, the account having been frozen by the CGST, it would not have been possible for the petitioner to maintain sufficiency of funds in his account for the cheques to be honoured,” the Court held and quashed the summoning order issued to Petitioner.Appearance: Mr. Bhuvan Mishra, Mr. Yash Maheshwari, Mr. Tanmay Mishra and Mr. Krishna Kanhaiya Kumar, Advs for Petitioner; Mr. Uday Seth and Ms. Puja Dewan, Advs. SI Monu Chauhan (I.O), PS. Crime Branch. Case title: M/S Best Buildwell Pvt. Ltd. & Ors. M/S R.D. SalesCitation: 2025 LiveLaw (Del) 691Case no.: CRL.M.C. 1326/2025Click here to read order

Dishonour Of Cheque Due To Subsequent Freezing Of Drawer's Bank Account Can't Lead To Prosecution U/S 138 NI Act: Delhi High Court

Kapil Dhyani

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