Searched Results
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Account Closure and Cheque Dishonour - Multiple sources confirm that when a cheque is dishonoured due to the account being closed prior to presentation, it can still constitute an offence under Section 138 of the Negotiable Instruments Act, 1881. Courts have consistently held that the liability under Section 138 arises even if the account was closed before the cheque was issued or presented, as long as the cheque was issued in the course of banking transactions and dishonoured on account of closure A. Victor VS M. Jayaprakash - Dishonour Of Cheque, Hashmikant M. Sheth VS State of Gujarat - Crimes, Hashmikant M. Sheth VS State of Gujarat - Dishonour Of Cheque, Bishnu Dayal Gupta VS State of Jharkhand - Dishonour Of Cheque, Rajesh VS Basheer - Kerala.
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Legal Position on Account Closure - Courts have emphasized the legislature’s intent to hold drawers accountable for dishonoured cheques, regardless of account status at the time of dishonour. The key factor is that the cheque was issued in the course of banking dealings, and dishonour occurs due to reasons like 'account closed' or 'payment stopped' Hashmikarit M. Sheth VS State of Gujarat - Dishonour Of Cheque, Hashmikant M. Sheth VS State of Gujarat - Dishonour Of Cheque, Bishnu Dayal Gupta VS State of Jharkhand - Dishonour Of Cheque.
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Court Judgments and Interpretation - Judicial decisions have clarified that the offence under Section 138 is made out when the cheque is dishonoured due to account closure, and the drawer's liability remains intact. Several judgments dismissed petitions to quash proceedings on grounds of account closure, affirming that the offence is committed when the cheque, issued in the course of banking, is dishonoured for reasons such as account closure A. Victor VS M. Jayaprakash - Dishonour Of Cheque, Hashmikant M. Sheth VS State of Gujarat - Crimes, Hashmikarit M. Sheth VS State of Gujarat - Dishonour Of Cheque, K.S.RAJESH Vs K.M.BASHEER - Kerala.
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Exceptions and Limitations - In some cases, courts have observed that if the account was closed before the cheque was issued, or if the dishonour was due to reasons unrelated to the cheque's issuance (e.g., signature mismatch), then no offence under Section 138 is made out. However, the general stance remains that account closure at the time of dishonour does not absolve liability if the cheque was issued during the period the account was active Rajesh VS Basheer - Kerala, U JEEVAN PRAKASH vs T P KRISHNA RAJU - Kerala.
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Procedural Aspects and Evidence - Courts have also highlighted the importance of proper compliance with procedural requirements under the NI Act, such as issuing a legal notice before initiating prosecution, and have upheld convictions where these procedures were followed, even in cases involving account closure S. Sudarshan S/o S. Krishna Murthy VS G. M. Sunil Kumar S/o G. V. Muralidhar Rao - Karnataka, Ashok Kumar Kaul VS State Of A. P. - Andhra Pradesh, A. Deepa VS State of A. P. - Andhra Pradesh.
Analysis and Conclusion:
The legal consensus, supported by multiple judicial rulings, is that a cheque dishonoured due to the account being closed at the time of presentation still constitutes an offence under Section 138 of the Negotiable Instruments Act, provided the cheque was issued during the period the account was active. The liability hinges on the issuance of the cheque in the course of banking transactions, not solely on the account's status at the time of dishonour. Courts have consistently dismissed petitions challenging prosecution on the basis of account closure, affirming the robustness of Section 138 in safeguarding financial transactions and deterring cheque bouncing frauds.
