Dishonour Of Cheque From Account Frozen By Statutory Authority Doesn't Attract S.138 NI Act As It's Not 'Maintained' By Drawer: Delhi High Court - 2025-06-05

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Account Frozen by GST Dept Not 'Maintained' by Drawer, Cheque Dishonour Not an Offence Under S.138 NI Act: Delhi HC Quashes Summons

New Delhi: In a significant ruling clarifying the scope of Section 138 of the Negotiable Instruments Act, 1881 (NI Act), the Delhi High Court has held that the dishonour of a cheque from a bank account frozen by a statutory authority does not constitute an offence. Justice Ravinder Dudeja quashed the summoning order against a company whose account had been attached by the GST department before the cheques were presented for payment.

The court reasoned that for an offence under Section 138 to be established, the cheque must be drawn on an account "maintained" by the drawer. An account frozen by a statutory order, over which the holder has no operational control, cannot be considered as being "maintained" by them.

Case Background

The petition was filed by M/s Best Buildwell Pvt. Ltd. seeking to quash criminal proceedings initiated by M/s R.D. Sales under Section 138 of the NI Act. Best Buildwell had issued two cheques to R.D. Sales in late 2023 for the supply of TMT bars.

However, on January 22, 2024, the petitioner's bank account was provisionally attached by the CGST Department under Section 83 of the CGST Act, 2017, effectively freezing all debit transactions. The company claimed it immediately informed R.D. Sales of the attachment and requested them not to present the cheques. Despite this, the respondent presented the cheques on February 8, 2024, leading to their dishonour. While the bank memo cited 'insufficient funds', the underlying reason was the statutory attachment.

Key Arguments

Petitioner's Submissions (M/s Best Buildwell Pvt. Ltd.): - The primary argument was that an account frozen by a statutory authority is not "maintained" by the drawer as required under Section 138 of the NI Act. -

The petitioner had no control over the account and could not issue valid instructions to the bank. -

The inability to honour the cheque was due to circumstances beyond their control (the GST attachment) and not due to willful default or insufficiency of funds. -

They had proactively informed the respondent about the freeze, demonstrating a lack of malicious intent.

Respondent's Submissions (M/s R.D. Sales): - The respondent argued that the petitioner knowingly issued cheques from an account they were aware was inoperable, which amounts to culpable conduct. -

Allowing such a defence would undermine the legislative intent of Section 138, which is to promote financial discipline and the sanctity of cheques. -

All technical ingredients of the offence—drawing of the cheque, its presentation, dishonour, and service of a legal notice—were fulfilled.

Legal Principles and Court's Analysis

Justice Ravinder Dudeja centered the analysis on the term "maintained" as used in Section 138 of the NI Act. The court observed that the core of the offence is the drawer's failure to maintain sufficient funds, not the mere fact of dishonour.

The judgment highlighted that the petitioner’s bank account was attached by the CGST Department on January 22, 2024, before the cheques were presented. The court also noted evidence suggesting the petitioner had informed the respondent about the account freeze.

Relying on precedents like Vijay Chaudhary v. Gyan Chand Jain and Deepinder Singh Bedi v. State , the High Court reiterated the principle that for an account to be considered "maintained," the holder must be able to operate it freely. The court quoted from Vijay Chaudhary :

“For an account to be maintained by an account holder, it is essential that he is in a position to operate the said account by either depositing monies therein or by withdrawing money therefrom. He should be in a position to give effective instructions to his banker... once the account has been attached by an order of the Court, the said account could not be operated by the petitioner.”

The court concluded that since the attachment by the CGST department rendered the petitioner incapable of operating the account, a fundamental ingredient of the Section 138 offence was missing. Even if the funds were insufficient, the freeze made it impossible for the petitioner to rectify the balance.

Final Decision

Finding merit in the petitioner's arguments, the Delhi High Court allowed the petition. The summoning order dated September 18, 2024, and all consequential proceedings arising from the complaint case were quashed. The decision reinforces that penal liability under Section 138 of the NI Act cannot be imposed when the dishonour is a direct consequence of a statutory action beyond the drawer's control.