Issuance of Cheque From a Closed Account Constitutes an Offence Under S.138 NI Act: Himachal Pradesh High Court - 2025-09-14

HP High Court Upholds Conviction in Cheque Bounce Case, Rules 'Account Closed' is a Valid Ground Under S.138 NI Act

Shimla, HP – The Himachal Pradesh High Court, in a recent judgment, has upheld the conviction of a man in a cheque bounce case, reinforcing that issuing a cheque from a closed bank account squarely falls within the ambit of an offence under Section 138 of the Negotiable Instruments Act, 1881. Justice Rakesh Kainthla dismissed the criminal revision petition filed by Ram Chand against Narayan Sharma, affirming the concurrent findings of the two lower courts.

The Court also reiterated the limited scope of its revisional jurisdiction, stating it cannot re-appreciate evidence like an appellate court and will only interfere in cases of patent legal error or perversity.

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Background of the Case

The case originated from a complaint filed by Narayan Sharma, who alleged that he had loaned ₹1,20,000 to Ram Chand for his business. To repay this debt, Ram Chand issued a cheque which, upon presentation, was dishonored by the bank with the remark "account closed." Despite a legal notice, Ram Chand failed to make the payment, leading to the filing of a criminal complaint.

The Trial Court convicted Ram Chand, sentencing him to six months of simple imprisonment and ordering him to pay ₹1,50,000 in compensation. This decision was subsequently upheld by the Additional Sessions Judge, Kullu, prompting Ram Chand to file the present revision petition before the High Court.

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Arguments Before the High Court

• Petitioner's (Ram Chand) Arguments: The petitioner’s counsel argued that the lower courts had failed to appreciate the evidence correctly. The defense was that the accused had taken a smaller loan of ₹20,000 in 2010, which he had already repaid with interest in 2011. He claimed the cheque in question was a blank security cheque that was misused by the complainant. Crucially, he contended that since the bank account was closed in 2011, he could not have issued the cheque in 2012.

• Respondent's (Narayan Sharma) Arguments: The respondent’s counsel countered that once the accused admitted his signature on the cheque, the statutory presumption under Sections 118 and 139 of the NI Act came into play, shifting the burden of proof to the accused to show that there was no legally enforceable debt. It was argued that the accused’s story of a misused security cheque was improbable, especially since he was already facing other cheque dishonor cases and was aware of the legal consequences.

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High Court's Legal Analysis and Findings

Justice Rakesh Kainthla conducted a thorough review of the legal principles governing Section 138 of the NI Act and the scope of revisional jurisdiction.

On Statutory Presumption and Rebuttal

The Court heavily relied on the principle that admission of a signature on a cheque triggers the presumption of a legally enforceable debt. Quoting several Supreme Court precedents, including APS Forex Services (P) Ltd. v. Shakti International Fashion Linkers , the judgment emphasized:

"once the accused has admitted the issuance of a cheque which bears his signature, there is a presumption that there exists a legally enforceable debt or liability under Section 139 of the NI Act. However, such a presumption is rebuttable in nature, and the accused is required to lead evidence to rebut such a presumption."

The High Court found the accused's defense "highly unsatisfactory" and his evidence insufficient to rebut this presumption on a preponderance of probabilities. The Court noted the inconsistency in the defense witness's testimony and deemed it unreliable.

On Dishonor Due to 'Account Closed'

A key legal issue addressed was whether a cheque returned for "account closed" constitutes an offence under Section 138. Affirming the established legal position, the Court cited the Supreme Court's landmark decision in NEPC Micon Ltd. v. Magma Leasing Ltd. , stating:

"The expression 'the amount of money standing to the credit of that account is insufficient to honour the cheque' is a genus of which the expression 'that account being closed' is a species... when the cheque is returned by a bank with an endorsement 'account closed', it would amount to returning the cheque unpaid because 'the amount of money standing to the credit of that account is insufficient to honour the cheque' as envisaged in Section 138 of the Act."

The Court concluded that the accused was liable for issuing a cheque from an account that he knew was no longer operative.

On Service of Notice

Regarding the petitioner's claim of improper service of the legal notice, the Court observed that the notice was returned 'unclaimed'. Citing the Supreme Court in C.C. Allavi Haji vs. Pala Pelly Mohd. , it held that a notice returned unclaimed is deemed to be served, and the burden was on the accused to prove otherwise, which he failed to do.

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Final Decision

Finding no perversity or legal error in the judgments of the lower courts, the High Court held that all ingredients of the offence under Section 138 of the NI Act were satisfied. The Court concluded that the sentence of six months' imprisonment and the compensation of ₹1,50,000 were just and reasonable, considering the deterrent object of the law and the financial loss incurred by the complainant.

The revision petition was accordingly dismissed, and the conviction and sentence were upheld.