Introduction
In the recent judgment dated 5th June 2025 in M/s Best Buildwell Pvt. Ltd. & Ors. v. M/s R.D. Sales [CRL.M.C. 1326/2025], the Hon’ble Delhi High Court dealt with the critical question of whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) can sustain where a cheque is dishonoured solely due to statutory freezing of the drawer’s bank account. The judgment provides substantial clarity on the interpretation of “maintained account” and the essential ingredients for prosecution under Section 138 of the NI Act.
1. Factual Background and Procedural History
The petitioners, M/s Best Buildwell Pvt. Ltd. & Ors., and the respondent, M/s R.D. Sales, were engaged in regular commercial transactions. In November–December 2023, the petitioners issued two cheques amounting to ₹2,40,000 each for the purchase of TMT bars. It was mutually agreed that these cheques would not be deposited without prior consent.
On 22nd January 2024, the petitioners’ bank account was provisionally attached under Section 83 of the CGST Act, 2017. The petitioners informed the respondent about the account freeze and requested withholding the cheque presentation. Despite this, the cheques were deposited on 8th February 2024 and returned dishonoured on 20th February 2024, with the bank memo erroneously stating “insufficient funds”.
The respondent served a legal notice and subsequently filed Complaint Case No. 4878/2024 under Section 138 of the NI Act. The learned Trial Court issued a summoning order on 18th September 2024. Aggrieved, the petitioners moved the High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, seeking quashing of the proceedings.
2. Identification of Legal Issues
The Court addressed the following legal issues:
- Whether a bank account under attachment by statutory authorities qualifies as a “maintained account” for purposes of Section 138 of the NI Act.
- Whether dishonour of cheques due to account freezing under Section 83 of the CGST Act attracts penal liability under Section 138 of the NI Act.
- Whether prior notice to the payee about the account attachment absolves the drawer of criminal liability.
3. Arguments of the Parties
Petitioners’ Submissions:
- The account was under statutory attachment when the cheques were presented, rendering the petitioners incapable of operating the account.
- Cited Deepinder Singh Bedi v. State & Anr. and Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd., asserting that criminal liability under Section 138 cannot be imposed if the drawer had no control over the dishonour.
- Highlighted that dishonour due to statutory intervention does not constitute “insufficiency of funds”.
- Relied on Sachin Jain v. Rajesh Jain and Ceasefire Industries Ltd. v. State, emphasizing that circumstances beyond the drawer’s control negate penal intent.
Respondent’s Submissions:
- The petitioners knowingly issued cheques from a frozen account, amounting to gross negligence.
- Argued that such conduct defeats the purpose of Section 138, which is to promote financial accountability.
- Claimed that all technical ingredients of Section 138 were fulfilled and prior knowledge of account freezing does not provide a valid defence.
4. Court’s Analysis and Reasoning
The Hon’ble Mr. Justice Ravinder Dudeja undertook a doctrinal and precedential analysis of Section 138. The Court emphasized:
- The essential requirement under Section 138 is that the cheque must be “drawn on an account maintained by the drawer.”
- Relying on Deepinder Singh Bedi, Vijay Chaudhary v. Gyan Chand Jain, and Standard Chartered Bank v. State, the Court reaffirmed that a frozen account—subject to statutory attachment—is not “maintained” in the legal sense.
- The inability to operate the account was not due to wilful default but due to a legal bar under the CGST Act.
- The dishonour memo’s language (“insufficient funds”) was deemed immaterial when undisputed documentary evidence demonstrated that the account had been frozen.
- The Court accepted that the petitioners had issued cheques before the account was frozen and had duly informed the respondent thereafter, thereby negating any mens rea.
The broader policy implication drawn was that Section 138 aims to deter deliberate defaults and uphold cheque integrity—not to punish those incapacitated by law from honouring cheques.
5. Final Conclusion and Holding
The Delhi High Court allowed the petition and quashed the summoning order dated 18th September 2024, holding:
- A cheque drawn on a statutorily frozen account does not meet the threshold of “maintained account”.
- The penal provision of Section 138 cannot be invoked where the drawer had no effective control over the operation of the account due to lawful attachment.
- The complaint proceedings were held to be an abuse of process in the given circumstances.
FAQs:
1. Can a cheque dishonour due to a frozen bank account lead to prosecution under Section 138 NI Act?
No. If a bank account is frozen by statutory authorities like the CGST Department, it is not considered a “maintained account”, and prosecution under Section 138 may not be valid.
2. What does “maintained account” mean under Section 138 of the NI Act?
A “maintained account” refers to an account the drawer can operate—deposit, withdraw, or issue instructions. If frozen by law, the drawer loses such capacity, voiding liability under Section 138.
3. Can a payee present a cheque after being informed of account freezing?
While legally permitted, doing so after being informed of statutory attachment may not establish criminal liability, especially if dishonour results solely from the freeze.
4. What are the necessary ingredients for Section 138 to apply?
The cheque must be drawn on a maintained account, presented within validity, dishonoured due to insufficient funds or arrangement failure, followed by a valid notice and non-payment within 15 days.
5. Does the dishonour reason mentioned in the bank memo matter in cheque bounce cases?
Not always. Courts can look beyond the bank memo’s reason if documentary evidence shows statutory reasons like account attachment prevented cheque clearance.
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