The Madras High Court recently ruled that complaints under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), are maintainable even when a bank account is frozen, as long as it can be proven that the account had insufficient funds to honour the cheques. The judgment was delivered by Justice G. Jayachandran in Crl.O.P.No. 21268 of 2024, dismissing a petition filed by M/s Challani Rank Jewellery and others to quash a cheque dishonour complaint lodged by Ashok Kumar Jain, proprietor of M/s Mangalkalash Jewellers.
Case Background
In this case, M/s Challani Rank Jewellery, represented by partners Sumti Challani and Maya Challani, purchased silver articles worth ₹1,10,35,566 from Ashok Kumar Jain on August 14, 2020. To discharge the debt, they issued 36 cheques. However, these cheques were dishonoured with the bank’s endorsement stating “Account Blocked.” Jain subsequently filed a complaint under Section 138 of the NI Act. The complainant’s legal representation was led by advocate Mr. J. Ranjith Kumar from M/s Surana @ Surana, while the petitioners were represented by advocate Mr. S. Ramesh Kumar.
Key Legal Issues
The petitioners sought to quash the complaint on two major grounds:
1. Single Complaint for Multiple Cheques: They argued that filing a single complaint for 36 dishonoured cheques contravened Section 219 of the Criminal Procedure Code (CrPC), which limits the joinder of offences of the same kind to three within a 12-month period.
2. Effect of Account Freezing: The petitioners contended that the cheques were dishonoured not due to insufficient funds but because the account had been frozen by the Income Tax Department and the Enforcement Directorate, following a lien for outstanding taxes.
Court’s Observations and Decision
Justice Dr. G. Jayachandran upheld the maintainability of the complaint, observing that freezing or blocking of the account does not provide a defence if it can be established that the account lacked sufficient funds. Citing Supreme Court precedents, the judge emphasized that the term “insufficient funds” under Section 138 of the NI Act is a genus, and reasons like “account closed,” “payment stopped,” or “account blocked” are species within that genus.
The court also considered the application of Sections 219 and 220 of the CrPC regarding the joinder of charges. While Section 219 restricts joint trials to three offences of the same kind within a 12-month period, Section 220 allows multiple offences forming part of the same transaction to be tried together. The court found that in this case, all 36 cheques were issued for a single transaction and presented simultaneously, which qualifies as the same transaction. Therefore, the filing of a single complaint was deemed appropriate.
Important Court Observations
Justice Jayachandran quoted the Supreme Court’s ruling in Laxmi Dyechem v. State of Gujarat, noting:
“The expression ‘amount of money… is insufficient’ appearing in Section 138 of the Act is a genus, and dishonour for reasons such as ‘account closed’, ‘payment stopped’, or ‘account blocked’ are only species of that genus.”
Applying this rationale, the court ruled that complaints under Section 138 can proceed even if an account is blocked, provided the complainant can establish that the account lacked sufficient funds at the time the cheques were issued.
The petition was dismissed, with the court holding that the allegations regarding insufficient funds due to an account freeze were matters for trial, not for quashing the complaint. Consequently, the Criminal Original Petition was deemed devoid of merit and dismissed, allowing the trial to proceed.
