In a significant ruling, the Jammu & Kashmir and Ladakh High Court at Srinagar, presided by Justice Rajnesh Oswal, has held that a complaint under Section 138 of the Negotiable Instruments Act, 1881, is maintainable even when a cheque is dishonoured due to the account being frozen. The court overturned the earlier decision of the Revisional Court that dismissed the complaint on the grounds of account freezing, remanding the matter back to the trial court for further proceedings.
Background of the Case:
The petitioner, Sheikh Owais Tariq, a resident of Chota Bazar Karan Nagar, Srinagar, had filed a complaint under Section 138 of the Negotiable Instruments Act against the respondent, Satvir Singh, a resident of Malikpora Merran Sahib, Jammu. The complaint arose from the dishonour of a cheque amounting to ₹8,69,700/- issued by the respondent on July 1, 2014, which was returned by the bank with the endorsement “Account Frozen” on July 14, 2014. The petitioner, represented by Advocate Zahoor A. Shah, claimed that the cheque was issued to discharge a debt owed by the respondent, and upon its dishonour, a legal notice was served, which was not complied with by the respondent.
The respondent, represented by Advocate Ishfaq Bashir, filed an application before the 3rd Additional Munsiff (Judicial Magistrate First Class), Srinagar, seeking to drop the proceedings, arguing that the complaint was not maintainable as the account was frozen by the Crime Branch and the situation was beyond his control. The Trial Court dismissed this application, holding that it had already taken cognizance of the case.
However, the Revisional Court, upon the respondent’s challenge, quashed the Trial Court’s orders dated August 23, 2014, and November 4, 2017, leading to the dismissal of the complaint. The petitioner then approached the High Court, seeking to quash the Revisional Court’s decision.
Legal Issues and Court’s Decision:
Two primary legal questions were considered by Justice Rajnesh Oswal:
1. Whether the Revisional Court was right in dismissing the complaint under Section 138 due to the account being frozen?
2. Whether a complaint for dishonour of a cheque due to the reason ‘Account Frozen’ is maintainable under Section 138 of the NI Act?
On the first issue, Justice Oswal observed that the Revisional Court’s decision was contrary to the settled law that once cognizance is taken and the Magistrate issues the process, the proceedings cannot be dropped, as there is no provision in the Code of Criminal Procedure for a Magistrate to recall such an order. The court relied on the Supreme Court’s judgment in Adalat Prasad v. Rooplal Jindal (2004) and emphasized that the Revisional Court’s finding was flawed as it overlooked procedural constraints.
On the second issue, the High Court held that the complaint under Section 138 of the NI Act is maintainable even if the cheque is dishonoured due to the account being frozen. Justice Oswal referred to several judicial pronouncements, including Laxmi Dyechem v. State of Gujarat (2012), where it was clarified that dishonour due to reasons like ‘account closed’, ‘payment stopped by the drawer’, or ‘signature mismatch’ are considered under the scope of Section 138. The court highlighted that the “Account Frozen” reason presupposes the account’s existence, and therefore, the complaint should not be quashed at a preliminary stage without a full trial.
Quoting the judgment, the court stated:
“The dishonour of a cheque for reasons beyond those explicitly mentioned in Section 138 does not automatically render the complaint unmaintainable. The onus is on the respondent to prove lack of knowledge about the freezing of the account or any other defence during the trial.”
Observations and Conclusion:
Justice Oswal remarked that the Revisional Court had prematurely quashed the complaint, putting “the cart before the horse” and emphasized that the matter required a full-fledged trial to determine whether the respondent had knowledge of the freezing of the account or if there was sufficient balance at the time of cheque issuance. The court restored the Trial Court’s order dated November 4, 2017, allowing the complaint to proceed and directed both parties to appear before the Trial Court on September 19, 2024.
