Drawer Has No Control Over Bank Account In A Case Debit Freezement: Karnataka High Court Quashes Cheque Dishonour Complaint Proceedings

The petitioners approached the High Court, calling into question the proceedings in a case registered under Section 138 of the Negotiable Instruments Act, 1881.

The Single Bench of Justice M. Nagaprasanna held, “With all these dates and the dates connecting the dots, the very registration of crime against the petitioners would be rendered unsustainable, as the cheque is dishonoured for stop payment not for want of sufficient funds, but account block situation covered in 2125.”

“Therefore, it is a situation where the drawer of the cheque has no control or authority over the account in the case of debit freezement. In order to become liable for offence under Section 138 of the Act, the accused is required to have control over the account when the cheque becomes due for presentation/realization”, it added.

Advocate Sumathi Pauline represented the Petitioner, while Advocate Chinmay J. Mirji represented the Respondent.

Factual Background

The first petitioner is a Private Limited Company, and the second petitioner is the Managing Director of the first petitioner. The complainant and his wife purchased a flat in the first petitioner/Company’s project named ND Passion Elite. It was averred in the complaint that the complainant had availed a No Pre-EMI Scheme, wherein the Company was obligated to remit payment of interest on the home loan until possession was handed over. There was a breach in contractual obligation between the two, and the complainant averred that he was compelled to make payment of ₹41,75,634 on account of non-handover of possession. Towards the said amount, the Company issued a cheque amounting to ₹41,00,000.

A Police notice was issued to the Bank of Maharashtra, directing the debit-freezing of the accounts of the first petitioner/Company and the second petitioner/Managing Director in furtherance of the investigation in a case registered under Sections 420 and 506 read with Section 34 of the IPC. The debit freeze of the accounts was done. When the complainant, to whom the cheque had been issued, presented it for realisation, the same was dishonoured with an endorsement “account blocked situation covered in 21 25”. The complainant then began the process of initiating proceedings against the petitioners for dishonour of the cheque by issuing a notice.

The petitioners sent a reply to the notice, at which point in time, the petitioners were not aware of the fact that the account of the petitioners was frozen. The complainant then registered a private complaint under Section 223 of the BNSS for an offence punishable under Section 138 of the Act. Sworn statement of the complainant was recorded, cognisance was taken, and summons were issued. Aggrieved thereby, the petitioners approached the High Court.

Reasoning

Considering the timeline in which the incident occurred, the Bench noted that the account over which the cheque was issued was debit frozen after issuance of the cheque in issue. The complainant then presented the cheque for realisation. The Bench also noticed that the petitioners came to know about the debit freeze after the reply to the statutory notice was issued. The complainant registered the complaint under Section 223 of the BNSS on August 17, 2024.

Reference was made to the judgment of the Delhi High Court in Vijay Chaudhary V. Gyan Chand Jain (2008), where it has been held that when the account is attached and frozen by a Court order, the accused drawer could not operate his account. The ostensible reason for dishonouring the cheque has to be a voluntary act in the control of the accused, and if the cheque has been dishonoured for being debit frozen, it cannot be the voluntary act of the accused.

The Bench was of the view that the judgments about quashment of proceedings would become applicable to the facts of the case as the petitioners had demonstrated that, at the time when they issued the cheque, the account was active and there was sufficient balance in the account and it was only two months after issuance of the cheque, the account was debit frozen, which the petitioners were not aware of. The same was also demonstrated by the reply to the notice issued by the complainant. In the reply, the petitioners did not aver about debit freeze, as they were not aware, and they became aware of it only when the communication was received from the Bank attaching a debit freeze order.

The Bench explained that the Model List of Objections in ANNEXURE D of the Reserve Bank of India Uniform Regulations and Rules for Bankers' Clearing Houses, issued on May 17, 2012, encompasses the various reasons for the return of a dishonoured cheque. As per the said guidelines, a situation covered under 21 would mean that the payment is stopped by an attachment order and a situation covered under 25 would mean that withdrawal is stopped in lieu of insolvency of the account holder.

Considering the fact that the drawer of the cheque had no control or authority over the account in the case of debit freezement, the Bench allowed the petition and quashed the entire proceedings.

Cause Title: M/s. ND Developers Private Ltd. V. Ritesh Raushan (Case No.: Criminal Petition No.11207 of 2025)

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