While quashing three complaints in a case where dishonour of cheque occurred not due to insufficiency of funds, but due to the statutory prohibition on payments during winding-up proceedings and the appointment of IRP, the Delhi High Court has held that the dishonour of the cheques on the ground of “account blocked” due to proceedings under NCLT and accounts being taken over by IRP/Liquidator, precludes liability under Section 138 NI Act as it cannot be said that he is maintaining the Account.

The petition before the High Court was filed under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) against the Order summoning the petitioners for an offence under Section 138 of the Negotiable Instruments Act, 1881.

The Single Bench of Justice Neena Bansal Krishna held, “To conclude, the dishonour of the cheques on the ground of “ACCOUNT BLOCKED” due to proceedings under NCLT and Accounts being taken over by IRP/Liquidator, precludes liability under Section 138 NI Act as it cannot be said that he is maintaining the Account. Therefore, the offence under Section 138 NI Act, would not be made out”, it added.

Advocate Nalin Tripathi represented the Petitioners, while Advocate Ankit Tandan represented the Respondents.

Factual Background

The Complaint was filed by the Respondent Complainant against the Accused Company and the petitioners. It was stated that the petitioners were the Directors and were involved in the day-to-day functioning and decisions of the accused Company. The Complainant and the third Accused knew each since a long time through the father of the Complainant. The accused asked them for financial help (a friendly loan) in the name of the Accused Company. A friendly loan was given. The accused initially paid interest on the borrowed amount, but from June 2020, they stopped making interest payments. The matter was settled, and the accused issued a Cheque in the Complainant’s name, which was returned unpaid with the remark “ACCOUNT BLOCKED”.

In another complaint, it was alleged that all the accused intentionally stopped paying rent from April 2014 onwards. The Accused also failed to pay electricity and water charges for the past six years, citing business losses. In August 2020, the parties settled and borrowed a lump sum amount of Rs 24,00,000, and the accused issued a cheque accordingly. However, the said cheque returned unpaid on with the remark “ACCOUNT BLOCKED”. Legal notices were sent, but the Accused had no intention to return money, due to which the Respondents filed a Complaint under Section 138 NI Act.

Reasoning

The Bench, at the outset, explained that Section 138 NI Act creates an offence when a cheque is drawn on an account maintained by a person, issued for the discharge of a legally enforceable debt, and is dishonoured for insufficiency of funds. Section 141 NI Act extends vicarious liability to persons in charge of the company’s business. However, this vicarious liability is contingent upon the primary offence under Section 138 being established against the Company.

On a perusal of the facts of the case, the Bench noted that the impugned cheques relied were all dated September 7, 2020, whereas the NCLT had vide an Order, admitted the Corporate Debtor into CIRP and directed that all securities, cheque books and bank operations be handed over to the Interim Resolution Professional (IRP). Furthermore, a moratorium was declared in terms of Section 14 IBC. Subsequently, the accused company went into liquidation, and a moratorium was declared to be commenced. “Thus, from April 2019 onwards, the Petitioners ceased to have any authority, control or right to operate the said Account. Any cheque purportedly issued in September 2020, after divesting of powers, could not have been validly issued by the Petitioners”, the Bench held.

Reference was made to the judgment in Ganesh Chandra Bamrana & Ors. vs. Rukmani Gupta (2022), wherein it was observed that once CIRP commences, and moratorium under Section 14 IBC is imposed, the directors lose control over the company’s bank accounts, and therefore cannot be prosecuted for dishonour of cheques presented thereafter.

Coming to the facts, the Bench noticed that the alleged dishonour of cheques occurred nearly 18 months after CIRP had commenced and almost 11 months after the Liquidator had taken charge. The remark “ACCOUNT BLOCKED” was a direct consequence of the moratorium and liquidation process and not attributable to the Petitioners. As per the Bench, there was no “valid issuance of cheque by the drawer”, and no “dishonour due to insufficiency of funds”, as required under Section 138 NI Act.

The Bench noted that the cheques presented in 2020 were dishonoured with remarks of “ACCOUNT BLOCKED”. The dishonour occurred not due to insufficiency of funds, but due to the statutory prohibition on payments during winding-up proceedings and the appointment of an IRP. “This circumstance falls squarely outside the ambit of Section 138, as the essential ingredient of dishonour due to inadequate funds, remains unestablished. Thus, the necessary ingredient to bring home the offence under Section 138 NI has not been proved”, it added.

The Bench thus quashed all three Complaints along with the summoning Orders as well as all the proceedings emanating therefrom.

Cause Title: Farhad Suri v. Praveen Choudhary (Neutral Citation: 2025:DHC:11418)

Appearance

Petitioner: Advocates Nalin Tripathi, Shivansh Pandey

Respondents: Advocate Ankit Tandan

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Delhi High CourtJustice Neena Bansal Krishna

Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.