The Madras High Court recently ruled that complaints under Section 138 of the Negotiable Instruments Act, 1881, remain valid even if the issuer's bank account is frozen, provided it can be shown that the account lacked funds to honor the cheques. Justice G. Jayachandran made this decision in Cr.O.P.No. 21268 of 2024, dismissing an attempt by M/s Challani Rank Jewellery to quash a cheque dishonor complaint filed by Ashok Kumar Jain, proprietor of M/s Mangalkalash Jewellers.
Case Overview
In August 2020, M/s Challani Rank Jewellery, represented by partners Sumti and Maya Challani, bought silver worth over 1 crore INR from Jain. To settle this debt, they issued 36 cheques. However, these cheques were dishonored with the bank citing "Account Blocked." Jain, represented by advocate J. Ranjith Kumar, then filed a complaint under Section 138 of the NI Act.
Key Legal Challenges
The petitioners argued to quash the complaint based on two main points:
1. Multiple Cheques in a Single Complaint: They claimed that filing a single complaint for 36 cheques violated Section 219 of the Criminal Procedure Code (CrPC), which limits joint trials to three similar offenses within a year.
2. Frozen Account Due to Tax Liens: They argued that the dishonor was not due to insufficient funds but rather due to the account being frozen by the Income Tax Department and Enforcement Directorate for unpaid taxes.
Court’s Decision
Justice Jayachandran ruled that a frozen account does not exempt the issuer from Section 138 if it can be shown that the account had insufficient funds. Referencing the Supreme Court's ruling in Laxmi Dyechem v. State of Gujarat, he explained that reasons like "account blocked" fall under the broader category of insufficient funds.
On the issue of multiple cheques, the court applied Sections 219 and 220 of the CrPC. Section 220 allows offenses forming part of a single transaction to be tried together. Since all 36 cheques related to one transaction, filing a single complaint was appropriate.
The petition was dismissed, and the court emphasized that arguments about account freezing due to liens should be resolved in trial.
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