ND Developers Private Ltd. Vs Ritesh Raushan (Karnataka High Court)
Cheque Dishonour Due to Subsequent Freezing of Drawer’s Bank Account – S.138 NI Act Not Attracted: Karnataka HC
The Karnataka High Court held that prosecution under Section 138 of the Negotiable Instruments Act cannot be sustained when the cheque is dishonoured due to debit freezing of the bank account by police investigation, and not due to insufficiency of funds.
In the present case, the complainant had purchased a flat under a No-Pre-EMI scheme from the developer company. Due to delay in handing over possession, the developer issued a post-dated cheque for ₹41 lakh to the complainant. However, before the cheque was presented, the police directed the bank to debit-freeze the accounts of the company and its Managing Director in connection with criminal investigations.
When the complainant presented the cheque, it was dishonoured with the remark “account blocked situation covered in 21-25.” Subsequently, the complainant initiated proceedings under Section 138 NI Act, which were challenged before the High Court.
The Court observed that for an offence under Section 138, the cheque must be dishonoured due to insufficiency of funds or exceeding arrangement. Where the account is frozen by statutory or investigative action, the drawer has no control over the account and cannot operate it, and therefore cannot be said to be “maintaining the account” at the time of presentation of the cheque.
Relying on several High Court precedents, the Court held that dishonour caused by attachment or freezing of the account—beyond the control of the drawer-does not attract Section 138 liability. Since the petitioners had issued the cheque when the account was active and the freezing occurred later due to police action, the essential ingredients of the offence were not satisfied.
Accordingly, the High Court quashed the entire proceedings pending before the Magistrate, holding that continuation of prosecution would result in miscarriage of justice.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
