Corporate Law : The court held that cheque dishonour caused by a statutory account freeze during insolvency does not attract criminal liability. T...
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Supreme Court held that negligence on part of bank in presentation of cheque within the validity period of cheque leads to ‘deficiency in service’ under the Consumer Protection Act. Accordingly, compensation entitled to be awarded to the consumer.
The case examined whether the accused could disprove liability under Section 138. The court upheld conviction as the presumption remained unrebutted and evidence supported the complainant’s claim.
The court analysed whether the reason account blocked falls within the scope of Section 138 of the Negotiable Instruments Act. It held that the provision applies only when dishonour is linked to insufficient funds or lack of arrangement.
The High Court examined whether proceedings under Section 138 NI Act could be quashed on the plea that cheques were issued as security. It held that such a defence involves disputed facts and must be tested at trial.
While alteration of the cheque amount is a material alteration under law, the court ruled that consent and responsibility for alteration are factual questions. The complaint was not quashed at the pre-trial stage.
Supreme Court held that under Section 138 of the NI Act, a separate cause of action arises upon each dishonour of a Cheque. Thus, multiple cheques arise from one transaction will give arise to separate prosecution u/s. 138 of NI Act.
The court held that cheque dishonour caused by a statutory account freeze during insolvency does not attract criminal liability. The key takeaway is that lawful incapacity, not default, defeats Section 138 prosecutions.
The judgment clarifies that courts must first be satisfied about sufficient cause for delay before entertaining a belated cheque bounce complaint. Any reverse procedure violates Section 142 of the NI Act.
Court held that a cheque initially issued as security can mature into an enforceable liability once loan recall conditions are triggered. Disputed facts on repayment and breach must be examined at trial, not at quashing stage.
The Court held that violation of the ₹20,000 cash-loan limit under tax law attracts only penalty and does not void the debt. Cheque-bounce prosecutions under Section 138 NI Act remain valid despite such breaches.
