Complaint against bounced check may be valid despite blocking of account by ED/IT if complainant establishes ‘insufficiency of funds’: Madras HC

Justice J Jayachandran noted that the issuer of the check in such cases can defend itself by the fact that the account is blocked or frozen. The court relied on the decision of the Supreme Court in the case of Lakshmi Daihem v. State of Gujarat (2012) and held that issuing a check without sufficient funds to pay it constituted an offense and the complaint was maintainable.

“It is quite clear that in cases of ‘account blocking’ or ‘account freezing’, a complaint under section 138 of the NI Act can be upheld if the complainant is prima facie satisfied that there were insufficient funds in the account to perform. As the Supreme Court held, the type of offense is any of the contingencies under section 138 of the NI Act. If the complaint indicates that due to the blocking or freezing of the account, the check could not be passed due to the lack of funds in the account, the check issuer cannot be offended that his account was blocked or frozen. Issuing a check without sufficient funds for payment is a crime“, the court noted.

The court also observed that a single complaint under Section 138 of the Negotiable Instruments Act was admissible if all the checks were presented on the same day and were returned on the same day, relying on the earlier decision of the Madras High Court in Suryakant V Kanakia Vs. .Muthukumaran and Manjula v. Colgate Palmolive (India) Ltd .

“Therefore, a single complaint under section 138 of the NI Act for default of 36 checks is admissible in view of the convergence of events by presenting the checks on the same day, returning the checks on the same day, apart from causing a single notice for all the cheques.“, the court said.

The Court was hearing a petition filed by M/s Challani Rank Jewelery for quashing of a criminal complaint filed under Section 138 of the Negotiable Instruments Act for dishonor of 36 checks issued by it to respondent Ashok Kumar Jain in payment of a valid debt/ liability for the purchase of silver products.

The appellant contended that no complaint can be made against non-encashment of 36 checks bearing different dates as they are not serviceable under Section 219 Cr.P.C. The appellant also claimed that there were enough funds in his account to dishonor the check but the checks were not cleared as the account was blocked as per the order of Income Tax Department and ED. Thus, claiming that the facts of the case do not fall under any of the cases provided for in Article 138 of the Law, the plaintiff sought the cancellation of the proceedings.

The court noted that in Suryakant’s case, a single judge of the Madras High Court observed that while it was desirable to file separate complaints, there was nothing illegal in filing a single complaint for non-payment of 9 checks drawn on different dates but presented together on the same day and returned the same day. In addition, the court noted that in Manjula’s case, another single judge noted that Section 219(1) CrPC allows all charges to be joined if they are of the same type of offence, and the number of agreements between the parties that resulted in the issuance of statutory notices is not ground for holding that the prosecution under section 219 is not maintainable.

The court further observed that though the petitioner had claimed that he had sufficient funds on the date of the cheques, this claim was factually incorrect as a bond of about Rs.53 lakhs had been created against the Income Tax order. The court further noted that the plaintiff’s account had become inactive due to his failure to repay the loan and there was a debt of over Rs 10 crore. Thus, the court noted that there was no credit on the account on the date the check was issued.

Therefore, holding that the proceedings under section 138 of the NI Act were valid, the court dismissed the petition.

The plaintiff’s lawyer: Mr. S. Ramesh Kumar

Defendant’s lawyer: Mr.J.Ranjith Kumar for M/s Surana @ Surana

Citation: 2024 LiveLaw (Mad) 405

Case Name: M/s Challani Rank Jewelery and others Vs Ashok Kumar Jain

Case No.: Krl.OP No. 21268 of 2024