"Jammu & Kashmir High Court Reinstates Complaint Under Section 138 for Cheque Dishonour Despite Account Freeze"

Background

Sheikh Owais Tariq had entered into a financial transaction with Satvir Singh, wherein the respondent owed him ?8,69,700. To discharge this liability, Satvir Singh issued a cheque dated July 1, 2014, which was drawn on Axis Bank Limited. The petitioner presented the cheque for encashment, but it was dishonored on July 14, 2014, with the reason "Account Frozen." The petitioner then filed a complaint under Section 138 of the Negotiable Instruments Act, leading to the initiation of criminal proceedings.

The trial court issued a process against the respondent, but the respondent argued that the complaint was not maintainable since the account was frozen, not due to insufficient funds. After the trial court dismissed the respondent's application, the respondent appealed, and the Revisional Court quashed the orders of the trial court. Aggrieved, the petitioner sought the quashing of the Revisional Court's order.

Sheikh Owais Tariq v. Satvir Singh

CRMC 276/2018

Before the High Court of Jammu and Kashmir and Laddakh

Heard by Hon’ble Mr. Justice Rajnesh Oswal J

Legal Issue

Whether a complaint for dishonor of a cheque due to the reason "Account Frozen" is maintainable under Section 138 of the Negotiable Instruments Act.

Additionally, the court had to decide if the Revisional Court was correct in quashing the trial court's orders that initiated proceedings against the respondent.

Arguments of Parties

Petitioner's Argument:

1. The petitioner - Sheikh Owais Tariq contended that the dishonor of the cheque should still be prosecuted under Section 138 of the Act, even if the reason was a frozen account.
2. The petitioner further argued that the respondent's account was deliberately frozen, and the trial court had no power to drop the proceedings once cognizance was taken.
3. The petitioner also questioned the Revisional Court's power to quash the trial court's order.

Respondent's Argument:

1. The respondent maintained that the cheque was dishonored because his account was frozen by investigating agencies, despite having sufficient funds.
2. He argued that this was beyond his control and did not constitute an offense under Section 138, as the dishonor was not due to insufficient funds or exceeding the account limit.

?Court's Observation

The court examined whether the trial court was correct in proceeding with the case and whether the dishonor due to "Account Frozen" could be prosecuted under Section 138 of the Act.

1. The Revisional Court's decision to quash the trial court’s orders was incorrect, as the Magistrate had already taken cognizance of the offense and issued a process. There is no provision in the Criminal Procedure Code for the Magistrate to recall the order after taking cognizance.
2. The court referred to the Supreme Court’s judgment in Laxmi Dyechem v. State of Gujarat (2012), which held that dishonor of cheques due to reasons like "account closed" or "payment stopped by the drawer" could also fall under the purview of Section 138, thereby implying that "Account Frozen" could similarly be considered.

Seema Bhatnagar