Karnataka high court rules cheque bounce liability requires account control at time of presentation of cheque

Bengaluru: In order to become liable for an offence under Section 138 of the Negotiable Instruments Act, ie, cheque bounce cases, the accused is required to have control over the account when the cheque becomes due for presentation/realisation, the Karnataka high court observed in a recent judgment.Justice M Nagaprasanna made this observation while quashing the proceedings against Ms/ ND Developers Private Limited, its managing director MKK Durani, and several other directors of the company.The complainant, Ritesh Raushan, had purchased a flat from the firm along with his wife. The company was contractually obliged to pay Rs 41,75,634 - the interest component of the home loan - to the purchaser for not handing over possession of the flat. In this regard, a cheque for Rs 41 lakh was issued.In the meantime, a police notice was issued to the manager of Bank of Maharashtra, directing debit freezing of the accounts of the company and its MD over a cheating and misappropriation complaint. The debt freeze occurred on May 24, 2024. Thereafter, on June 6, 2024, the complainant presented the Rs 41 lakh cheque, dated March 9, 2024, for realisation.The cheque was dishonoured, with an endorsement, "account blocked situation covered in 21 25", ie, the RBI guidelines. Immediately, the complainant initiated cheque bounce proceedings against the petitioners.Challenging the same, the petitioners claimed that they were not aware that their accounts were frozen at the time when the cheque was presented for realisation. They added that the cheque was dishonoured on account of the endorsement issued for debit freezing, which meant that they could not be hauled up in the proceedings, as the account was frozen and the amount could not be realised by the complainant, they added.After perusing the materials on record, Justice Nagaprasanna noted that the accounts of the petitioners were active up to 2 months after the issuance of the cheque in question, and there was sufficient balance as well. The judge pointed out that the petitioners were not aware of the freezing of those accounts, as borne out by the documents.As per RBI guidelines, a situation covered under 21 means that the payment is stopped by an attachment order, and covered under 25 means that withdrawal is stopped in lieu of insolvency of the account holder. Therefore, it is a situation where the drawer of the cheque has no control or authority over the account in the case of debit freezing, the judge pointed out while quashing the proceedings against the petitioners.