In a significant legal ruling, the Jammu & Kashmir and Ladakh High Court in Srinagar, led by Justice Rajnesh Oswal, has clarified that a complaint under Section 138 of the Negotiable Instruments Act, 1881, remains valid even if a cheque bounces due to the account being frozen. This decision overturns an earlier judgment by the Revisional Court, which had dismissed the complaint on the grounds of the account's frozen status. The High Court has now sent the case back to the trial court for further proceedings.
Case Background:
The case involves a petitioner, Sheikh Owars Tariq from Srinagar, who had filed a complaint under Section 138 of the Negotiable Instruments Act against the respondent, Satvir Singh from Jammu. The issue arose after a cheque for ?28,69,700 issued by Singh on July 1, 2014, was dishonoured with the bank's endorsement “Account Frozen” on July 14, 2014. The cheque was intended to settle a debt owed to Tariq. When the cheque bounced, Tariq, represented by Advocate Zahoor A. Shah, served a legal notice to Singh, which was ignored.
Singh, represented by Advocate Ishfaq Bashir, argued in the 3rd Additional Munsiff Court, Srinagar, that the cheque could not be honoured because his account had been frozen by the Crime Branch, a situation beyond his control. However, the Trial Court dismissed Singh's application, having already taken cognizance of the matter.
Upon Singh's appeal, the Revisional Court quashed the Trial Court’s orders and dismissed the complaint. Tariq then sought relief from the High Court, challenging the Revisional Court’s decision.
Legal Issues and the Court’s Ruling:
Justice Oswal addressed two key questions:
1. Was the Revisional Court justified in dismissing the complaint under Section 138 because of the account freezing?
2. Can a complaint for cheque dishonour due to an “Account Frozen” status be considered valid under Section 138?
On the first point, Justice Oswal found that the Revisional Court had overstepped. Once a magistrate takes cognizance of a case and issues a process, proceedings cannot be recalled unless there's a specific provision in the Code of Criminal Procedure. The judge cited the Supreme Court’s ruling in Adalat Prasad v. Rooplai Jindal (2004) to reinforce this stance, noting that the Revisional Court's decision was procedurally flawed.
As for the second issue, the High Court ruled that a complaint under Section 138 is maintainable even if a cheque is dishonoured due to an “Account Frozen” status. Justice Oswal referenced the Laxmi Dyechem v. State of Gujarat (2012) judgment, where it was established that dishonour for reasons such as “account closed” or “payment stopped by the drawer” still fell under Section 138. The court emphasized that freezing an account implies the account exists, and as such, the complaint cannot be dismissed without a thorough trial.
Conclusion and Observations:
Justice Oswal criticized the Revisional Court for prematurely quashing the complaint, describing the move as “putting the cart before the horse.” The case, he remarked, requires a full trial to determine whether Singh was aware of the account being frozen or if there were sufficient funds when the cheque was issued. The High Court has reinstated the Trial Court’s order from November 4, 2017, allowing the case to move forward. Both parties have been ordered to appear before the Trial Court on September 19, 2024, to continue the proceedings.
In this decision, the court underscored the importance of ensuring that complaints related to cheque dishonours are not dismissed prematurely, giving both parties the opportunity to present their arguments in a full trial.
