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1. Kusum Ingots & Alloys Ltd. Vs. Pennar Peterson Securities Ltd.

& Ors., (2000) 2 Supreme Court Cases 745.

2. Omkar Nath Goenka Vs. M/s Gujarat Lease Finance Ltd., 2009 [2] JCC [NI] 109.

3. Prem Chand Gupta Vs. State & Anr., 2010 (115) DRJ 80 13 Before deciding the aforesaid issue, let me advert to Section 138 of NI Act. Literal interpretation of Section 138 NI Act gives an indication that it pertains to dishonor of the cheque on the ground of insufficiency of funds in the account of the drawer of CC No 28591/1 7 of 12 cheque. But the Apex court of India and various High Courts across the country have given wide interpretation to the aforesaid provision by including certain other grounds like "payment stopped by drawer", "account closed", "refer to drawer" in the ambit of Section 138 of NI Act in order to protect the interest of the payee and to impose liability upon the unscrupulous drawer of the cheque. It has been observed in catena of Judgments of Supreme Court and various High Courts that if the dishonor takes place due to act of the drawer like "Stop payment" or "account closed" then the drawer cannot be allowed to evade his liability merely because the aforesaid grounds of dishonor are not categorically provided for in Section 138 of NI Act. Now arises the question whether if dishonor of cheque takes place not due to any act of the drawer but because of the reasons beyond his control then in such circumstance, can the drawer be held liable. This has been answered in various Judgments quoted by Ld. Counsel for the accused. 14 In Onkar Nath (Supra), para 8 and 9 of the Judgment are relevant and are reproduced below :­ 8 The penultimate issue in the instant matter is whether or not the petitioner on the date on which the cheque was dishonoured and the date on which the payment in compliance of legal notice dated 13.07.1998 should have been made, was incapable of making the payment on account of the orders of CBI. The case of the petitioner before this court is that he could not make payment, in view of the fact that CBI had freezed the account of the petitioner. This fact is also evident from the return memo of the bank, copy of which has been filed at page 28 of the paper book which shows the endorsement "Account frozen". Counsel for the petitioner further submits that the company has also gone into liquidation. The petitioner has also filed on record the order dated 15.06.1998 whereby the DRT of Delhi restrained M/s Premier Vinyl Flooring Ltd., of which the petitioner was the Managing Director, from disposing of or alienating or parting which the possession of its assets. The existence of the order dated 15.06.1998 predates the event of dishonor of cheques. It thus becomes explicit that inasmuch as the petitioner was also restrained by the order dated 15.06.1998 from alienating, selling, disposing of or parting with the possession of the assets of this company M/s Premier Vinyl Flooring Ltd., the petitioner as such could not have touched any of its properties movable or immovable. 

CC No  28591/1                                                                                   8 of 12
                      9            Further, from the facts of the case and documents on

record, it is explicit that the petitioner, by virtue of the order dated 15.06.1998 of the DRT of Delhi and the order of CBI by virtue of which the account of the petitioner was freezed, was debarred from complying with the legal notice dated 13.07.1998 which let to the dishonor of the cheques. Even otherwise the petitioner is protected by the law in Kusum, Ingots (Supra) whereby the Apex Court has unequivocally opined that where dishonor of cheque takes place for reasons, beyond the control of the directors of a company, it would be unjust and unfair and against the intent and purpose of the Legislature to compel the Directors to face trial in a criminal case. The impugned complaint bearing CC No. 5427/1 arranging the petitioner for the offence under Section 138 of the Negotiable Instruments Act, 1881 is bad in law, and therefore, hereby stands quashed.

15 Similarly in the Judgment in Prem Chand Gupta (Supra) para 9 is relevant and is reproduced below :­ 9 In fact, the issued involved in this case is no mere resintegra, in view of the decision of the Hon'ble Supreme Court in 'Kusum Ingots Vs. Pennar Piterson Securities Ltd.' AIR 2000 SC 1654 where the Hon'ble Supreme Court inter alia held as under:

"The question that remains to be considered is whether S.22A of SICA affects a criminal case for an offence under S. 138 NI Act. In the said section provision is made enabling the Board to make an order in wring to direct the sick industrial company not to dispose of, except with the consent of the Board, any of its' assets

In a case in which the BIFR has submitted its report declaring a company as 'sick' and has also issued a direction under S.22A restraining the company or its directors not to dispose of any of its assets except with consent of the Board then the contention raised on behalf of the appellants that a criminal case or the alleged offence under S. 138 NI Act cannot be instituted during the period in which the restraint order passed by the BIFR remains operative cannot be rejected outright. Whether the contention can be CC No 28591/1 9 of 12 accepted or not will depend on the facts and circumstances of the case. Take for instance, before the date on which the cheque was drawn or before expiry of the statutory period of 15 days after notice, a restraint order of the BIFR under S. 22A was passed against the company then it cannot be said that the offence under S. 138 NI Act was completed. In such a case it may be reasonable be said that the dishonouring of the cheque by the bank and failure to make payment of the amount by the company and/or its Directors is for reasons beyond the control of the accused. It may also be contended that the amount claimed by the complainant is not recoverable from the assets of the company in view of the ban order passed by the BIFR. In such circumstances it would be unjust and unfair and against the intent and purpose of the statute to hold that the directors could be compelled to face trial in a criminal case" (emphasis supplied) 16 In both the aforesaid Judgments the account of the accused was attached by either DRT or BIFR and eventually the cheque in the aforesaid cases got dishonored with the remarks "Account freeze" . In both the aforesaid Judgments, the Judgment of the Apex court in Kusum Ingots (Supra) pertaining to the same issue has been mentioned. The golden thread in the Judgments referred above is that where dishonour of cheques takes place for reason beyond the control of the drawer then it would be unjust and unfair against the intend and purpose of the legislature to compel the drawer to face trial in a criminal case. Same is the case in the present complaint where the cheques in question got dishonored with the remarks "Account Freeze" pursuant to the order of DRT. Complainant has not disputed the reason of the dishonor of the cheques. In fact, in the legal notice Ex.CW1/H sent by the complainant to the accused and also in the cross examination of AR for the complainant, it is an admitted position that the cheques in question got dishonored because of the frozen account. 17 It is also pertinent to mention that complainant has not placed on record any material or evidence which could evince that on the date of dishonor of the cheques, funds were not sufficient in the account of the accused. Had there been any evidence to that effect then it might have lent some credence to the case of the complainant. In view of the aforesaid discussion and referring to the various case laws discussed above, I opine that the reason of dishonour of the cheques in question i.e. "Account CC No 28591/1 10 of 12 freeze" does not fall within the purview of Section 138 of NI Act, therefore, offence under Section 138 NI Act is not made out against the accused. 18 As regards the Judgment in Counterpoint (Supra) relied upon by Ld counsel for the complainant is concerned, although it has been held in para 8 of the said Judgment that the accused company cannot escape the criminal liability on the ground that the cheques were dishonored only on account of the freezing of the accounts of the accused. But that Judgment has been passed by the single bench of Madras High Court which holds a contrary view then the Judgments passed by the Delhi High Court as discussed above. In such a scenario to resolve the logjam, view of the apex court on that point has to be considered. In "Rakhi Roughwani and Ors Vs. Union of India and Ors." 144 (2007) DLT 443 (DB), it has been held in para 8 that it is entirely unarguable that where a Supreme Court Judgment is available it must be followed in its true tenor regardless of the pronouncement of benches of the High Court. 19 In both the Judgments of the Delhi High Court as discussed above, Judgment of the Apex court in Kusum Ingots and alloys Ltd. (Supra), is mentioned wherein it has been held that where dishonor of cheque takes place for reason beyond the control of the drawer then it would be unfair to compel the drawer to face trial in a criminal case. In view of this, Judgment relied upon by Ld. Counsel for the accused in Counterpoint (Supra) does not hold good.