Offence U/S 138 NI Act Can Attract When Cheque Is Returned Unpaid By Bank With Endorsement "Account Closed": Allahabad HC

A bench of Justice Anish Kumar Gupta thus while referring to an array of cases, observed, “…it is crystal clear that when a cheque is returned unpaid by a Bank with an endorsement ‘Account Closed’, it would amount to returning the cheque unpaid because the amount standing to the credit of such account is insufficient to honour the cheque as envisaged in Section 138 of the N.I. Act. The return of the cheque by the drawee Bank alone constitutes the commission of offence under section 138 of the N.I. Act”.

The Bench while referring to Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998) 3 SCC 249 further held that if the cheque is dishonoured because of the stop payment instructions to the Bank, the provision under Section 138 of the Act, would get attracted and would amount to dishonour of cheque within the meaning of Section 138 of the N.I. Act.

Furthermore, if the cheques were dishonoured for the reasons ((i) referred to the drawer; (ii) instructions for stoppage of payment and stamped; and (iii) exceeds agreement, all those held to be covered within the meaning of Section 138 of the Act, as dishonour of cheque.

In the instant case cheque was dishonoured by the Bank with the remark "Account Closed". Therefore, it was argued that the dishonour of cheque for the reason Account closed is not covered within the two conditions laid down in Section 138 of the Act because (1) the amount of money standing to the credit of the account is insufficient to honour the cheque and (2) it exceeds the amount arranged to be paid from the account by an agreement made with the Bank.

Accordingly, it was argued that since the cheque has not been dishonoured for the aforesaid two reasons, therefore, the complaint under Section 138 of the Act was not maintainable.

“…it is settled position of law with regard to interpretation of an statute that its provisions has to be interpreted in consonance with the object of the statute. The object of the provisions of Section 138 of N.I. Act is to make the cheque acceptable as effective mode of transactions and any default thereof has to be viewed very seriously. If any literal meaning of the words used in the statute is not in consonance with the object of the statute, particularly, the criminal statute, the interpretation of such words should be given by the court so as it fulfils the purpose and object of the statute”, the bench further noted in the order.

Applicant: Advocates Sanjay Kr. Srivastava, Anurag Vajpeyi, Praveen Kumar Singh

Respondent: G.A. Kripa Shankar Singh, and Advocates Rajesh Pratap Singh, Vibhu Rai

Cause Title: Jatan Kumar Singh v. State of U.P. and Another