Dishonour of cheque due to account being frozen by authorities does not attract Section 138 liability.

The petitioners (a real estate company and its directors) issued a post-dated cheque for ₹41,00,000/- to the respondent-complainant on 09.03.2024 to settle liabilities arising from a "No Pre-EMI Scheme".

On 24.05.2024, the police directed a debit freeze on the petitioners' bank accounts in connection with unrelated criminal investigations (Crimes No. 92/2022 and 116/2023).

The complainant presented the cheque on 05.06.2024, which was dishonoured with the endorsement "account blocked situation covered in 21 25".

The petitioners claimed they only learned of the freeze on 26.07.2024, after replying to the statutory notice.

The Trial Court took cognizance and issued summons in C.C.No.1446/2025, which the petitioners challenged under Section 528 of the BNSS (corresponding to Section 482 Cr.P.C.).

Whether proceedings could be initiated against the petitioners on dishonor of cheque when the reason for dishonor is the account being debit frozen?

The court primarily applied Section 138 of the Negotiable Instruments Act, 1881, which requires that a cheque be returned unpaid due to "insufficiency of funds" or exceeding "arrangement" from an account "maintained by" the drawer.

It relied on the principle that the expression "account maintained" implies the drawer must have authority and control over the account to execute financial commands.

The court cited Vijay Chaudhary v. Gyan Chand Jain (Delhi HC) and Rajesh Meena v. State of Haryana (P&H HC), establishing that dishonour due to a court-ordered attachment or statutory freeze—not attributable to a voluntary act of the drawer—does not attract Section 138 liability.

It also referenced the RBI Uniform Regulations regarding objection codes 21 (payment stopped by attachment) and 25 (withdrawal stopped due to insolvency/blocked status).

The court reasoned that for an offence under Section 138 to be made out, the dishonour must be related to the drawer's failure to maintain sufficient funds, which presupposes the drawer is in a position to operate the account.

In this case, the account was active when the cheque was issued, but was subsequently debit-frozen by the police on 24.05.2024—prior to the cheque’s presentation on 05.06.2024.

The court found that this freeze was an involuntary act that deprived the petitioners of "dominion" over the account, making it impossible for them to ensure the cheque was honoured.

Since the bank's endorsement specifically cited an "account blocked situation" (Codes 21 and 25) rather than a lack of funds, and the petitioners demonstrated they had no knowledge of the freeze until after the statutory notice period, the essential ingredient of "maintaining" the account was absent.

The court held that allowing the prosecution would result in a miscarriage of justice.

Consequently, the Criminal Petition was allowed, and the entire proceedings in C.C.No.1446/2025 pending before the XIII Additional Chief Judicial Magistrate, Bengaluru, were quashed.