If you have ever happened to read the provision of Section 138 of Negotiable Instruments Act, you should know that it only punishes in two scenarios – insufficient funds, or payment stopped. What can be seen is that closure of bank accounts has not been addressed by the Legislature. However, account closed cheque bounce case judgments reflect that the Courts eventually addressed the legal possibilities in this case. That’s because sometimes, the intent of the legislature is not expressed, and the Courts have to deal with cases in realtime. Here is a compilation of Supreme Court judgment on cheque bounce case for account closed scenario.
Cheque Bounce Case Judgments for Account Closed
Goaplast Pvt. Ltd v. Shri Chico Ursula D’Souza (2003)
This is a landmark cheque bounce judgment by Supreme Court regarding closed bank account. It has been relied upon by the Apex Court and others Courts at several instances. In this case, the Court held that when a bank returns a cheque unpaid with the endorsement “account closed”, mean that the cheque was returned unpaid. The Court reasoned that the amount of money standing in credit of the said bank account was insufficient. Thus, dishonour of cheque in such a case would be squarely covered under Section 138 of NI Act.
NEPC Micon Ltd. v. Magma Leasing Ltd. (1999)
The Supreme Court cheque bounce case on closed account was the first to settle the legal standing of a cheque bounce matter where dishonour took place since the account was closed. The Court found it obvious to hold a close account a reason for insufficient amount to honour the cheque, since it would be nil at the time when cheque was presented. The Court explained that “Closure of the account would be an eventuality after the entire amount in the account is withdrawn. It means that there was no amount in the credit of that account on the relevant date when the cheque was presented for honouring the same. The expression the amount of money standing to the credit of that account is insufficient to honour the cheque is a genus of which the expression that account being closed is specie.”
The Court outrightly rejected the argument restricting any wider interpretation of the provision under Section 138 which only states two grounds for dishonour of cheque. The Bench observed that “In our view even with regard to penal provision, any interpretation, which withdraws life and blood of the provision and makes it ineffective and a dead letter should be averted. If the interpretation, which is sought for, were given, then it would only encourage dishonest persons to issue cheques and before presentation of the cheque close that account and thereby escape from the penal consequences of Section 138.”
Subodh S Salaskar v. Japrakash M Shah (2008)
While deciding account closed cheque bounce case, the Supreme Court noticed that the cheques were post dated. They were issued in 1996 and presented for encashment before the bank after 5 years in 2001. Therefore, it was clear that the accounts were operative at the time of issuance of cheques. The Court observed that “Even assuming that the account was closed subsequently, the same would not mean that the appellant had an intention to cheat when the post dated cheques were issued.”
N.A. Issac v. Jeemon P. Abraham (2004)
Supreme Court cheque bounce judgment on a closed bank account once again highlighted the aspect of interpretation of the provision. The Apex Court stated that a narrow interpretation of Section 138 of NI Act would defeat the object of its insertion. The Court rejected the stance that Section 138 proceedings would not be applicable to the cheque issued from an already closed account.
Explore the difference between cheque bounce and cheque dishonour
M/S Laxmi Dyechem v. State Of Gujarat (2012)
While dealing with a cheque bounce case to understand consonance of closed account with that of insufficient amount, the Supreme Court laid another landmark. In this case, the Supreme Court explained that the reasons for dishonour of cheque such as “account closed”, “payment stopped” and “referred to the drawer” were only species of the genus “amount of money being insufficient”.
Jugesh Sehgal v. Shamsher Singh Gogi (2009)
In an interesting turn of facts where the claims pertained to closed bank account and cheque pertaining to someone other than the drawer, the Supreme Court settled the matter. The Court expressed that “there is a clear averment that the cheque in question was issued from an account which was non-existent on the day it was issued or that the account from where the cheque was issued “pertained to someone else”. As per complainant’s own pleadings, the bank account from where the cheque had been issued, was not held in the name of the appellant and therefore, one of the requisite ingredients of Section 138 of the Act was not satisfied. Under the circumstances, continuance of further proceedings in the complaint under Section 138 of the Act against the appellant, would be an abuse of the process of the Court.”
Sri Sujies Benefit Funds Ltd. v. M. Jaganathuan (2024)
While hinting at the assessment of the account closed cheque bounce case by the Supreme Court, it was observed that “closure of the bank accounts within a few weeks of issuance of the cheque raises serious questions about the conduct and intent of the respondent.” Thus, assessing intention behind closed bank accounts in cheque bounce cases became the new normal.
Conclusion
As can be seen in the aforementioned cheque bounce case judgments by Supreme Court, account closed is not an excuse in Section 138 case. However, if the timeline of issuance of cheque and closure of bank account does not align the Court may decide otherwise to acquit in cheque bounce case. Thus, it can be concluded that Courts have to look at the intention of drawer whose bank account was closed, and the intention of the complainant who sued after years, where the probability of closing the bank account is not nil.
