NI Act | Single Complaint Valid for Multiple Cheques When Issued as Part of a Single Transaction: Madras High Court

Madras High Court dismissed a petition by M/s Challani Ranka Jewellery seeking to quash a complaint filed under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), for the dishonor of 36 cheques. The petitioners challenged the validity of a single complaint for multiple dishonored cheques and argued that their liability under Section 138 should be nullified as their account was blocked by tax authorities. Justice Dr. G. Jayachandran ruled that a single complaint covering all 36 cheques was permissible since the cheques were issued as part of a single transaction and returned with a common notice. The court further held that an “account blocked” status due to regulatory intervention does not exempt the drawer from liability under Section 138, as it is equivalent to having “insufficient funds.”

The primary argument from the petitioners was that filing a single complaint for 36 dishonored cheques, each with different dates and amounts, violated Section 219 of the Code of Criminal Procedure (Cr.P.C.), which limits the trial to three similar offenses within a 12-month period. The court rejected this argument, noting that the cheques were issued for a single transaction, presented together, dishonored on the same date, and notified through a single legal notice. Justice Jayachandran referred to the precedent in Manjula v. Colgate Palmolive (India) Ltd., where a Division Bench had allowed a single complaint for multiple cheques issued under a single transaction, finding that it fell under the “same transaction” exception outlined in Section 220 of Cr.P.C.

The case arose from a transaction on August 14, 2020, where M/s Challani Ranka Jewellery purchased silver bullion worth ₹1,10,35,566 from the complainant, Ashok Kumar Jain. The petitioners issued 36 cheques towards partial payment of this liability, amounting to ₹1,05,35,566 in total. When the complainant presented the cheques for payment, they were returned unpaid with the bank stating, “Account blocked situation covered in 2125.” Subsequently, Jain issued a statutory notice demanding payment, but no payment was made by the accused. The complainant, therefore, filed a criminal complaint under Section 138 of the NI Act.

Another critical issue was whether a cheque returned due to an “account blocked” status, resulting from actions by the Income Tax Department and the Enforcement Directorate, could attract liability under Section 138 of the NI Act. The petitioners argued that since their account held sufficient funds, the cheques should not be considered dishonored within the meaning of Section 138.

The court disagreed, applying the rationale from Laxmi Dyechem v. State of Gujarat (2012), where the Supreme Court held that “account closed,” “payment stopped,” and similar reasons for dishonor are specific examples (species) of the broader concept (genus) of “insufficient funds.” Justice Jayachandran emphasized, “An ‘account blocked’ status due to regulatory action is analogous to a situation where the funds are insufficient to honor the cheque, thereby fulfilling the requirements for prosecution under Section 138.”

The court found that the issuance of multiple cheques in this case was part of a single transaction, and the return of the cheques with a common notice constituted a single cause of action. Thus, the complaint did not violate Section 219 Cr.P.C., which typically limits the trial to three offenses. Instead, Section 220 Cr.P.C., which allows for a single trial for multiple offenses forming part of the same transaction, applied.

Citing Manjula v. Colgate Palmolive (India) Ltd. and Suryakant V. Kankia v. Muthukumaran, Justice Jayachandran ruled, “Though Section 219 imposes a limit on similar offenses, Section 220 allows multiple offenses to be tried together if they are part of the same transaction. The issuance of 36 cheques under one transaction and the single notice for all cheques satisfies this criterion.”

The court further held that a blocked account, where regulatory authorities had frozen access, fell within the ambit of Section 138 as it indicates a failure to provide sufficient funds for the cheque’s clearance. The judge noted, “The reasons like account blocked or account freeze are within the genus of dishonor scenarios contemplated under Section 138, and the Supreme Court has recognized similar scenarios in Laxmi Dyechem and NEPC Micon Ltd. v. Magma Leasing Ltd..”

Despite the petitioners’ claim of having a sufficient balance in their account at the time of issuance, the court found that the account statement showed a debit balance of over ₹10 crore, meaning no funds were available to clear the cheques. This factual finding aligned with the second contingency under Section 138, i.e., the cheque amount exceeded the funds arranged.

The Madras High Court concluded that the complaint under Section 138 of the NI Act was maintainable, as the single complaint for multiple cheques was permissible, and the “account blocked” status did not exempt the drawer from liability. The court dismissed the quash petition, affirming the respondent’s right to proceed with the prosecution.

Date of Decision: October 17, 2024

M/s Challani Ranka Jewellery & Others v. Ashok Kumar Jain