Frozen-Account Defence: Delhi High Court Clarifies that a Provisionally Attached Bank Account Is Not “Maintained” for the Purposes of Section 138 of the Negotiable Instruments Act

1. Introduction

Case: M/s Best Buildwell Pvt. Ltd. & Ors. v. M/s R.D. Sales (2025 DHC 4898)
Court: High Court of Delhi (Single Bench, Justice Ravinder Dudeja)
Date of Decision: 5 June 2025
Procedure: Petition under Section 528 Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) seeking quashing of summoning order in a complaint under Section 138 Negotiable Instruments Act, 1881 (NI Act).

The dispute arose from business dealings in which the petitioners issued two cheques of ₹2.4 lakh each to the respondent for supply of TMT bars. Before the cheques were presented, the petitioners’ bank account was provisionally attached by the GST authorities under Section 83 of the CGST Act, 2017. The cheques were nevertheless presented, dishonoured, and a criminal complaint followed. The central question before the High Court was whether a cheque drawn on an account frozen by a statutory attachment can attract criminal liability under Section 138 NI Act.

2. Summary of the Judgment

The Court quashed the summoning order and the entire complaint, holding that:

An essential ingredient of Section 138 NI Act is that the cheque must be drawn on an account “maintained” by the drawer.
Where a statutory authority has frozen the account, the drawer cannot operate or “maintain” it; therefore, criminal liability under Section 138 does not arise.
The reason recorded by the bank as “insufficient funds” is immaterial when the factual cause of dishonour is the freezing of the account beyond the drawer’s control.

3. Analysis

3.1 Precedents Cited and Their Influence

Deepinder Singh Bedi v. State and Anr. (Delhi HC, 2024)
– Recognised that an account blocked by statutory order cannot be said to be “maintained”.
Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. (2000) 2 SCC 745
– Explained that penal provisions of Section 138 are to be strictly construed and only triggered when the drawer is at fault.
Vijay Chaudhary v. Gyan Chand Jain (2008 SCC OnLine Del 554)
– Emphasised that an account holder must be able to operate the account; if attachment disables operation, Section 138 is inapplicable. The present judgment quotes paragraph 23 verbatim.
Sachin Jain v. Rajesh Jain (Delhi HC, 2022) and Ceasefire Industries Ltd. v. State (Delhi HC, 2017)
– Both considered freezing of accounts a valid defence when the drawer lacks control.
Standard Chartered Bank v. State (2007 SCC OnLine Del 1105)
– Re-stated the statutory ingredients of Section 138; relied on to underline that dishonour must stem from insufficiency of funds or arrangement failure, neither of which applied here.

These authorities collectively framed the legal proposition that fault is a prerequisite to Section 138 liability. Justice Dudeja synthesised them to craft an explicit rule: provisional attachment removes the element of voluntary default, thereby defeating the offence.

3.2 Legal Reasoning Adopted by the Court

Interpretation of “maintained”: Drawing from dictionary meaning and earlier decisions, the Court held that “maintained” implies ability to operate. A frozen account negates such ability.
Element of Mens Rea: Although Section 138 is a strict-liability offence, a foundational requirement is that the cause of dishonour should be attributable to the drawer. Statutory attachment by a third authority interrupts the causal chain.
Public-law v. Private-law Conflict: The CGST Act, an economic regulatory statute, overrides private contractual obligations temporarily. The Court noted that criminal liability cannot be imposed for complying with a superior statutory mandate.
Bank Memo Irrelevance: Even if the bank records “insufficient funds” erroneously, courts may look behind the memo to the real reason. Substance prevails over form.
Equitable Conduct: The petitioners promptly informed the respondent; hence, no mala-fides could be imputed. The respondent assumed the risk by presenting the cheques despite knowledge of attachment.

3.3 Anticipated Impact of the Judgment

Strengthening the “Frozen-Account Defence”: The ruling cements Delhi High Court jurisprudence that statutory freezing constitutes a complete defence to Section 138 complaints.
Guidance to Business Community: Payees must verify operational status of drawer’s account when informed of statutory restraints; blind presentation may be futile.
Interaction with GST Enforcement: Conflicts between tax-enforcement attachments and negotiable-instrument liability are resolved in favour of statutory attachments.
Possible Legislative Response: Parliament may consider amending Section 138 to explicitly address third-party attachments, although courts have already filled the gap.
Procedural Efficiency: Trial courts are encouraged to scrutinise attachment documents at the summoning stage, preventing unnecessary criminal prosecutions.

4. Complex Concepts Simplified

Section 138 NI Act: Creates a criminal offence when a cheque is dishonoured for insufficient funds or for exceeding arrangements, provided statutory notices and timelines are met.
“Maintained”: In this context, an account is “maintained” only if the drawer can freely operate it—deposit, withdraw, or instruct the bank. A frozen account fails this test.
Section 83 CGST Act, 2017: Allows tax authorities to provisionally attach property, including bank accounts, to protect revenue during investigations. Attachment is coercive and overrides banking operations.
Section 528 BNSS, 2023: The successor to Section 482 CrPC, confers inherent powers on High Courts to quash criminal proceedings to prevent abuse of process or secure justice.
Provisional Attachment vs. Garnishee Order: Both restrain banking operations. Provisional attachment is issued by tax authorities; garnishee orders come from courts in civil execution. Either can trigger the defence recognised in this judgment.

5. Conclusion

The Delhi High Court’s decision in M/s Best Buildwell crystallises an important exception to cheque-dishonour prosecutions: when an account is rendered inoperable by a statutory attachment, the drawer cannot be criminally liable under Section 138 NI Act. By aligning with and reinforcing earlier Delhi precedents, the judgment promotes doctrinal clarity and ensures that criminal law targets deliberate financial defaults, not involuntary statutory constraints. Businesses, banks, and litigants must now account for this ruling when navigating transactions under the shadow of tax attachments or other regulatory freezes.