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Disclaimer: This note is for informational purposes only and does not constitute legal advice. While every effort has been made to ensure accuracy, clients are advised to consult with your legal counsel/firm regarding specific legal issues.
Best Buildwell (P.) Ltd. v. R D Sales (Delhi High Court, 2025) – Definition of “Maintained” Account & Absence of Culpability
Brief Facts: The petitioner, Best Buildwell, issued cheques for the purchase of TMT bars. Before the cheques were presented, the petitioner’s bank account was provisionally attached by the CGST Department under Section 83 of the CGST Act, 2017, effectively freezing all transactions. Despite being informed of this freeze, the respondent presented the cheques, which were returned dishonored with the remark “insufficient funds.”
Legal Points Decided: The Court held that for an account to be considered “maintained” under Section 138, the drawer must have the ability to operate it. Once an account is frozen by a statutory authority (like GST), the drawer loses effective control. Criminal liability does not arise when dishonor occurs due to a legal bar or statutory intervention beyond the drawer’s control.
Key Takeaway: A frozen account is not a “maintained” account for the purposes of the NI Act. Complaints filed under such circumstances constitute an abuse of the process of law.
Sandip Kumar Gupta v. State of West Bengal (Calcutta High Court, 2025) – Privity of Debt & Verification of Liability
Brief Facts: The petitioner was convicted for dishonor of a cheque issued in the name of an individual complainant. However, the petitioner argued that the underlying commercial agreement was with a specific private limited company, not with the individual complainant in their personal capacity. He contended that the cheque was a security cheque misused by the individual.
Legal Points Decided: The Court emphasized that a prosecution under Section 138 requires a legally enforceable debt between the drawer and the specific complainant.
If the transaction was conducted with a corporate entity, an individual cannot maintain a personal complaint for the same debt unless they can prove a personal liability exists.
Key Takeaway: Courts must scrutinize whether a genuine debt exists in favor of the complainant specifically. If the debt is owed to a third party (even a related company), the personal complaint may be quashed.
Naresh Potteries v. Aarti Industries (Supreme Court, 2025) – Flexible Pleading Standards, Contextual Reading & Trial vs. Quashing
Brief Facts: Naresh Potteries (a firm) filed a cheque bounce complaint through its manager, who held a Letter of Authority. The Allahabad High Court quashed the complaint at the threshold, ruling that the manager had not “explicitly averred” in the complaint that he had personal knowledge of the transactions.
Legal Points Decided: The Supreme Court set aside the High Court’s order, holding that there is no “straitjacket formula” for stating a representative’s knowledge. If the supporting documents (affidavits and authorization letters) collectively show that the representative is “well-conversant” with the firm’s affairs, the requirement of Section 142 is satisfied. Disputes regarding the depth of a representative’s knowledge or the validity of an authorization are matters for trial and should not be used to quash complaints at the preliminary stage under Section 482 CrPC.
Key Takeaway: Technical flaws in pleading authorization should not defeat substantive rights if the representative is prima facie authorized.
SUMMARY FOR READERS AND POSSIBLE ACTION POINTS WHICH YOUR LEGAL COUNSEL MAY ADVISE YOU
These judgments reinforce a balanced approach to the NI Act. While the Supreme Court has made it harder for defendants to escape trial on technical procedural grounds (like authorization), the High Courts have provided a shield for honest taxpayers and businesses whose accounts are frozen by government action, ensuring that criminal law is not used to punish those incapacitated by statutory intervention.
In light of these recent judicial developments, the author recommends the following proactive measures which the reader can discuss with its legal counsel to protect its business interests and ensure legal compliance:
1. Handling Statutory Bank Attachments
If your business accounts are provisionally attached or frozen by authorities (e.g., GST, Income Tax, or ED):
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Immediate Notification: Formally notify all creditors/vendors in writing (via email and Registered AD) that the account is frozen by a statutory order.
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Stop Payment Instructions: Request the bank to mark the status of the account clearly so that any presented cheques return with the specific reason “Account Frozen by Authority” rather than “Insufficient Funds.”
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Legal Cushion: Maintain a copy of the Attachment Order to serve as a primary defense against any potential Section 138 complaints during the freeze period.
2. Aligning Contracts with Cheque Issuance
To avoid the “Privity of Debt” issues highlighted in the Sandip Kumar Gupta case:
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Entity Consistency: Ensure that the entity signing the commercial agreement is the same entity issuing the cheque.
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Third-Party Payments: If a cheque is being issued by an individual for a corporate debt (or vice versa), execute a “Letter of Comfort” or a tripartite agreement clarifying the nature of the liability.
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Security Cheques: Clearly label “Security Cheques” in your internal registers and ensure the underlying debt is crystallized before presentation.
3. Streamlining Litigation Procedures
When filing a complaint through an Authorized Representative (AR):
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Explicit Authorization: Ensure the Board Resolution or Power of Attorney (POA) specifically grants the AR the power to “depose and represent” the firm in Section 138 proceedings.
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Knowledge Averments: In the complaint’s opening paragraphs, explicitly state that the AR is “personally conversant with the facts of the transaction” or has “access to the books of accounts” to satisfy the Supreme Court’s scrutiny.
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Audit of Records: Keep a “Transaction Summary” signed by the AR for every case filed to demonstrate their involvement and knowledge during cross-examination.
Penned by Yash Adukia
The court weblink for accessing the judgment referred:
- https://delhihighcourt.nic.in/app/showFileJudgment/62705062025CRLMM13262025_144803.pdf
- https://hcservices.ecourts.gov.in/ecourtindiaHC/cases/display_pdf.php?filename=rC8SUFuyEFsvB5V61cXUrPps2vonoCLokG%2BHZ1PxP3718e0yGhKPJkqUt4ChTybs&caseno=CRR/1825/2018&cCode=3&cino=WBCHCA0254592018&state_code=16&appFlag=
- https://api.sci.gov.in/supremecourt/2023/24623/24623_2023_2_1502_58185_Judgement_02-Jan-2025.pdf
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