Section 138 NI Act – Bank cannot deny existence of account after returning check with “Frozen Account” remark: Supreme Court

If a check is returned by a bank with a “frozen account” notation, then that presumes the existence of the account, the Supreme Court observed in a recent case.

The Court expressed surprise at the bank’s stand that no such account was maintained and operated by it, despite the check being returned with the notation “frozen account”.

In this context, the Supreme Court quashed the order of the High Court of Rajasthan, which quashed the proceeding exercising powers under Section 482 CrPC, and reinstated the trial.

A bench comprising Chief Justice of India NV Ramana, Justice AS Bopanna and Justice Hima Kohli passed the order allowing the plaintiff’s appeal against the High Court’s order quashing the case.

“It is surprising that on the one hand the bank managers specifically filed that no such bank account was opened and maintained in their bank while on the other hand the check drawn by the respondent in favor of the caller, was returned with the remark “frozen account” for the same check. The bank account was mentioned on the check and the notation “frozen account” will assume that an account existed”.

The Court rejected the argument that no case had been filed against the defendant under Section 138 of the Negotiable Instruments Act because the bank managers expressly stated that no bank account of this type had been opened and maintained in their bank.

“The parties will have to go through a proper trial. In any event, there was no question that the procedure could have been annulled. We therefore believe that it was premature to annul the complaint filed by the Appellant here, by the The impugned order made by the High Court is, accordingly, set aside, “ said the bench.

He also ordered the trial court to reinstate and resume the case and conclude it according to law as soon as possible and preferably within six months.

Case title: Vikram Singh v Shyoji Ram

Citation: 2022 LiveLaw (SC) 223

Appearances: For the Appellants – Mr. Sarad Kr. Singhania, Adv. Ms. Rashmi Singhania, AOR; For Respondents – Mr. Namit Saxena, Adv, Ms. Taruna Ardhendumauli Prasad, AOR

Summaries

Negotiable Instruments Act, 1881, Section 138 – It is surprising that on the one hand the bank managers specifically filed that no such bank account was opened and maintained in their bank while on the other hand the check drawn by the respondent in favor of the appellant, was returned with the note “frozen account” for the same check. The bank account was mentioned on the check and the mention “Frozen account” will presuppose the existence of an account”.

Click here to read/download the order