Frozen Accounts Flowing Justice - Courtroom Exchange

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A look at Frozen Accounts, Flowing Justice

CHEQUE, an essential element of today’s India’s bustling paths of negotiation. It serves as a guarantee and credibility in the financial transaction. This credibility and assurance to the Payee of the cheque is ensured mainly because of Section 138 of the Negotiable Instruments Act, 1881 (hereinafter NI Act 1881). Section 138 NI Act 1881 binds the Drawer to walk on the same sacred path where he inked a promise, he must honor it. Generally, as per the section 138 a cheque can be dishonored for 2 reasons Insufficient balance or Exceeding the arrangement with the bank.

The scope of Dishonour is not limited to only these two, as in case of Laxmi Dyechem vs State of Gujrat (2012), the Hon’ble Supreme Court of India held that the cheque can be dishonoured for the reasons beyond the two mentioned in section 138, depending on the nature of the Dishonour. With time Judiciary has broadened the canvas of section 138 to include reasons that reflect a deliberate attempt to avoid payment, not just financial inadequacy.

What if your cheque bounces not out of deceit (deliberate attempt), but Statutory freezing of Account?

Delhi High Court’s ruling in Delhi High Court in Best Buildwell Pvt. Ltd. v. R.D. Sales (2025 SCC OnLine Del 4267), delivered on June 5, 2025, dealt with this kind of issue and provided a judicial safeguard to those whose hands were tied, not tainted. The central issue around which the cases revolves is the interpretation of term ‘account maintained by him’.

‘ACCOUNT MAINTAINED’ AND ‘FROZEN ACCOUNT’ INTERPLAY

‘Account maintained’ means the drawer holds authority to transact through the account, the holder of the account can deposit, withdraw cash. issue a cheque for making payment. Among various essential element of section 138, ‘account maintained by the drawer’ of cheques is very significant as it forms the basis to held the account holder liable for his Fault arising from either wilful decision (issuing a cheque knowing funds are insufficient, or stopping payment intentionally) or disregard of legal duty (failure to maintain sufficient balance, or ignoring arrangements with the bank).

While on the other hand ‘frozen account’ is when a bank account is put on hold, and because of this the account holder loses the operational control, where the holder of bank account is unable to instruct the bank, as the bank is also under the compulsion to adhere to the statutory freezing of the account. Though the vault (here bank account with money) is full and the key in your hand (even if there is intention to pay), the lock has been changed by another. Your intent to pay rings hollow when the law itself bars the opening (means account is freeze). Frozen Accounts, Flowing Justice.

THE VARIOUS LAWS BEHIND FROZEN BANK ACCOUNTS EXPLAINED

As provided in Section 2(21) of Bhartiya Nyaya Sanhita,2023, “movable property” includes property of every description, except land and things attached to the earth or permanently fastened to anything which is attached to the earth. Section 3(36) of General Clauses Act, 1897 defines “movable property” shall mean property of every description, except immovable property. ‘Money’ in the bank account do not fit in the definition of the immovable property, making it fall in the movable property category. Section 106 and 107 of the Bhartiya Nyaya Suraksha Sanhita,2023 (Earlier Section 102 of CrPC,1973) allows the police officer to seize any property suspected to be linked with the commission of the offence. Section 107 read with section 111 of BNSS, Acts as the definitional and operational core for identifying and freezing financial assets as proceeds of crime.

Proceeds of crime

‘Proceeds of crime’ includes Any property (Here Money) derived or obtained directly or indirectly by any person as a result of criminal activity. The BNSS thus empowers authorities to freeze, attach, or forfeit those bank accounts which are used to facilitate the movement or storage of proceeds of crime. Supreme Court in the case of State of Maharashtra Vs Tapas D. Neogy (1999), held that bank account is for the purpose of section 102 CrPC,1973 is included within the ambit of the term ‘property’ in section 102 CrPC,1973, and it can be freeze.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), this act does not specifically mentions about the freezing of account but the section 13(1)(d), in simple terms allow the secured creditor to recover the outstanding debt, which the borrower is not paying, by directly tapping into funds the borrower is supposed to receive from others like other banks or institutions to block the borrower’s access and re-route the funds to settle the debt.

Prevention of Money Laundering Act (PMLA), 2002, dealing with the money laundering offences, under this Act, Section 17 allows the mentioned persons in the section, if they have reason to believe that offence relating to money laundering has been committed, and there is requirement for the seizure or attachment (as the case may be) of any document or property found during the search, Another provision i.e. Section 5 allows the ED officer for provisional attachment of the property to prevent future confiscation . whether frozen by section 5 or section 17 the ultimate consequence is that the bank account holder loses the control over bank account.

Other Laws

There are few other laws also such Central Goods and Services Tax Act, 2017, having Section 83 grants the officer the power to provisionally attach the bank account if during the pendency it is deemed necessary in the interest of the revenue of the country. The Income Tax Act, 1961 also contains provisions empowering the income tax authorities to attach the bank account, as stated in the case of Mohammed Salih Vs. Assistant Commissioner of Income Tax, 2025 that under section 281B there can be provisional attachment of ‘any property’ the use of word ‘any’ before the term property gives it a broad sense to include even the money present in the bank account, mere fact that term Bank account is not expressly provided in 281B, cannot give the result that bank accounts are immune to attachment.

Now as we have understood concept and laws relating freezing of account i.e. losing of the operational control over the bank account, so is it legally sound for the drawer of the cheque to be held liable for the bouncing of cheque ? it will be a fault line in the framework of justice, framing a situation that tests the edge of legal liability.

THE BEST BUILDWELL PERSPECTIVE

In this case, the petitioners had issued post-dated cheques to the respondent. Crucially, these were presented for encashment only after provisional attachment and freezing of the bank account by the Department under Section 83 of the CGST Act, 2017. The cheques were dishonored when eventually presented. While the memo of return might have cited “insufficient funds,” the real reason was the statutory freeze order. The petitioners had even communicated to the payee about the said freeze and requested non-presentation of the cheques by giving a copy of the attachment order, but ultimately, notwithstanding this appeal by the petitioner, the cheques were presented, dishonored, and a criminal complaint under Section 138 of the NI Act was registered. Frozen Accounts, Flowing Justice.

The Court addressed an important issue:

Whether, if a bank account is frozen by statute, the cheque drawer can be punished under Section 138 for dishonor?

In criminal law, the most important element for holding someone guilty is the element of mens reas along with the Actus reus. Guilty mind and along with the culpable conduct are required, and in these kinds of situations where the bank account is frozen by the statutory authority, there is absolutely no control of drawer over the operations of his bank account, means the element of guilty act on the part of drawer in preventing the cheque from being honored is Missing. In this case the petitioners’ act of informing the respondent about the statutory freeze was acknowledged by the Court as evidence of bona fide conduct.

According to the Court, the stated reason in the return memo such as “insufficient funds” must not be blindly accepted, if a statutory freeze is the real reason behind the dishonor, criminal liability under Section 138 does not arise. The court relied on the previous judgement of Deepinder Singh Bedi which held that if a cheque bounces because the drawer’s account was frozen by the government, statutory freezing of a bank account disrupts the essential element of culpable conduct under Section 138 since the drawer of cheque had no control over the account.

CONCLUSION

In this blog of Frozen Accounts, Flowing Justice, This case gives protection to those who had no control over their account being frozen. It draws a firm line as holding the individuals liable for what they control, not for what’s imposed on them by statutory forces. When a government order freezes an account, the person who wrote the cheque no longer has any real control. If their hands aren’t on the wheel, they should not be blamed for where the vehicle ends up.

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