Core Issue:
Whether criminal liability under Section 138 of the NI Act can be imposed when a cheque’s dishonour results from a government-ordered account attachment, rendering the account non-operational.
The Cheques That Couldn’t Bounce
In November-December 2023, Best Buildwell issued two cheques to R.D. Sales for construction materials. These weren’t ordinary payments – they came with an oral agreement that they wouldn’t be cashed without mutual consent. Little did either party know these pieces of paper would soon become the center of a legal storm.
The Account Freeze That Changed Everything
On January 22, 2024, the CGST Department dropped a bombshell – they attached Best Buildwell’s bank account under tax laws. The company immediately informed R.D. Sales about this financial lockdown. Despite this warning, R.D. Sales attempted to cash the cheques on February 8, 2024. As expected, the cheques bounced on February 20, though the bank mistakenly cited “insufficient funds” rather than the actual freeze.
Legal Notices and Mounting Tensions
The dispute escalated in March 2024. R.D. Sales sent a legal notice on the 16th, received by Best Buildwell on the 18th. The builders responded on March 27 with proof of the account attachment. Undeterred, R.D. Sales filed a criminal complaint under cheque bounce laws on April 18, leading to summons against Best Buildwell on September 18, 2024.
The Courtroom Battle
Best Buildwell approached the Delhi High Court, arguing their frozen account couldn’t possibly meet the legal definition of a “maintained” account under cheque bounce laws. They cited multiple precedents where courts had ruled in favor of parties facing similar government-ordered freezes. The heart of their defense: you can’t punish someone for something completely beyond their control.
Delhi High Court Careful Scrutiny
The judge examined every detail – from the GST department’s January 22 attachment order to the bank’s March 3, 2025 confirmation of the freeze. The court noted Best Buildwell’s prompt January 2024 communication to R.D. Sales about the account freeze. This paper trail proved crucial in establishing the builders’ bona fides.
The Core Legal Question
Could a company be held criminally liable for cheques bouncing due to a government-ordered account freeze? The court analyzed this through the lens of legal intent – Section 138 was designed to punish willful defaulters, not those caught in bureaucratic crossfires. The mistaken “insufficient funds” memo was deemed irrelevant when the real culprit was the account freeze.
Precedents That Shaped the Outcome
The judgment leaned heavily on past rulings like Deepinder Singh Bedi (2024) and Vijay Chaudhary (2008), where courts had established that attached accounts don’t qualify as “maintained” under the law. These cases formed a protective legal shield for Best Buildwell against criminal prosecution.
The Final Ruling
On June 5, 2025, Justice Dudeja delivered the decisive blow – quashing all criminal proceedings against Best Buildwell. The court recognized the fundamental unfairness of punishing a party for circumstances entirely beyond their control. The ruling maintained the delicate balance between enforcing financial discipline and acknowledging practical realities of business operations.
Lessons for Businesses
This case serves as a stark reminder about the risks of oral agreements in business dealings. While Best Buildwell ultimately prevailed, the months-long legal battle could have been avoided with clearer written terms about cheque encashment. The judgment also highlights how government actions can unexpectedly disrupt commercial relationships, requiring businesses to maintain robust communication channels.
The Road Ahead
While the criminal case is closed, the door remains open for R.D. Sales to pursue civil remedies. The judgment carefully preserves the distinction between criminal liability under negotiable instruments law and civil claims for recovery. For now, Best Buildwell can breathe easier, but the case underscores why businesses must navigate financial transactions with extreme caution in today’s regulatory environment.
About the Author: Neeraj Gogia, Advocate, 9891800100, specializing in criminal law, bail applications, criminal trial etc. This article is intended for informational purposes only and does not constitute legal advice.
© 2025 [Gogia crime briefs]. All rights reserved.
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