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Shrinkar (Consultant)     05 September 2013

Cheque bounce due to account blocked

One of my close relative was gurantor in a loan taken by his company . He is also Non Executive & Independent director in the company Amount was not very big. Agreement was done on Non Judicial paper. Agreement also mentioned all the post dated cheques with their numbers and amount. One blank cheque was also issued without date but it had sign of my relative as security. It did mention the amount not over loan amount. Other EMI cheques were signed by MD of the company. 8 out of 10  installments cheques got cleared. Then company went into financial trouble. The finance company deposited the security cheque in the bank almost more than two years from loan agreement date. The cheque got bounced due to reason 'account blocked'. My relative enquired with bank about the reason 'account blocked'. Bank informed him that their company account was blocked by Income Tax authorities. The finance company has filed case under 138 NI against the company, MD & other directors. Since their MD is convicted under some other cases. They filed affidivite & removed name of MD from list of accused.

 The hand writing on cheque ( other than sign & not over loan amount) is not of my relative . What defence points my relative can make from above facts.

Experts please advise.

Best Regards,



 6 Replies

Prasun Chandra Das (Banker)     06 September 2013

It seems that the chq signed by your relative was drawn on the Co.'s bank a/c. It is also apparent that all PDCs were given as security chqs (pls refer to the agreement), on which Sec 138 does not apply.


Pls note that Sec 141 of NI Act, which deals with 'Offences by Companies' says that "If the person committing an offence u/s 138 is a Co., every person who, at the time the offense was committed, was in charge of, and was responsible to, the Co.for the conduct of the business of the Co., as well as the Co., shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Provided that nothing contained in this sub section shall render any person liable to punishment if he proves that the offense was committed without his knowledge, or that he had excercised all due diligence to prevent the commission of such offence."


I think if it is proved that the PDCs were given as security chqs (and not for discharge of liability), then sec 138 will not apply, and the Co./your relative cannot be proceeded against u/s sec 138. But as Guarantor, your relative is liable to pay the outstanding dues of the Co.


Shrinkar (Consultant)     06 September 2013

Thanks Mr. Das for taking time out & replying to my query. The cheques towards repayment were of private bank not co operative bank. All cheques were signed by MD of the company. Only one cheque was signed by my relative that too was of private bank. The finance company deposited 8 cheques ( one each month). There is no information about 2 balance cheques. It seems that they did not deposit those cheques. They deposited security cheque writing details like date amount, name of their company etc. on their own. The hand writing on bill of exchange & security cheque is same. The agreement with finance company did not mention the cheque number but it was having next serial number of last EMI PDC. Can we get details of cheque book issue date from bank which will prove that the cheque book was issued about 2 years back from the date of cheque date.

About liability of paying balance amount. As the company is liquidated. Can he ask fianance company to cliam it from liquidator. He or anybody from company has not informed finance company or court about liquidation of the company.

Please advise. 

Best Regards,


Prasun Chandra Das (Banker)     06 September 2013

1) It does not matter whether the chqs were of pvt/nationalised/co-op bank;

2) Yes, the bank should be able to tell you the date of issuance of the chqbook;

3) It would not matter on the bearing of the case even if you prove that chq date is 2 years from the date of issue of chq book;

4) It would not matter if chq is written in different handwriting(s);

5) About liability of your relative and/or the Co. when the in liquidation, I have no idea. There are knowledgeable experts in the forum (Mr C.P.S.Ramachary is one) who can advise you on this.

Prasun Chandra Das (Banker)     07 September 2013

I think the PDF file in the following link will help in your case:

Shrinkar (Consultant)     07 September 2013

Dear Mr. Das,

Thanks again for sparing your valuable time in answering my query. Noted your points. My relative checked with bank reason for cheque bounce. It was due to 'Account Blocked'. The account was blocked by bank on instructions of Govt Department. Can this help my relative. It seems when liquidation case was filed some creditor some govt. dept asked bank to block the account.

The link you have sent is not opening. Can you resend it or attach in PDF format.

Best Regards,


Prasun Chandra Das (Banker)     09 September 2013

1) Pls copy the link & paste it in the address bar of your browser. I searched it in google by typing "position of guarantor when company is sick in india".

2) Reason of chq return does not matter in Sec 138 cases. I think you have not noted my 1st post wherein I said that Sec 138 will not apply in case of Security chqs. Onus of proving this is on your relative.

3) I think the bottomline is your relative has to pay. Since you have said amount is not very big, I'd suggest that your relative settles the matter. Pls note that when a guarantor pays the liability of X (the this case), he will be in the shoes of the Creditor (Bank in this case), and shall have the right to recover the money from X.

Pls checkout




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