Dishonour of Cheque - Cheque issued as security can attract liability under Section 138

Himachal Pradesh High Court Upholds Complaint Under Section 138 of NI Act Despite Claim of Security Cheque, Court dismisses petition to quash proceedings, emphasizing that cheques issued as security can still attract liability.

In a significant ruling, the Himachal Pradesh High Court has dismissed a petition seeking to quash a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881, against M/s New JCO. The petitioners, M/s New JCO and another, had challenged the proceedings initiated by Utkarsh Sharma over a dishonoured cheque, contending that the cheque was issued merely as security.

The case stemmed from a transaction wherein the accused purchased an apple crop from Sharma for Rs. 4,46,472 and issued a cheque dated April 21, 2025, which was subsequently dishonoured due to insufficient funds. Despite serving a legal notice, the accused failed to repay the amount, prompting Sharma to file a complaint.

Presiding over the case, Justice Rakesh Kainthla underscored the legal principle that a cheque issued as security can still lead to liability under Section 138 if it represents an existing enforceable debt or liability. The court referred to precedents set by the Supreme Court in cases like Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited and Sripati Singh v. State of Jharkhand, affirming that cheques issued as security are not merely waste paper.

The petitioners argued that they had settled the amount due through a compromise with the Agricultural Produce Market Committee, and thus, there was no enforceable debt at the time of filing the complaint. However, the court rejected this argument, stating that any payment made after the cause of action arises does not absolve the accused of liability for the offence under Section 138, though it may influence sentencing.

Justice Kainthla also cautioned against quashing complaints at a pre-trial stage, particularly when factual controversies exist. He highlighted the importance of allowing the trial court to weigh evidence, as premature quashing could lead to irreparable consequences and deprive the trial court of its opportunity to assess the case.

The court's decision reinforces the legal stance that even cheques issued for security can mature for presentation and result in criminal liability if dishonoured, provided they are linked to an enforceable debt or liability.

Bottom Line:

Cheque issued as security can attract liability under Section 138 of the Negotiable Instruments Act, provided it represents the discharge of an existing enforceable debt or liability.

Statutory provisions: Negotiable Instruments Act, 1881 Section 138, Criminal Procedure Code, 1973 Section 482

M/s New JCO v. Utkarsh Sharma, (Himachal Pradesh) : Law Finder Doc id # 2820966