Court rules that cheques issued as security can attract legal action if dishonoured, even at pre-trial stages, emphasizing the importance of trial in resolving factual disputes.
In a significant judgment, the Himachal Pradesh High Court has reiterated that cheques issued as security are not exempt from the provisions of Section 138 of the Negotiable Instruments Act, 1881. The case involved OM-Cheeva Business (India) LLP, which sought to quash a complaint filed by M/s Goel Motors under the said section, arguing that the cheque in question was merely a security instrument.
Presiding over the matter, Justice Sandeep Sharma dismissed the petition by OM-Cheeva Business (India) LLP, which contended that the cheque was issued as security in a financial transaction that had since been terminated. The court maintained that the statutory provisions do not carve out an exception for security cheques, asserting that such cheques can still attract legal action if dishonoured.
The court highlighted the presumption under Section 139 of the Negotiable Instruments Act, which favors the cheque holder, presuming that the cheque was issued for discharging a legally enforceable debt or liability. This presumption, though rebuttable, must be challenged during the trial rather than at the pre-trial stage.
Justice Sharma emphasized that factual disputes, such as whether the cheque was issued as a security or in fulfillment of a liability, should be resolved through trial proceedings where both parties can present evidence. The court referenced several Supreme Court rulings that reinforced the necessity of allowing the trial process to unfold to determine the true nature of the cheque issuance.
The judgment further referenced the Bharatiya Nagarik Suraksha Sanhita, 2023, particularly Section 528, clarifying that complaints under Section 138 should not be quashed at pre-trial stages based on disputed facts about the cheque's nature.
This ruling serves as a crucial reminder of the legal framework governing cheque transactions in India, reinforcing the mechanism that protects cheque holders and outlines the due process for resolving disputes through the judicial system.
Bottom line:-
Dishonour of a cheque issued as "security" can attract offence under Section 138 of the Negotiable Instruments Act. Courts should not quash criminal complaints under Section 138 at the pre-trial stage merely based on disputed questions of fact regarding the cheque's issuance.
Statutory provision(s):
Negotiable Instruments Act, 1881 Section 138, Negotiable Instruments Act, 1881 Section 139, Bharatiya Nagarik Suraksha Sanhita, 2023 Section 528
OM-Cheeva Business (India) LLP v. M/s Goel Motors, (Himachal Pradesh) : Law Finder Doc id # 2897994
