Concept of "Security Cheque" and S.138 of Negotiable Instruments Act, 1881 Explained by Supreme Court

Concept of "Security Cheque" and S.138 of Negotiable Instruments Act, 1881 Explained by Supreme Court

The concept of Security Cheques was explained by the Apex Court in the case of Sripati Singh vs. State of Jharkhand [2021] GCtR 2506 (SC) wherein it was observed at page nos. 19 and 20 as follows : 

“A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance. “Security” in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment. It is given, deposited or pledged to make certain the fulfilment of an obligation to which the parties to the transaction are bound. If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified time-frame and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of the NI Act would flow.”