S.138 of Negotiable Instruments Act, 1881 and Partial Discharge of Admitted Liability

S.138 of Negotiable Instruments Act, 1881 and Partial Discharge of Admitted Liability

In an interesting judgment, the cheque was presented for partial discharge of an admitted liability and was dishonoured with the return memo dated 07.09.2017 stating ‘Account Closed’. In such circumstances, it was held that Section 138 of the NI Act, 1881 is clearly attracted. 

It is well-settled law that the presumption under Section 139 of the NI Act, applies once the execution of the subject cheque is undisputed. The burden is on the drawer to rebut the presumption that the cheque was issued for a legally enforceable debt or liability which is required to be established during trial.

It is well-established that the mere existence of alternative security does not, by itself, discharge the liability associated with a negotiable instrument. For a cheque to be rendered inoperative due to the furnishing of such security, there must be a clear and express agreement between the parties stating that the cheque shall not be presented or that its legal efficacy shall stand extinguished. In the absence of such express understanding, the cheque retains its character and enforceability under law.

It is a settled position in law that the mere characterization of a cheque as a ‘security cheque’ does not by itself preclude the operation of Section 138 of the NI Act, especially when the cheque has been presented and dishonoured in the course of an ongoing financial obligation between the parties.

Case reference is Sunav Steel Pvt Ltd v. State of NCTD [2025] GCtR 1722 (Delhi).

Full text copy of decision is available free of cost at the following link : - 

https://delhihighcourt.nic.in/app/showFileJudgment/59501042025CRLMM38962022_151938.pdf