"Security Cheque" and Offence under S.138 of Negotiable Instruments Act, 1881 : HC Answers The Issue in Its Recent Judgment

"Security Cheque" and Offence under S.138 of Negotiable Instruments Act, 1881 : HC Answers The Issue in Its Recent Judgment

In this case, the first issue was whether the said cheque was a security cheque and thus, could not have been presented unless there was an occasion for its presentment. It was explained that "Section 138 of the NI Act essentially criminalizes the dishonor of a cheque when it is issued by a person to another person for the discharge, in whole or in part, of any debt or other liability. The Explanation to Section 138 clarifies that “debt or other liability” means a legally enforceable debt or other liability. For an offence under Section 138 of the NI Act to be attracted, the cheque must be for the discharge of a debt or liability, and the debt must be equal to or greater than the amount of the cheque presented."

It was held that PDCs (Post-Dated Cheques) issued as security for financial liability mature into an actual outstanding liability, the legal position is nuanced. The determining factor is whether a legally enforceable debt or liability exists on the date the cheque is presented for encashment, and not on the date it was drawn or handed over.

Where a cheque is given as security for a contract or a loan and the liability arising from that contract or loan, crystallizes into a legally enforceable debt at a later date, the cheque, even if originally a “security” one, assumes the character of a cheque issued in discharge of that debt for the purpose of Section 138.

Whether a post-dated cheque is for “discharge of debt or liability” depends on the nature of the transaction. If on the date of the cheque, liability or debt exists or the amount has become legally recoverable, Section 138 is attracted.

The Security Cheques are only given to be utilised if subsequently, during the business transactions, certain liabilities arise which are not fulfilled by the Petitioners.

The argument that the impugned Cheque in this case was merely a security cheque and could not have been presented, was found to be untenable. Here, the Complainant has specifically alleged about their being existing debt/liability on 09.12.2015, when the cheque was presented to the Bank.

For details refer Manmohan Gaind v. Negolice India Pvt Ltd [2025] GCtR 1691 (Delhi).