"Security Cheque" as a Defence in case of Cheque-Dishonour under Sec. 138 of Negotiable Instruments Act, 1881

"Security Cheque" in Friendly Loans as a Defence in case of Cheque-Dishonour under Sec. 138 of Negotiable Instruments Act, 1881 

Section 138 - "Security Cheque" - Defence of "Security Cheque" - "Friendly Loan" -  Complainant's Capacity to Give Loan - A complaint had been filed before the Magistrate by the complainant ("C") alleging that, since "C" had friendly relations with the accused ("A"), in the first week of August 2014  the accused had requested a friendly loan of ₹3,00,000/- for a period of 24 months - Being a friend, "C" had advanced a sum of ₹3,00,000/- to her - "A", in discharge of her legally enforceable liability, had issued a cheque dated 10.02.2017 for the sum of ₹3,00,000/-, drawn on Union Bank of India, in favour of "C" -  When "C" had deposited the said cheque on 16.02.2017, it had been returned unpaid with the remarks "funds insufficient" - A legal notice was sent to the accused despite which payment was not done by A - It was alleged that "A" had issued the cheque in discharge of a credit liability knowing fully well that she had insufficient funds in her bank account, and that she had issued the cheque with a malafide intention to cheat the complainant, thereby committing the offence under Section 138 of the NI Act - "A" argued that she had clearly rebutted the statutory presumption available in favour of "C" under Section 139 read with Section 118 of the NI Act - Accused argued that during trial, the accused had taken the defence that she had borrowed only ₹50,000/- from "C" in the year 2013-2014 at an interest rate of 10% per month and had handed over the cheque in question as a blank signed security cheque. The said loan amount, had been repaid in cash in the year 2016, and the complainant had taken the signatures of the accused on a plain paper acknowledging receipt of the said amount - Accused also argued that the complainant did not have the financial capacity to advance the alleged loan of ₹3,00,000/- and that the security cheque had been misused - It is also pointed out by accused that the complaint under Section 138 of NI Act is dated 20.03.2017, whereas the supporting affidavit and presummoning evidence are dated 18.03.2017, thereby creating doubt about the genuineness of the proceedings - Another argument of accused was that neither in the complaint nor in the legal notice is the specific date or time of extending the alleged loan mentioned, and the complainant has not reflected the said transaction in her Income Tax Returns  - Complainant ("C") argued that the cheque in question was duly issued by the accused in discharge of a legally recoverable debt, within the period of limitation, and was accompanied by an assurance from the accused that the same would be honoured upon presentation -  "C" argued he had complied with all the statutory requirements under the NI Act, including timely presentation of the cheque, issuance of legal notice, and filing of the complaint within the prescribed period -  "C" argued that defences raised by the accused are afterthoughts and have been rightly rejected - Court found that the argument that the cheque in question had not been issued in discharge, either wholly or in part, of any legally enforceable debt or liability as envisaged under Section 139 of the NI Act, but had been issued merely as a security cheque is not tenable - Court also concluded that there is no merit in argument that complainant lacked the financial capacity to advance the alleged loan and that such financial capability was never proved on record - Held, Section 138 of the NI Act stipulates that, in order to constitute an offence, the complainant must establish that the drawer of the cheque had issued it in discharge, wholly or in part, of a legally enforceable debt or other liability, that such cheque was returned unpaid by the bank on account of insufficiency of funds or because it exceeded the amount arranged to be paid by an agreement with the bank, and that the drawer failed to make payment of the cheque amount within fifteen days of receipt of the statutory notice - Under Sections 139 and 118 of the NI Act, a presumption operates in favour of the payee or holder in due course - The presumption under S.139 and S.118 are rebuttable in nature – The burden squarely lies upon the accused to rebut the said presumption under S.139 and S.118 - In the present case, the cheque bearing the admitted signatures of the accused, drawn on Union Bank of India for an amount of ₹3,00,000/-, was issued in favour of "C" and was returned unpaid upon presentation for the reason "funds insufficient" - It was not in dispute that, despite service of the statutory legal notice, "A" did not make payment of the cheque amount within the stipulated period -  On the issue of misuse of cheque, accused has argued that he had taken only ₹50,000/- as loan, which had been repaid in cash, and that the cheque in question was misused, but the accused has never denied her signatures on the cheque either in the pleadings or at the stage of her statement under Section 313 of the Code of Criminal Procedure, 1973 - Therefore, accused has failed to discharge the burden of rebutting the statutory presumption in favour of the complainant, namely, that the cheque had been issued in discharge of a legally enforceable debt or liability. On the contrary, the defence evidence led was insufficient to demolish the version put forth by the accused  - With respect to issue of complainant‘s financial capacity to advance the loan Court finds it to be meritless - Held, once the statutory presumption under Section 118 read with Section 139(a) of the NI Act arises in favour of the complainant, questions regarding the complainant‘s source of funds become irrelevant for determining whether the accused has rebutted the presumption - Merely asserting that the complainant failed to prove the source of funds does not amount to rebuttal, particularly when the accused has not led any cogent evidence in defence - In the present case, "C" has, in fact, placed on record documentary evidence to substantiate his financial position, including rent agreements executed by him as landlord with various tenants which have remained unchallenged by the accused - Additionally, "C" has produced his Income Tax Returns for the assessment years 2013–14 and 2014–15 , which reflect rental income of ₹2,16,000/- and ₹3,57,000/- respectively - Held that it has been correctly noted that the loan transaction in question took place in August 2014, at which time "C" had sufficient rental income to advance the said sum of ₹3,00,000/- and the unchallenged rent agreements and Income Tax Returns placed on record substantiate this position - On the contrary, the accused has not produced any documentary or oral evidence to support her claim that she had borrowed only ₹50,000/-, which she had allegedly repaid. No receipts, acknowledgements, or corroborative testimony were brought on record to prove repayment of the said sum -   accused did not lodge any complaint or take any legal steps to recover the blank security cheque which she alleges was misused. Furthermore, the accused has admitted receipt of the statutory legal notice under Section 138 of the NI Act and has also admitted that no payment was made to the complainant within the stipulated period of fifteen days thereafter - Conviction of accused found to be justified. - Simmi Anand v. State [2025] GCtR 1649 (Delhi)