Security Cheque Under The Purview Of Negotiable Instruments Act,1881

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This article was written by Vishal Sharma, a student of Himachal Pradesh University Institute Of Legal Studies.

Security Cheque

• A Security Cheque is a cheque issued to a drawee as security or surety, for using in case the drawer fails to meet the future obligations arising during course of business or any other such transactions. Such cheque is usually but not necessary; post dated cheque, blank as to date, blank as to amount, rarely blank as to drawee, but never blank as to signature.

Security cheques under the purview Section 138 of Negotiable Instrument Act

• Security cheques are the cheques only like any other cheques and they create same liability to discharge as ordinary cheques and attract the provisions of The Negotiable Instruments Act Section 138 when they are dishonoured.
• One of the main ingredients of the offence of dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881, is that the cheque which is dishonoured must have been given “for the discharge, in whole or in part, of any debt or other liability“.
• But it is to be shown that under which circumstances the cheque was issued, and in order an offence under section 138 is to be proved the said cheque must be issued in discharge of legally enforceable debt, merely calling a cheque a security cheque will not work. One has to show the probable circumstances, such that the cheque was not issued in discharge of a legally enforceable debt or other liability.
• Therefore, while no offence is made out if the cheque that is dishonoured for any reason was given only as a security, the court shall have the presumption that it was given for the discharge of any liability, and subsequently it will be for the accused to prove that the cheque was not given for the discharge of any debt or other liability but it was given only as a security. Once the accused is able to prove it, he shall be entitled to acquittal from the offence of dishonour of cheque.
• Thus, it is clear that no offence under section 138 of the Negotiable Instruments Act will be made out if the cheque that has been dishonoured was issued only as a security and not for discharge of any debt or liability.
• It is to be pointed out that if a cheque is issued for security or for any other purpose, the same would not come within purview of Section 138 of Negotiable Instruments Act as per decision of Hon’ble Supreme Court in M.S. Narayana Menon V. State of Kerala MANU/SC/2881/2006

RECENT CASE LAWS IN RELATION TO   SECURITY CHEQUES UNDER THE PURVIEW OF SECTION 138 OF THE NEGOTIABLE INSTRUMENTS AC 

Sudheer Kumar Bhalla vs Jagdish Chandra Bhalla and others 2009, SCC

It was held by the SC that criminal liability of accused under section 138 NI Act is attracted only on account of dishonour of cheque issued in discharge of any liability or debt but not on account of issuance as a security cheque.

 Credential Leasing & Credits Ltd. vs. Shruti Investments and Anrs.: 2015 (151) DRJ 147

 It was held in consideration of the view that there is no merit in the legal submission of the respondent that only on account of the fact that the cheque was issued as security in respect of a contingent liability, the complaint under Section 138 of the Negotiable Instruments Act would not be maintainable. But it was stated additionally that it would need examination on a case to case basis as to whether, on the date of presentation of the dishonoured cheque the ascertained and crystallized debt or other liability did not exist and the onus to raise a probable defence would lie on the accused, as the law raises a presumption in favour of the holder that the dishonoured cheque was issued in respect of a debt or other liability.

Arumugam Vs K.S. Sampath Kumar   MANU/TN/0010/2017

– In the case the complainant failed to prove his case that the security cheque issued to him was to discharge a liability. So when there is no liability towards the complainant the offence under Section 138 N.I. Act is not attracted against the accused.

– The judgement stated that Section 138 of Negotiable Instruments Act provides for a penalty where a cheque was dishonoured owing to the reason of ‘Insufficient Funds’ and the security cheque in question is to be by means of payment of a ‘Legally Enforceable Debt or Liability’. As such, it is the prime duty of a complainant to show that only for the subsisting debt or for a subsisting liability, the cheque was drawn by the Accused.

– The judgement also pointed out that one cannot ignore an essential fact that Section 139 of Negotiable Instruments Act enjoins on the Court to presume that the holder of the cheque received it for the discharge of debt or liability and that the burden was on the accused to rebut the presumption. 

Conclusion

In India security cheques are treated as any other cheques prima facie and presumption under section 139 of Negotiable Instruments act is cast against the accused initially, the accused has to give a good defense that under what circumstances the cheque was forwarded. While in the complainant’s case the focus should be on legally enforceable debt, if an undated cheque is issued the complainant has to satisfy the court about the date of issuance of the cheque i.e. the date put on the cheque that there was a legally enforceable debt of the like amount. Complainant has to prove the case beyond the reasonable doubt and explain the money that was lended by him by way of transactions. If complainants fails in this the case fails.Once complainant proves this. The accused has to raise a good defense that the debt was discharged and cheque was a security cheque and was merely misused. It is then if accused proves the discharge of debt then only he can take a benefit of security cheque and he will be acquitted.