Security cheques 138 NI act judgements

1. Definition of Security cheque
57. At this stage, I consider it appropriate to analyse as to what is the meaning of the
word "security". What does the issuance of a security cheque entail, and if there is
no specific agreement touching upon this aspect, what would be the rights and
obligations of the parties qua a security cheque, in case the primary obligation - to
secure which the security cheque was given, is not discharged. The Black's Law
Dictionary (6th edition), inter alia, defines "security" to mean:
"Protection; assurance; Indemnification. The term is usually applied to an
obligation, pledge, mortgage, deposit, lien, etc., given by a debtor in order to
assure the payment or performance of his debt, by furnishing the creditor
with a resource to be used in case of failure in the principal obligation.
Collateral given by debtor to secure loan. Document that indicates evidence
of indebtedness. The name is also sometimes given to one who becomes
surety or guarantor for another".

2. Suresh Chandra Goyal vs Amit Singhal on 14 May, 2015
28. There is no magic in the word "security cheque", such that, the moment the
accused claims that the dishonoured cheque (in respect whereof a complaint
under Section 138 of the Act is preferred) was given as a "security cheque", the
Magistrate would acquit the accused. The expression "security cheque" is not a
statutorily defined expression in the NI Act. The NI Act does not per se carve out an
exception in respect of a 'security cheque' to say that a complaint in respect of such
a cheque would not be maintainable. There can be mirade situations in which
the cheque issued by the accused may be called as security cheque, or may have been
issued by way of a security, i.e. to provide an assurance or comfort to the drawee, that
in case of failure of the primary consideration on the due date, or on the happening (or
not happening) of a contingency, the security may be enforced. While in some
situations, the dishonor of such a cheque may attract the penal provisions contained
in Section 138 of the Act, in others it may not.

3. Judgements where
Decision in Favour of
accused

4. Supreme Court of India
M/S Indus Airways Pvt. Ltd And Ors vs M/S Magnum Aviation Pvt Ltd And Anr on 7 April,
2014
Author: R Lodha
Bench: R.M. Lodha, Shiva Kirti Singh Order Against the complainant
 In para 9 that the cheque has to be drawn in ‘discharge of existing or past adjudicated
liability' in order to attract the offence under sec.138 of N I Act.
 19. The above reasoning of the Delhi High Court is clearly flawed inasmuch as it failed to keep in mind
the fine distinction between civil liability and criminal liability under Section 138 of the N.I. Act. If at the
time of entering into a contract, it is one of the conditions of the contract that the purchaser has to pay the
amount in advance and there is breach of such condition then purchaser may have to make good the loss
that might have occasioned to the seller but that does not create a criminal liability under Section 138. For
a criminal liability to be made out under Section 138, there should be legally enforceable debt or other
liability subsisting on the date of drawal of the cheque. We are unable to accept the view of the Delhi
High Court that the issuance of cheque towards advance payment at the time of signing such contract has
to be considered as subsisting liability and dishonour of such cheque amounts to an offence under Section
138 of the N.I. Act. The Delhi High Court has traveled beyond the scope of Section 138 of the N.I. Act by
holding that the purpose of enacting Section 138 of the N.I. Act would stand defeated if after placing
orders and giving advance payments, the instructions for stop payments are issued and orders are
cancelled. In what we have discussed above, if a cheque is issued as an advance payment for purchase of
the goods and for any reason purchase order is not carried to its logical conclusion either because of its
cancellation or otherwise and material or goods for which purchase order was placed is not supplied by
the supplier, in our considered view, the cheque cannot be said to have been drawn for an existing debt or
liability.

5. Gujarat High Court
Shanku Concretes Pvt. Ltd. vs State Of Gujarat on 30 November, 1999
Equivalent citations: 2000 CriLJ 1988, (2000) 2 GLR 753
Author: J Vora
Bench: J Vora
JUDGMENT J.R. Vora, J.
Order Against the complainant
 17. Therefore, the accused has right to approach the High Court at any stage for
quashing with the allegations that complaint prima facie does not disclose any offence.
In such circumstances, when it appears to the High Court under Section 482 of the
Code that complaint does not disclose any offence, it has ample powers to quash the
proceedings and the complaint and accused need not in all cases be relegated to the
learned Magistrate directing the accused to file proper application for discharge or
dropping of the proceedings. As discussed above, the complaint filed under Section
138 of the Negotiable Instruments Act in this case discloses no criminal liability as
envisaged under Section 138 of the Act and, therefore, the complaint is required to be
quashed.

6. Andhra High Court
Swastik Coaters Pvt. Ltd. vs Deepak Brothers And Ors. on 26 December, 1996
Equivalent citations: 1997 (1) ALD Cri 370, 1997 (1) ALT Cri 371, 1997 89 CompCas 564 AP,
1997 CriLJ 1942
Bench: B Raikote
J.R. Vora, J.
Order Against the complainant
 From this evidence it is clear that it is admitted on behalf of the complainant that no authorisation letter or
any resolution was filed in this case authorising the present Director to institute the present proceedings.
Company being by itself a legal person and it is the company which is the holder in due course and that
company alone could file the complaint under Section 142(A) of the Negotiable Instruments Act. As
per Section 142(A) of the Negotiable Instruments Act no Court shall take cognizance of any offence
punishable under Section 138 of the Negotiable Instruments Act except upon a complaint in writing made
by the payee or the holder in due course of the cheque. According to me one of the Directors of the
company cannot be said to be a payee or holder in due course in terms of Section 142(A) of the
Negotiable Instruments Act. However, it does not mean that there cannot be authorisation to file a
complaint. He can be authorised to file a complaint. Such power or authorisation to file a complaint could
also be conferred by Memorandum of Association or Articles of Association. In the instant case no such
authorisation is proved. In similar circumstances, I have held in "M/s. Satish and Co. v. S.R. Traders"
vide my judgment and order dated 28-11-1996 in Criminal Appeal No. 180/95 that without such an
authorisation a Director or any person similarly situated cannot maintain a complaint under Section
142 of the Negotiable Instruments Act. In this view of the matter, I am of the opinion that the Court
below is correct in negativing the contention of the complainant in this behalf also.

7. Madras High Court
M/S. Balaji Seafoods Exports ... vs Mac Industries Ltd, S. Pichalah, ... on 13 October, 1998
Equivalent citations: 1999 (1) CTC 6
Bench: A Raman
J.
Order Against the complainant
 9. There is yet another flaw in this matter. The agreement refers to the fact that a cheque for
Rs. 35 lakhs shall be given as security for the advance received. Therefore, the cheque was
issued for Rs. 35 lakhs. But the claim made in the notice was for Rs.39,43,508. Therefore, i
am of the view that this is a case where the provisions under Section 138 of the act will not
apply. A reading of the agreements between the parties does not lend support to such a view.
Of course, the learned counsel for the respondent referred to the later part of Clause 5. The
later part shows that MI shall be at liberty to encash such cheques in settlement of the
amounts due from the processor. That cheque was given in pursuance of an earlier agreement
and not the latter agreement. Therefore, obviously, it does not refer to the cheque received for
Rs. 35 lakhs. It refer to cheques and not the cheque. The clause provides the parties or the 1st
party to initiate further proceedings including action under section 138 of the Act in respect
of cheques handed over and that too with not to later agreement.
 10. Therefore, I am of the considered view that as an undated cheque having been given only
as security, the provision of Section 138 of the Negotiable Instruments Act are not at all
attracted and hence, the complaint against the accused under section 138 of the Negotiable
Instruments Act cannot be maintained at all.

8. Supply House, Represented by Managing Partner v. Ullas, Proprietor Bright Agencies and another;
J.
Order Against the complainant
 5. Therefore, Ext.P1 cheque cannot be stated to be one issued in discharge of the
liability to the tune of the amount covered by it, which was really issued, as is revealed
by Ext.D1, as the price amount for 28 numbers of mixies, which the complainant had
not supplied. Therefore the acquittal of the accused cannot be stated to be unjustified to
invite interference in the appeal

9. Judgement where
Decision in Favour of
complainant

10. Supreme Court of India
M/S M. M. T. C. Ltd. & Anr vs M/S Medchl Chemicals & Pharma P. ... on 19 November, 2001
Author: S N Variava
Bench: K.T.Thomas, S.N.Variava
CASE NO.: Appeal (crl.) 1173-1174 of 2001 Special Leave Petition
(crl.) 289-290 of 2000
 249. It has been held that even though the cheque is dishonoured by reason of 'stop
payment' instruction an offence under Section 138 could still be made out. It is held that
the presumption under Section 139 is attracted in such a case also. The authority shows
that even when the cheuqe is dishonoured by reason of stop payment instructions by
virtue of Section 139 the Court has to presume that the cheque was received by the
holder for the discharge, in whole or in part, of any debt or liability. Of course this is a
rebuttable presumption.

11. Every Cheque Ever Issued In India Is A 'Security' Cheque
 "A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless
piece of paper under every circumstance."Just because a cheque is issued as a security does not
mean that it will not attract the offence as defined under Section 138 of the Negotiable Instruments ('NI
Act'). This position of law as enunciated by the Apex Court in Sripati Singh (Since Deceased) ... vs The
State Of Jharkhand on 28 October, 2021
 Author: A.S. Bopanna
 Bench: M.R. Shah, A.S. Bopanna

22. These aspects would primafacie indicate that there was a transaction between the parties towards which a
legally recoverable debt was claimed by the appellant and the cheque issued by the respondent No.2 was
presented. On such cheque being dishonoured, cause of action had arisen for issuing a notice and presenting the
criminal complaint under Section 138 of N.I. Act on the payment not being made. The further defence as to
whether the loan had been discharged as agreed by respondent No.2 and in that circumstance the cheque which
had been issued as security had not remained live for payment subsequent thereto etc. at best can be a defence
for the respondent No.2 to be put forth and to be established in the trial. In any event, it was not a case for the
Court to either refuse to take cognizance or to discharge the respondent No.2 in the manner it has been done by
the High Court. Therefore, though a criminal complaint under Section 420 IPC was not sustainable in the facts
and circumstances of the instant case, the complaint under section 138 of the N.I Act was maintainable and all
contentions and the defence were to be considered during the course of the trial.

12. Aman’s Observation based on research ::
Section 138 is heavily lopsided to
complainant, because its presumed that if
accused had issued a cheque, its for
discharge of a liability. Many judgements
can be produced in case you seek.
Thank you
Aman vijay Jindal ( Gupta)
+91 9999700464