The Delhi High Court has ruled that post-dated cheques issued as security can attract prosecution under Section 138 of the Negotiable Instruments Act, 1881, once the liability or debt for which they were issued becomes legally enforceable. Justice Neena Bansal Krishna delivered this ruling while dismissing a plea seeking to quash criminal proceedings under Section 138, emphasizing that the existence of a legally enforceable debt at the time of cheque presentation is the key factor.
The case arose when a cheque, initially issued as a security instrument for a financial transaction, was presented for encashment after the underlying liability had matured. The accused contended that the cheque was never meant to be encashed unless a specific contingency occurred, arguing that it was a “security cheque” and therefore not covered under Section 138. The complainant, however, maintained that the cheque had been presented only after the liability became due and that its dishonour constituted a clear offence under the Act.
The Court observed that Section 138 is attracted not by the timing of the cheque’s issuance but by the existence of a legally enforceable debt or liability on the date of its presentation. The judge clarified that a cheque issued as security may still come within the ambit of Section 138 if, by the time it is presented, the debt it was meant to secure has crystallised. Merely labelling a cheque as “security” does not grant automatic immunity from criminal prosecution under the Act.
Justice Bansal Krishna stated that the essential ingredients for invoking Section 138 are: (1) the cheque must have been issued on an account maintained by the drawer; (2) it should have been issued in discharge of a debt or liability; (3) it must be presented within the statutory validity period; and (4) the drawer must fail to make payment within fifteen days after receiving a demand notice following dishonour.
The Court further held that determining whether a cheque was issued purely as security or in discharge of a matured liability involves factual questions that cannot be resolved at the stage of quashing proceedings. These issues require a full trial where evidence can be properly examined. Therefore, the petition to quash the proceedings was dismissed.
This ruling reinforces the principle that the mere characterization of a cheque as “security” is insufficient to avoid criminal liability. What truly matters is whether a legally enforceable obligation existed at the time the cheque was presented for payment. If the underlying liability had crystallised, dishonour of such a cheque can validly lead to prosecution under Section 138 of the Negotiable Instruments Act.
The judgment thus provides clarity in cheque dishonour jurisprudence, aligning with the broader objective of maintaining financial discipline and preventing misuse of negotiable instruments under the guise of “security cheques.”
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