An offence under Section 138 Negotiable Instruments Act, 1881 can also arise against A Cheque issued as Security: Supreme Court

An offence under Section 138 Negotiable Instruments Act, 1881 can also arise against A Cheque issued as Security: Supreme Court

A Cheque issued as Security pursuant to a Financial Transaction cannot be considered as a worthless piece of paper under every circumstance.

The Supreme Court in its decision on October 28, observed that dishonour of a cheque issued as a security can also attract offence under Section 138 Negotiable Instruments (NI) Act, 1881. [Sripati Singh v. State of Jharkhand, Crl. Appeal 1269-1270 of 2021]

A Division bench of Justice MR Shah and AS Bopanna, while allowing the appeal in part, observed,

"If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow."

It was added by the bench that an offence under 138 NI Act, in the given circumstance will only be omitted when the debt has not become recoverable/ not matured to be presented for recovery of the amount or when the due date agreed for payment has not arrived.

The notice issued by the appellants indicate that right after the cheque was dishonoured an intimation was sent to the respondents, whereby they agreed to clear the due amount by June/July, 2015.

This therefore points to the fact that there existed a legally recoverable debt, which the respondents had a duty to pay.