Security Cheque Whether Covered Under S.138 of NI Act ?

The Delhi High Court on Tuesday, September 15, 2015 in Wilson Mathew Vs. State NCT of Delhi held that the claim of the complainant does not falter on the issue of acceptance of security cheque; rather the complainant has not been able to make out a case that the security cheque were issued in discharge of a legally enforceable debt.

Justice Ashuntosh Kumar observed that security cheque per se would not get out of the ambit of Section 138 of the NI Act, but in the facts of the present case, viz. the circumstance in which the security cheque is said to have been issued by the accused and accepted by the complainant and the admission of the complainant about his having accepted Rs.8 lacs. from the accused and his denial of having paid Rs.10 lacs. to the accused, the case of the complainant appears to be highly doubtful.

“Thus both the judgment and orders cannot be sustained in the eyes of law and are hereby quashed. The Revision Petition is allowed,”the judgment said.

In Collage Culture vs. Apparel Export Promotion Council, 2007 (99) DRJ 251, a distinction has been drawn between two kinds of cheques namely one issued in discharge in presenti but payable in future and the other issued in respect of a debt which comes into existence on the occurrence of a contingent event, and is not in existence on the date of issue of a cheque. The latter cheque, being by way of security cheque, will not be covered under Section 138 of NI Act.

In the aforesaid decision, definition of the word ‘due’ has been given as ‘outstanding on the relevant date’. The Court, therefore, held that the debt has to be in existence as a crystallized demand akin to liquidated damages and not a demand which may or may not come into existence.

Concept of Security Cheque

However, in Suresh Chand Goyal vs. Amit Singhal (Crl.A. 601/2015 decided on 14.05.2015) the concept of security cheque were discussed.

It was held in the aforesaid case:

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 myriad 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.

Relying on the aforesaid dicta, a bench of Delhi High Court in Credential Leasing & Credits Ltd. vs. Shruti Investments, 2015 (151) DRJ 147 held as under:

“30. Thus, I am of the considered view that there is no merit in the legal submission of the respondent accused that only on account of the fact that the cheque in question was issued as security in respect of a contingent liability, the complaint under Section 138 of the NI Act would not be maintainable. At the same time, I may add 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. The onus to raise a probable defence would lie on the accused, as the law raises a presumption in favour of the holder of the cheque that the dishonoured cheque was issued in respect of a debt or other liability.”

Learned counsel for the complainant referred to the decision of ICD vs. Beena Shabir, 2002(6) SCC 426 wherein the Supreme Court has held that the security cheque also would fall within the purview of the Section 138 of the NI Act and a person could not escape his liability. As such, when there is existence of debt on the date of presentation of the cheque and the security cheque issued are dishonoured, the accused would be liable under Section 138 of the NI Act.

The complainant has admitted in his cross examination that he took cheques from the accused for the security purpose and that the cheques were received by him in the year 2007, at the time of handing over money to the accused. However, the particulars in the cheques were filled up in the handwriting of the accused.

It is argued that a cheque issued even by way of security would be covered under Section 138 of the NI Act.