Whether accused can be prosecuted for an offence U/S138 NI Act if he has given a cheque as Security for a Loan From an Unlicensed Money Lender?

 The learned Sessions Judge

while allowing the revision application preferred by

respondent Nos. 1 and 2 has observed that the contract

which is forbidden by law is void contract. In cases of

money lending business without license, the provisions

under Section 138 of Negotiable Instruments Act are not

attracted. According to the complainant huge amount of Rs.

4,50,000/- was parted to the accused. There was a

Memorandum Of Understanding (for short “MOU”) dated

22.02.2014 between M/s. Monika Sumit Ujjain as the lender

and M/s. Saga Infra as the borrowers. As per MOU it can be

gathered that the transactions was without license. Post

dated cheques were given by way of security. I have

perused the MOU and the other documents on record

considering the factual matrix of this case I do not find any

reason to interfere with the impugned order.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CRIMINAL APPELLATE JURISDICTION

CRIMINAL REVISION APPLICATION NO. 394 OF 2015

Mrs. Monica Sunit Ujjain  Vs Sanchu M. Menon

CORAM : PRAKASH D. NAIK, J.

DATE : 2nd AUGUST, 2022

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Whether court accept defence of accused that cheque was issued as security in absence of further evidence adduced by accused?

Coming back to the facts in the present case and considering

the fact that the accused has admitted the issuance of the cheques

and his signature on the cheque and that the cheque in question

was issued for the second time, after the earlier cheques were

dishonoured and that even according to the accused some amount

was due and payable, there is a presumption under Section 139 of

the N.I. Act that there exists a legally enforceable debt or liability.

Of course such presumption is rebuttable in nature. However, to

rebut the presumption the accused was required to lead the

evidence that full amount due and payable to the complainant has

been paid. In the present case, no such evidence has been led by

the accused. The story put forward by the accused that the

cheques were given by way of security is not believable in absence

of further evidence to rebut the presumption and more particularly

the cheque in question was issued for the second time, after the

earlier cheques were dishonoured. Therefore, both the courts below

have materially erred in not properly appreciating and considering

the presumption in favour of the complainant that there exists

legally enforceable debt or liability as per Section 139 of the N.I.

Act. It appears that both, the Learned Trial Court as well as the

High Court, have committed error in shifting the burden upon the

complainant to prove the debt or liability, without appreciating the

presumption under Section 139 of N.I. Act. As observed above,

Section 139 of the Act is an example of reverse onus clause and

therefore once the issuance of the cheque has been admitted and

even the signature on the cheque has been admitted, there is

always a presumption in favour of the complainant that there exists

legally enforceable debt or liability and thereafter it is for the

accused to rebut such presumption by leading evidence.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 271 OF 2020

APS FOREX SERVICES PVT. LTD Vs SHAKTI INTERNATIONAL FASHION LINKERS & ORS. 

Dated:February 14, 2020.

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Whether offence of dishonour of cheque is made out if post dated cheque was issued as security for loan?

Reference to the facts of the present case clearly shows that though the word "security" is used in Clause 3.1(iii) of the agreement, the said expression refers to the cheques being towards repayment of installments. The repayment becomes due under the agreement, the moment the loan is advanced and the installment falls due. It is undisputed that the loan was duly disbursed on 28th February, 2002 which was prior to the date of the cheques. Once the loan was disbursed and installments have fallen due on the date of the cheque as per the agreement, dishonour of such cheques would fall Under Section 138 of the Act. The cheques undoubtedly represent the outstanding liability.

12. Judgment in Indus Airways (supra) is clearly distinguishable. As already noted, it was held therein that liability arising out of claim for breach of contract Under Section 138, which arises on account of dishonour of cheque issued was not by itself at par with criminal liability towards discharge of acknowledged and admitted debt under a loan transaction. Dishonour of cheque issued for discharge of later liability is clearly covered by the statute in question. Admittedly, on the date of the cheque there was a debt/liability in praesenti in terms of the loan agreement, as against the case of Indus Airways (supra) where the purchase order had been cancelled and cheque issued towards advance payment for the purchase order was dishonoured. In that case, it was found that the cheque had not been issued for discharge of liability but as advance for the purchase order which was cancelled. Keeping in mind this fine but real distinction, the said judgment cannot be applied to a case of present nature where the cheque was for repayment of loan installment which had fallen due though such deposit of cheques towards repayment of installments was also described as "security" in the loan agreement. In applying the judgment in Indus Airways (supra), one cannot lose sight of the difference between a transaction of purchase order which is cancelled and that of a loan transaction where loan has actually been advanced and its repayment is due on the date of the cheque.

13. Crucial question to determine applicability of Section 138 of the Act is whether the cheque represents discharge of existing enforceable debt or liability or whether it represents advance payment without there being subsisting debt or liability.

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 867 of 2016 

Decided On: 19.09.2016

Sampelly Satyanarayana Rao Vs.  Indian Renewable Energy Development Agency Limited

Hon'ble Judges/Coram:

Dipak Misra and A.K. Goel, JJ.

Citation: (2016) 10 SCC 458

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Whether accused in cheque dishonour case can be believed if he fails to seek return of cheque for period of seven years?

The Respondent contended that the signed blank Promissory Note was issued by him in favour of N.R.R. Finances Investments Pvt. Ltd. under a hire-purchase agreement for purchasing a lorry on loan basis. The said Promissory Note was not issued in favour of the Appellant-complainants. The Promissory Note was filled up by DW. 2 Mahesh, an employee of N.R.R. Investments, after the signatures of the Respondent were obtained on the same.

With respect to the two cheques which were dishonoured, the Respondent contended that these were amongst 10 blank cheques signed and handed over to the Appellant-K. Posa Nandhi as security, when he borrowed Rs. 5,00,000/- in 1995. That even though this loan was re-paid in 1996 with interest, the cheques were not returned. The Respondent further contended that he had issued a letter on 09.11.2002 asking the Appellants to return the 10 blank cheques.

3. The Trial Court found that the Respondent had admitted his signatures both on the Pronote and also on the two cheques for Rs. 37,00,000/- and Rs. 14,00,000/- respectively. The Respondent also admitted that the Appellant had invested capital in their concern viz. M/s. Maanihada Tea Factory.

The Court disbelieved the version of the Respondent with respect to the 10 blank cheques issued to the Appellant in 1995. The Respondent failed to place any material on record to show that he had ever asked for return of the 10 blank cheques, allegedly given by him to the Respondent, for seven years.

7. Mr. R. Basanth, Sr. Counsel appeared on behalf of the Respondent-Accused, and contended inter alia that the cheques were not issued towards discharge of a legally enforceable debt, but as a security, and that the judgment under challenge required no interference.

8. We have heard Senior Counsel for both parties, and perused the record. Under Section 139 of the N.I. Act, once a cheque has been signed and issued in favour of the holder, there is statutory presumption that it is issued in discharge of a legally enforceable debt or liability1. This presumption is a rebuttable one, if the issuer of the cheque is able to discharge the burden that it was issued for some other purpose like security for a loan.

In the present case, the Respondent has failed to produce any credible evidence to rebut the statutory presumption. This would be evident from the following circumstances:

(i) The Respondent-Accused issued a Pronote for the amount covered by the cheques, which clearly states that it was being issued for a loan;

(ii) The defence of the Respondent that he had allegedly issued 10 blank cheques in 1995 for repayment of a loan, has been disbelieved both by the Trial Court and Sessions Court, on the ground that the Respondent did not ask for return of the cheques for a period of seven years from 1995. This defence was obviously a cover-up, and lacked credibility, and hence was rightly discarded.

IN THE SUPREME COURT OF INDIA

Criminal Appeal Nos. 950-951 of 2018 

Decided On: 31.07.2018

T.P. Murugan Vs.  Bojan

Hon'ble Judges/Coram:

Rohinton Fali Nariman and Indu Malhotra, JJ.

Citation: 2019(2) MHLJ 948

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Whether offence of dishonour of cheque is made out if post dated cheque is issued for repayment of loan?

(i) The question whether a post-dated cheque is for "discharge of debt or liability" depends on the nature of the transaction. If on the date of the cheque liability or debt exists or the amount has become legally recoverable, the Section is attracted and not otherwise. 

(ii) Though the word "security" is used in Clause 3.1(iii) of the agreement, the said expression refers to the cheques being towards repayment of installments. The repayment becomes due under the agreement, the moment the loan is advanced and the installment falls due.Once the loan was disbursed and installments had fallen due on the date of the cheque as per the agreement, dishonour of such cheques would fall under Section 138 of the Act. The cheques undoubtedly represent the outstanding liability. 

(iii) As per the case of the Complainant, the cheques which were subject matter of the said complaint were towards the partial repayment of the dues under the loan agreement. While dealing with a quashing petition, the Court has ordinarily to proceed on the basis of averments in the complaint. The defence of the Accused cannot be considered at this stage. The Court considering the prayer for quashing does not adjudicate upon a disputed question of fact. 

(iv) The question was answered in favour of the Respondent and against the Appellant. Dishonour of cheque in the present case being for discharge of existing liability was covered by Section 138 of the Act, as rightly held by the High Court.

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 867 of 2016 (Arising out of S.L.P. (Crl.) No. 5410 of 2014)

Decided On: 19.09.2016

 Sampelly Satyanarayana Rao Vs. Indian Renewable Energy Development Agency Limited

Hon'ble Judges/Coram:

Dipak Misra and A.K. Goel, JJ.

Citation:(2016) 10 SCC458

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Whether dishonour of post-dated cheque given for repayment of loan installment is covered by S 138 of NI Act?

Question for consideration is whether in the facts of the present case,
the dishonour of a post-dated cheque given for repayment of loan
installment which is also described as “security” in the loan
agreement is covered by Section 138 of the Negotiable Instruments
Act, 1881 (“the Act”).
 Crucial question to determine applicability of Section 138 of the
Act is whether the cheque represents discharge of existing
enforceable debt or liability or whether it represents advance payment
without there being subsisting debt or liability. While approving the
views of different High Courts noted earlier, this is the underlying
principle as can be discerned from discussion of the said cases in the
judgment of this Court.
 As is clear from the above observations of this Court, it is well
settled that while dealing with a quashing petition, the Court has
ordinarily to proceed on the basis of averments in the complaint. The
defence of the accused cannot be considered at this stage. The court
considering the prayer for quashing does not adjudicate upon a
disputed question of fact.
18.In Rangappa versus Sri Mohan 9 (2010) 11 SCC 441Page 11, this Court held that once issuance
of a cheque and signature thereon are admitted, presumption of a
legally enforceable debt in favour of the holder of the cheque arises.

It is for the accused to rebut the said presumption, though accused
need not adduce his own evidence and can rely upon the material
submitted by the complainant. However, mere statement of the
accused may not be sufficient to rebut the said presumption. A post
dated cheque is a well recognized mode of payment
19. Thus, the question has to be answered in favour of the
respondent and against the appellant. Dishonour of cheque in the
present case being for discharge of existing liability is covered by
Section 138 of the Act, as rightly held by the High Court.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 867 OF 2016


SAMPELLY SATYANARAYANA RAO Vs  INDIAN RENEWABLE ENERGY DEVELOPMENT
AGENCY LIMITED

Dated:SEPTEMBER 19, 2016.

ADARSH KUMAR GOEL, J.

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Whether high court can quash prosecution for dishonour of cheque on ground that it was issued as security?

 Having heard learned counsel for the parties, we are of

the view that the accused (respondent no.1) challenged the

proceedings of criminal complaint cases before the High

Court, taking factual defences. Whether the cheques were

given as security or not, or whether there was outstanding

liability or not is a question of fact which could have been

determined only by the trial court after recording evidence

of the parties. In our opinion, the High Court should not have

expressed its view on the disputed questions of fact in a

petition under Section 482 of the Code of Criminal

Procedure, to come to a conclusion that the offence is not

made out. The High Court has erred in law in going into the

factual aspects of the matter which were not admitted

between the parties. 

Reportable

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 471 OF 2015

HMT Watches Ltd. V M.A. Abida & Anr.

Citation:AIR 2015 SC (Supp)901

Dated:March 19, 2015

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Whether prosecution for dishonour of cheque can be quashed if cheque was issued as security deposit?

 In the present case, there was no liability or debt towards the complainant/respondent when the cheque was issued by the contractor. From the language of the agreement as well as allegations made in the complaint, it is clear that said cheque was issued as security deposit and not towards the discharge of any debt or lone. The learned counsel for the respondent contended that in M.S.Narayana Menon @ Mani (Supra), evidence was led by the parties and on the basis of evidence, the Supreme Court came to conclusion that the cheque was issued as a security and, therefore, Section 138 would not be applicable. According to the learned counsel, in this case only process has been issued and the parties are yet to go to the trial and, therefore, said authority in M.S.Narayana Menon @ Mani (Supra) would not be applicable. It would be difficult to accept this contention.

Ratio in M.S.Narayana Menon @ Mani (Supra), is applicable to the facts of the present case. When on the face of the complaint itself, it is clear that the cheque was issued as a security deposit and not towards the discharge of any debt or other liability, case under Section 138 is not made out. When the complaint itself does not make out criminal case to issue the process, to force the accused to undergo trial would be clear misuse of the process of the Court and this should not be allowed. 

Bombay High Court

Joseph Vilangadan vs Phenomenal Health Care Services ... on 20 July, 2010

Bench: J. H. Bhatia

CRIMINAL WRIT PETITION NO.2243 OF 2009

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Whether it can be held that cheques were issued as security cheque if liability and consideration is proved?

 The argument that the respondent had no liability to
liquidate the debt owed by Nazimul Islam, has not impressed
us. What is important is whether the cheques were supported
by consideration. Besides the fact that there is a presumption
that a negotiable instrument is supported by consideration
there was no dispute that such a consideration existed in as
much as the cheques were issued in connection with the
discharge of the outstanding liability against Nazimul Islam. At
any rate the endorsement made by the respondent on the
promissory note that the cheques can be presented for
encashment after 25-09-2007 clearly shows that the cheques
issued by him were not ornamental but were meant to be
presented if the amount in question was not paid within the
extended period. The High Court in our view fell in error in
upsetting the conviction recorded by the Courts below who had
correctly analysed the factual situation and applied the law
applicable to the same.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS. 82-83 OF 2016

Don Ayengia 
V
The State of Assam & Anr.
Dated;January 28, 2016
T.S. THAKUR, J.

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When security cheques would fall within purview of S 138 of NI Act?

 Learned counsel for the complainant referred to the decision of
ICD vs. Beena Shabir and Anrs.: 2002(6) SCC 426 wherein the Supreme
Court has held that the security cheques 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 cheques issued are
dishonoured, the accused would be liable under Section 138 of the NI
Act.
39. In Collage Culture and Ors. 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.
However, in Suresh Chand Goyal vs. Amit Singhal (Crl.A. 601/2015
decided on 14.05.2015) the concept of security cheques were discussed.
It was held in the aforesaid case:
“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 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.”
40. Relying on the aforesaid dicta, a bench of this Court in Credential
Leasing & Credits Ltd. vs. Shruti Investments and Anrs.: 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.”
IN THE HIGH COURT OF DELHI AT NEW DELHI

 Date of Decision: 15.09.2015
CRL.REV.P. 188/2015
WILSON MATHEW 
versus
THE STATE NCT OF DELHI & ANR.
CORAM:
HON'BLE MR. JUSTICE ASHUTOSH KUMAR

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