AIR HEADNOTES
NEGOTIABLE INSTRUMENTS ACT, 1881 — Section 138 — Indian Penal Code, 1860 — Section 420 — Code of Criminal Procedure, 1973 — Section 482 — Dishonour of cheque issued as "Security" — Quashing of criminal proceedings — Scope and Permissibility.
(A) Negotiable Instruments Act (26 of 1881), S. 138 — Dishonour of Cheque — Cheque issued as "Security" — Liability thereunder — Maturity of Instrument — A cheque issued as security pursuant to a financial transaction is not a worthless piece of paper.
- [Para 16] — Security in its true sense is something given as a pledge for payment to ensure the fulfillment of an obligation
. Where a loan is advanced and the borrower issues a cheque as security to repay the amount within a specified timeframe, such cheque matures for presentation if the loan is not repaid in any other mode before the due date . On presentation and subsequent dishonour, the consequences under Section 138 of the N.I. Act automatically follow . - [Para 17] — Treating a cheque as "security" ensures only that it cannot be presented prior to the loan or instalment maturing for repayment
. There is no hard and fast rule that a cheque issued as security can never be presented by the drawee . Prior discharge of the loan or an altered agreement between parties are defenses to be set up by the drawer during trial, but they do not bar the maintainability of Section 138 proceedings . - [Paras 19 & 21] — Presentation of a security cheque after the agreed due date for repayment, when the debt has become due and payable, creates a valid cause of action upon dishonour
. The drawer cannot contend that the cheque should be held as security even after the debt has matured .
(B) Indian Penal Code (45 of 1860), S. 420 — Cheating — Breach of Contract vs. Criminal Offence — Dishonour of loan repayment cheque — Absence of mens rea at inception.
- [Paras 10, 11 & 12] — Mere inability to refund an advanced loan or failure to keep up a promise of repayment arising out of a business transaction does not automatically amount to the offence of cheating
. Disagreements stemming from a civil breach of contract lack criminal mens rea unless fraudulent/deceitful intention is demonstrated right at the inception of the transaction . Proceedings under Section 420 IPC are not maintainable for a simple case of non-refunding of a loan .
(C) Code of Criminal Procedure (2 of 1974), S. 482 — Negotiable Instruments Act (26 of 1881), S. 138 — Quashing of Section 138 complaint — Erroneous exercise of power by High Court — Quashing based on "Security Cheque" tag unsustainable.
- [Paras 18 & 22] — High Court committed an error in quashing Section 138 proceedings on the ground that the cheques were issued as security
. Whether the loan was discharged or whether the security cheque remained invalid for presentation are matters of defense to be established during trial, not grounds for refusal to take cognizance or for discharging the accused at the threshold .
Judicial Outcome:
- Appeals allowed in part
. Order of High Court set aside to the extent of quashing Section 138 proceedings . - Complaint limited to Section 138 of the N.I. Act restored before the Judicial Magistrate
. - Quashing of proceedings under Section 420 IPC affirmed
.
Cases Cited & Discussed in Judgment:
- Sampelly Satyanarayana Rao v. IREDA, (2016) 10 SCC 458
— Followed - M/s Womb Laboratory Pvt. Ltd. v. Vijay Ahuja, (2019) SCC OnLine SC 2086
— Followed - Sudhir Kumar Bhalla v. Jagdish Chand, (2008) 7 SCC 137
— Distinguished - Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd., (2014) 12 SCC 539
— Distinguished
