Cheque Bounce: 138 NI Act will be Attracted even if the Dishonoured Cheque was issued as Security: SC

Recently, the Top Court observed that dishonor of a cheques issued as security will also be considered an offense u/s 138 of the NI Act (Negotiable Instruments Act).

According to a Bench of Justices AS Bopanna and MR Shah, there can’t be a hard and fast rule that a cheque issued as security could never be presented by cheque drawee. 

It further said that such a contention will not be accepted if the debt hasn’t become recoverable and the security cheque has not matured to be presented or if the date of payment agreed upon has not arrived.

In the instant case, the High Court had placed reliance on Apex Court’s judgment in Sudhir Kr Bhalla vs Jagdish Chand and ruled that cheques issued as security will not attract an offense under the NI Act.

However, the Top Court disagreed and said that this Court has not made any categorical declaration that cheques issued as security can’t be presented for the realization of the amount under every circumstance.

While referring to the case at hand, the Bench noted that issues related to the cheque being issued and then alterations were made to it and the drawee of the cheque has filed a counter-complaint as well. 

Therefore, the High Court was incorrect in placing reliance on Sudhir Bhalla judgment. The Supreme Court referred to Sampelly Satyanarayana Rao vs Indian Renewable Energy Development Agency Ltd and opined that cheques issued as security relating to a financial transaction can’t be considered as worthless pieces of paper under all circumstances.

Another interesting observation made by the Bench was that prior discharge of loan or an altered situation wherein the parties have come to an understanding can’t be a bar on presenting the security cheque. 

This order was passed by the Apex Court in Sripati Singh vs the State of Jharkhand.