Cheque Issued as Security Still Attracts Section 138 NI Act If Liability Exists on Date of Presentation: Himachal Pradesh High Court

“A cheque issued even as security matures for prosecution under Section 138 if liability remains unpaid on the date of its presentation” – Himachal Pradesh High Court dismissed a criminal revision petition filed by Rakesh Kumar, who had challenged his conviction under Section 138 of the Negotiable Instruments Act, 1881, by the Trial and Appellate Courts. Justice Rakesh Kainthla reaffirmed the established legal position that "a cheque issued as security does not escape liability under Section 138 if it represents a debt or liability existing on the date of its presentation".

The ruling reiterates the narrow scope of revisional jurisdiction, particularly when concurrent findings of fact exist and no jurisdictional error or perversity is shown.

Cheque Not a Mere Security: Presumption of Liability Remains Intact Unless Rebutted

The principal contention of the accused, Rakesh Kumar, was that the cheque in question – amounting to ₹90,000 – was merely a security cheque issued in relation to a lottery business arrangement with the complainant, Ashok Kumar Bansal, a bookseller. However, this defence was neither proved by evidence nor deemed plausible by the Court.

Justice Kainthla held that "the issuance and signature on the cheque were admitted", and therefore the statutory presumptions under Sections 118(a) and 139 of the NI Act kicked in. "Once the execution of the cheque is admitted, the burden shifts to the accused to rebut the presumption of a legally enforceable debt," the Court observed, citing Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197.

The Court further emphasized the APS Forex Services Pvt. Ltd. v. Shakti International Fashion Linkers, (2020) 12 SCC 724 ruling, noting: “There is always a presumption in favour of the complainant that there exists a legally enforceable debt or liability and thereafter, it is for the accused to rebut such presumption by leading evidence.”

Here, no evidence was led by the accused to rebut the presumption. In fact, the accused did not even enter the witness box nor examine any defence witnesses. Mere assertions in the Section 313 CrPC statement were deemed insufficient: “The statement of the accused recorded under Section 313 of the Code is not substantive evidence of defence,” the Court remarked, citing Sumeti Vij v. Paramount Tech Fab Industries, (2022) 15 SCC 689.

Even a Security Cheque Becomes Liable Under Section 138 If Debt Exists

One of the most significant takeaways from the judgment is the treatment of security cheques under the NI Act. The Court cited several landmark precedents including Sampelly Satyanarayana Rao v. IREDA, (2016) 10 SCC 458, where it was held:

“If on the date of the cheque, liability or debt exists or the amount has become legally recoverable, the Section is attracted… The cheques undoubtedly represent the outstanding liability.”

Justice Kainthla reaffirmed this position by stating: “Even if the cheque was issued as security, the accused cannot escape liability if a legally enforceable debt existed on the date of presentation.”

The Court also referred to Sripati Singh v. State of Jharkhand, 2021 SCC OnLine SC 1002, observing: “A cheque issued as security cannot be considered a worthless piece of paper under every circumstance.”

Defence of Lottery Business Found Unsubstantiated

The accused’s attempt to characterize the cheque as related to a lottery business was outrightly rejected. Justice Kainthla held:

“Denied suggestions do not amount to proof. No independent evidence was led to prove the alleged lottery business or any repayment.”

This reasoning reflected the consistent approach of the Supreme Court in cases like Uttam Ram v. Devinder Singh Hudan, (2019) 10 SCC 287, which emphasized that the complainant is not initially required to prove the financial transaction once statutory presumption applies.

Statutory Notice Valid Despite Mention of Entire Outstanding Amount

The petitioner further contended that the statutory notice under Section 138 was defective because it mentioned the total outstanding amount of ₹2,94,000 instead of limiting it to ₹90,000, the cheque amount. However, the Court found the notice to be compliant, clarifying:

“The last paragraph of the notice specifically demanded ₹90,000 as cheque amount, and ₹2,500 as separate notice charges. Therefore, it satisfies the legal requirement under Proviso (b) to Section 138.”

The Court followed Kaveri Plastics v. Mahdoom Bawa Bahrudeen Noorul, 2025 SCC OnLine SC 2019, which mandates strict compliance with demand of cheque amount in the notice, but permits the inclusion of other amounts as long as the cheque amount is distinctly demanded.

No Challenge to Financial Capacity – Defence Unsustainable

The High Court also rejected the argument that the complainant’s financial capacity to lend was not proved. Justice Kainthla reasoned:

“The accused neither replied to the notice challenging capacity nor cross-examined the complainant on this issue. Hence, the objection is not tenable.”

This ruling aligns with Tedhi Singh v. Narayan Dass Mahant, (2022) 6 SCC 735, where it was held that the complainant is not expected to lead financial capacity evidence unless it is challenged.

Dishonour Duly Proved – Presumption Under Section 146 Not Rebutted

The Court also held that the cheque’s dishonour was duly proved via the bank’s return memo which stated “funds insufficient”. Quoting Mandvi Cooperative Bank Ltd. v. Nimesh B. Thakore, (2010) 3 SCC 83, it was observed:

“Section 146 provides that the bank’s return memo is presumed to be correct unless disproved. No evidence to the contrary was led by the accused.”

Sentence and Compensation Not Excessive – Penal Provision Serves Deterrent Purpose

Justice Kainthla upheld the sentence of one year’s simple imprisonment and compensation of ₹1,36,000, noting that it included interest @6% p.a. calculated from the date of the cheque. Citing Kalamani Tex v. P. Balasubramanian, (2021) 5 SCC 283, the Court noted: “The object of Section 138 is not only punitive but also compensatory. Uniform levying of fines up to twice the cheque amount along with interest is well settled.”

Moreover, quoting from Bir Singh v. Mukesh Kumar, the Court reiterated the object of the law:

“The penal provision of Section 138 is intended to be a deterrent to callous issuance of cheques without serious intention to honour the promise.”

In dismissing the criminal revision, the Himachal Pradesh High Court reinforced the legal architecture surrounding Section 138 of the NI Act, particularly the presumptive burden on the drawer of the cheque, the limited role of a revisional court, and the accountability even when a cheque is labelled as ‘security’.

The verdict firmly closes the door on evasive defences commonly used in cheque bounce cases and reiterates the sanctity of negotiable instruments in commercial transactions.

Date of Decision: 12th December 2025