Cheque Issued as Security, When Dishonored, Attracts Section 138 N.I. Act – Delhi High Court Upholds Legal Obligation

The Delhi High Court, in a significant ruling, has reinforced the legal obligations pertaining to the dishonor of cheques, even when issued as security. The judgment was passed by Hon’ble Justice Rajnish Bhatnagar in the case of Payal Malhotra vs. Sulekh Chand.

In the verdict pronounced on November 29, the court emphasized that a cheque issued for security, upon dishonor, does indeed fall under the ambit of Section 138 of the Negotiable Instruments Act, 1881. Justice Bhatnagar noted, “It is trite law that when a cheque given for the purpose of security is dishonored, Section 138 of the Negotiable Instruments Act, 1881, will be attracted.”

The case revolved around the petitioner, Payal Malhotra, seeking the quashing of proceedings against her in a case of a dishonored cheque for Rs. 5,82,217, claimed to have been issued as a security measure and not as part of a legally enforceable debt.

The petitioner argued that the cheque was misused by the respondent, Sulekh Chand, and that there was no existing debt or liability. However, the court pointed out that the accused’s defense can only be proved in a court of law and cannot be a ground for quashing proceedings under Section 482 of the Cr.P.C.

“The parameters of the jurisdiction of the High Court, in exercising jurisdiction under Section 482 Cr.PC, are now almost well-settled. Although it has wide amplitude, a great deal of caution is also required in its exercise,” Justice Bhatnagar remarked, highlighting the limited scope of the High Court’s intervention in such matters.

The judgment referenced several Supreme Court decisions, including NEPC Micon Limited and Others vs. Magma Leasing Limited, which reiterate the serious consequences of cheque dishonor.

Date of Decision: 29 November 2023

PAYAL MALHOTRA VS SULEKH CHAND