Cheque Issued By Guarantor Falls Under Section 138 NI Act; Principal Debtor’s Incarceration Does Not Extinguish Criminal Liability: Rajasthan High Court

"The expressions employed in the provision are sufficiently wide to encompass a cheque issued in respect of a legally enforceable debt or other liability, subject to fulfilment of the statutory requirements. Accordingly, the petitioner’s status as a guarantor does not, by itself, furnish a ground for quashing the proceedings when the cheque is alleged to have been issued by her and bears her signature," Rajasthan High Court has held that a cheque issued by a guarantor from her personal bank account falls squarely within the ambit of Section 138 of the Negotiable Instruments Act, 1881, ruling that criminal liability cannot be avoided merely because the cheque was termed a "security" or because the principal debtor has already undergone imprisonment for the same underlying transaction.

Justice Sunil Beniwal, while dismissing a quashing petition on October 27, 2026, held that a borrower’s incarceration does not wipe out financial liability, nor does it bar prosecution against a co-guarantor who separately issued a dishonoured cheque.

The petitioner’s husband had borrowed a total sum of Rs. 2,10,000 from a private financier, for which both he and the petitioner issued separate cheques of equal amount, with the petitioner standing as a guarantor. Following the dishonour of both instruments, a joint complaint under Section 138 of the NI Act was instituted against the couple, and the trial court read over the substance of accusation on March 14, 2018. The petitioner subsequently absconded during the trial due to matrimonial discord, while her husband was convicted and served his substantive sentence of six months' simple imprisonment. Upon her surrender, the petitioner approached the High Court under Section 482 CrPC seeking quashing of the trial proceedings, contending that she was merely a guarantor whose cheque was meant as security and that her husband’s completed sentence foreclosed further prosecution.

Whether criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 against a guarantor are liable to be quashed merely because the cheque was issued as a security for a loan incurred by her husband?

Whether the conviction and completed sentence of the principal debtor in respect of the underlying loan transaction extinguish the criminal liability of the guarantor and warrant quashing under Section 482 CrPC?

Guarantor cheques fall within the wide ambit of legally enforceable debt under Section 138 NI Act

The High Court observed that the expression "any debt or other liability" appearing in Section 138 of the NI Act is deliberately broad and does not exempt instruments executed by a guarantor. Relying upon the Supreme Court's ruling in ICDS Ltd. v. Beena Shabeer, the Court explained that civil distinctions regarding surety under the Indian Contract Act do not shield a signatory from criminal consequences when their individual negotiable instrument is dishonoured upon presentation.

Mere label of 'security cheque' does not automatically defeat prosecution

Addressing the argument that the instrument was tendered strictly as collateral security, the bench held that such nomenclature does not create an absolute statutory bar against prosecution.

"The mere description of a cheque as a security cheque does not, by itself, determine the applicability of the provision. The relevant consideration is whether the cheque represented a legally enforceable debt or other liability in the circumstances existing at the relevant time."

Vicarious liability distinctions do not apply to direct drawers of cheques

The Court distinguished the Supreme Court precedent in Dilip Hariramani v. Bank of Baroda, noting that the said decision governed vicarious criminal liability of partners under Section 141 of the NI Act. Here, the petitioner had drawn the cheque directly on her own personal bank account, rendering her independently accountable under Section 138 rather than vicariously implicated.

Incarceration of the principal borrower does not satisfy or extinguish the debt

The bench rejected the petitioner's argument that continuing her prosecution after her husband had served his jail sentence amounted to impermissible double recovery.

"The husband’s incarceration does not, by itself, establish that the amount due to the complainant has been paid or recovered. At the same time, the complainant cannot recover the same debt more than once. Any amount actually recovered towards the underlying liability must, therefore, be duly accounted for in accordance with law."

Advanced stage of trial precludes exercise of inherent powers under Section 482 CrPC

The Court further noted that the petitioner had already participated in the trial upon surrendering, cross-examined the complainant, and entered her statement under Section 313 CrPC, leaving the proceedings ripe for final arguments. Under such circumstances, the bench held that disputed evidentiary questions concerning the nature of the transaction and debt enforceability must be adjudicated by the trial magistrate rather than short-circuited under inherent powers.

Consequently, the High Court dismissed the criminal miscellaneous petition, declining to quash the Section 138 NI Act proceedings and reserving liberty for the petitioner to raise all substantive legal defenses before the trial magistrate during final arguments.

Date of Decision: October 27, 2026