Security Cheques Can’t Be Misused To Launch Criminal Prosecution: No Offence Under Section 138 NI Act If No Enforceable Debt Exists: Delhi High Court

“Cheques You Are Insisting For Audit Purpose, For Showing To Banker And Security Purpose And Not For Depositing Into Bank”— In a significant ruling that reiterates the legal boundaries of Section 138 of the Negotiable Instruments Act, 1881, the Delhi High Court held that cheques issued as mere security, without being backed by a crystallised legal liability, cannot trigger criminal liability under the NI Act. The Court quashed multiple criminal complaints ruled that the summoning orders were “legally unsustainable” as they were based on cheques explicitly issued for security and audit purposes alone.

Justice Neena Bansal Krishna, exercising the Court’s inherent powers under Section 482 Cr.P.C., found that the complaints under Section 138 of the NI Act were not maintainable, since the documents placed before the Court showed an absence of a “legally enforceable debt or liability” at the time of cheque issuance and presentation. The judgment sets a precedent for cases involving post-dated security cheques and cautions against their misuse for initiating criminal proceedings when no liability has been admitted or proven.

“In Absence of Fresh Application of Judicial Mind, Summoning Order Passed by Incompetent Court Becomes Non-Est”—High Court Invalidates Summons Adopted Without Jurisdiction

The facts involved a series of five dishonoured cheques amounting to Rs. 1.75 crores, issued by the petitioner company, which were presented by the respondent despite the parties having signed an MoU clearly stipulating that the cheques were to serve a non-negotiable, non-banking purpose. The cheques were later dishonoured with remarks "STOP PAYMENT", prompting criminal complaints under Section 138 NI Act before the Magistrate in Bellary, Karnataka.

Crucially, the Bellary Court, on 14.10.2015, held that it had no territorial jurisdiction and returned the complaints, which were subsequently reassigned to Patiala House Courts, New Delhi. However, the Delhi Magistrate issued no fresh summoning orders, and instead, erroneously adopted the already void orders passed by the Bellary Court.

The High Court noted, “Once a complaint is returned, all proceedings conducted in that Court become non-est in the eyes of law. The Magistrate in Delhi could not simply adopt a void order passed by a court which itself held it had no jurisdiction.”

“Issuance of Security Cheques Without Legal Consideration Does Not Attract Penal Consequences”—Delhi HC Applies Apex Court’s Ratio to Protect Against Abuse of Process

The petitioners had relied heavily on a Mutual Memorandum of Understanding (MoU) dated 06.05.2014, which was uncontroverted and admitted by the complainant. The MOU stated in unequivocal terms:

“We are issuing following cheques for Rs. 1.75 Crores for Security Purpose only. Cheques you are insisting for audit purpose, for showing to banker and Security purpose and not for depositing into Bank. So these cheques are not for presenting into Bank for clearing.”

The complainant, while not disputing the MOU, had argued that the cheques were later rendered enforceable as dues crystallised. The High Court rejected this contention, observing that the respondent had misinterpreted the clauses of the MOU and that the cheques never converted into an enforceable instrument under law.

The Court emphasised that the second clause of the MOU—pertaining to adjustment of dues against Letters of Credit (LCs)—only applied to LCs and had no relation to the five post-dated cheques.

Citing Harshendra Kumar D. v. Rebatilata Koley and Mohd. Akram Siddiqui v. State of Bihar, the Court held that even though ordinarily High Courts avoid examining defence material at the pre-trial stage, an unimpeachable document admitted by both parties can be considered to quash prosecution if it negates the essential ingredients of the offence.

“Summoning Orders Cannot Survive If Originally Issued by a Court Lacking Jurisdiction”—Delhi High Court Applies Doctrine of Jurisdictional Nullity

Another pivotal issue examined was the validity of the summoning orders issued by the Bellary Magistrate. Citing the landmark rulings in Dashrath Rupsingh Rathod v. State of Maharashtra and Bridgestone India Pvt. Ltd. v. Inderpal Singh, the Court traced the evolution of territorial jurisdiction under Section 138 post-amendment, emphasising that once a complaint is returned for jurisdictional defect, any proceeding based on that original order is void.

The Court held:

“Despite the Complaints being filed afresh and there being no fresh Summoning Order, the summons were erroneously issued by the Ld. MM, by wrongly adopting/ relying on the Summoning Order of the Ld. MM, Bellary.”

“It is a settled principle that jurisdictional defects render the orders passed by such court non-existent in the eyes of law.”

The High Court made it clear that fresh application of judicial mind was necessary when a complaint is transferred due to lack of jurisdiction. The absence of such independent judicial application in Delhi invalidated the entire process.

“Admitted MOU Proves Cheques Were Not Issued For Legal Debt”—High Court Cautions Against Weaponising Criminal Law in Commercial Disputes

Reinforcing the protective scope of Section 482 Cr.P.C., the Court noted that it would be a travesty of justice to subject the petitioner company to trial where the defence is based on a document of unimpeachable character that was acknowledged by both parties.

“To contend that the said MOU carries no evidentiary value would, therefore, be wholly incorrect... It can be rightly relied upon at this stage while considering the quashing of the present Complaints.”

The Court also observed that the presumption under Section 139 NI Act could be rebutted by such documents even at the pre-trial stage, and that forcing a full-fledged trial in such circumstances would amount to abuse of the judicial process.

In conclusion, the Court held that no offence under Section 138 NI Act had been made out, as the cheques were not issued against an existing liability, and the proceedings were fundamentally flawed due to jurisdictional errors.

Accordingly, the following complaints were quashed:
CC No. 15098/2016, CC No. 15410/2016, CC No. 15373/2016, CC No. 1540/2019, and CC No. 1541/2019, along with the summoning orders dated 27.04.2015, 18.05.2015, and 08.04.2015.

The High Court declared: “The Petitions stand allowed. All further proceedings arising from the impugned complaints and summoning orders are hereby quashed.”

Date of Decision: October 27, 2025