A cheque is defined under the Negotiable instrument act and if a cheque is bounced and liability on cheque is not discharged,it creates an offence under section 138 NI act, now the presumption under section 139 of the NI act  is a rebuttable presumption and that can be discharged by the accused if he can show there is no legally enforceable debt at the time cheque was issued. Now security cheque is on the different footing than ordinary cheque, but security cheque is still a cheque it attracts provisions of s. 138 and 139 though it can be countered. Basically a security cheque is issued to ensure the performance of the contract and in case there is a breach the security cheque can be realized. Now does breach of contracts creates a legally enforceable debt this needs to be tested and held by various case laws that

If the cheques were taken only as security for prompt repayment and those cheque were not indischarge of any debt or liability. The date on which cheques were taken there was no debt or liability Accused cannot be prosecuted under NI 138.

In the case of Joseph Vilangadan (Supra) the facts were that the Directors had given certain cheques as refundable security deposits to ensure due performance of their work. In the given facts and circumstances it was held that there did not exist any debt or liability and the cheques were given solely for the purpose of security and hence no action under section 138 of the Act was maintainable.

If there was no debt or liability at that point of time while issuing the cheque

In Shreyas Agro Services Pvt. Ltd. vs Chandrakumar S.B. on 16 February, 2006

The very scheme of procedure adopted shows that the cheques are not issued in respect of any current existing ascertained liability. The words “for discharge of any debt or other liability” inSection 138 of N.I. Act should be interpreted to mean current existing or past ascertained liabilities. The cheque issued in respect of future liabilities not in existence as on the date of cheque would not attract prosecution Under Section 138 of N.I. Act.

So even if security cheque is bounced the prosecution can be initiated and only defence is that there was no legally enforceable debt.

Defences to use when Security Cheques gets bounced.

1. Cheque was given as a security and was misused.

In this you can either ask the complainant to bring account statement with all your payments towards the debt. Simply by exhibiting statement will show there was no debt due at the time of issuance of the cheque and therefore the cheque was misudsd. You can also attach your payment proof if complainant fails to bring the statement of accounts.

2. The cheque amount is more than the debt itself.

In this you can again ask for statement of accounts and if cheque amount is more than the debt itself you can ask questions related to owed debt and take a defence that the cheque was misused.

3.No loan was due or ever taken simply cheque misused

In this case court can cast a heavy burden on you if the issued cheque was misused. in such case a complaint made to the police will be helpful as tolen complaint and stop payment are effective. you can call upon the ITR of omplainant or proof of payment of loan

Thanks & Regards,

Nitish Banka

(Advocate Supreme Court)

[email protected]

9891549997

Nitish Banka

Nitish Banka is an advocate practicing in Supreme Court of India and can be reached at [email protected] or 9891549997