Calling a cheque a “security cheque” does not automatically rule out a case under Section 138. The key question is whether a legally enforceable liability existed when the cheque was presented.
In the Sripati Singh case, the Supreme Court refused to treat a security cheque as a meaningless piece of paper. However, the effect may differ if a future condition has not been met, the debt has been repaid, or the amount is disputed. Review the actual agreement, due date and payment record.
What should you do now?
- Compare the purpose for which the cheque was given and the conditions of liability with the agreement.
- Calculate all repayments and the outstanding amount.
- If you receive a notice, respond in a timely and factual manner and preserve documents supporting your defence.
Which documents should you keep?
The agreement, a copy of the cheque, ledger, repayment entries and correspondence.
Avoid this mistake
Saying only that it was a “security cheque” is not an adequate defence in every case.
A hypothetical example
A security cheque was taken when a loan was given, and the repayment date has passed. The legally due liability and the circumstances in which the cheque was presented are now important. The word “security” alone is not a final answer to the entire matter.
Is it safe to give a blank signed cheque?
Doing so may raise disputes and questions about presumptions; a clear record of the purpose, amount and return of the cheque is important.
Legal basis and useful sources
- Negotiable Instruments Act, 1881 — Sections 118, 138–142, 147
- Sripati Singh v. State of Jharkhand — Supreme Court, 28 October 2021
This is general legal information. Advice may differ depending on your facts, the applicable law and state rules.