The Himachal Pradesh High Court has reaffirmed that a cheque issued as security for a loan remains prosecutable under Section 138 of the Negotiable Instruments Act if the underlying debt remains unpaid and statutory notice procedures are followed. This judgment clarifies a persistent misconception in banking and commercial litigation that security cheques are immune from criminal liability.
Background & Facts
The Dispute
The respondent, Himachal Pradesh State Agriculture & Rural Development Bank Ltd., extended a loan of Rs. 5.00 lakh to the petitioner, Gorkh Ram, for the construction of a house, repayable in installments over ten years. The petitioner defaulted on repayment obligations. To secure discharge of the liability, he issued a cheque bearing No. 680703 dated 30.08.2022 for Rs. 6,08,793 in favour of the bank. The cheque was presented and dishonoured on 05.09.2022 due to "funds insufficient". A legal notice dated 15.09.2022 was issued, demanding payment within 15 days. The petitioner failed to make good the payment.
Key Facts
- Loan sanctioned: 2018 (exact date not specified in judgment)
- Cheque issued: 30.08.2022
- Cheque dishonoured: 05.09.2022
- Legal notice issued: 15.09.2022
- Notice received by accused: 18.09.2022 (implied)
- Complaint filed: 2022 (exact date not specified)
- Trial Court judgment: 28.02.2025
- Sessions Court appeal dismissed: 01.08.2025
- High Court revision petition filed: 2026
- Interim order suspending sentence: 30.01.2026 (condition: deposit 50% of Rs. 8 lakh compensation + personal bond of Rs. 50,000)
- Final opportunity granted: 24.03.2026 (deadline: appear in court and deposit amount)
- Petitioner failed to comply: No deposit made, no personal appearance
- Judgment date: 20.04.2026
Procedural History
- 2022: Complaint No. 323/3 of 2022 filed before Judicial Magistrate First Class, Rajgarh
- 28.02.2025: Trial Court convicted petitioner under Section 138 NI Act; sentenced to one year simple imprisonment and Rs. 8 lakh compensation
- 01.08.2025: Sessions Judge, Sirmaur, dismissed appeal (Criminal Appeal No. 46-Cr.A/10 of 2025)
- 30.01.2026: HP High Court suspended sentence on condition of depositing 50% of compensation (Rs. 4 lakh) and furnishing personal bond of Rs. 50,000 within six weeks
- 24.03.2026: Court granted final opportunity to comply; warned that non-compliance would allow execution of trial court order
- 20.04.2026: Petitioner failed to deposit amount or appear; petition decided on merits
The Parties' Positions
For the Petitioner: Argued that the cheque was issued as security only, not for immediate discharge of liability; claimed the bank retained blank cheques and filled them without consent; alleged misuse of the cheque; contended that no legally enforceable debt existed at the time of issuance.
For the Respondent: Maintained that the cheque was issued to secure repayment of an existing loan obligation; proved loan sanction, default, dishonour, and statutory notice; submitted affidavit of CW1 (Suraj Thakur) and returning memo; denied allegations of blank cheque retention.
Relief Sought
The petitioner sought quashing of the conviction and sentence under Section 138 NI Act, arguing that the cheque was issued as security and could not attract criminal liability. He also sought release from imprisonment and cancellation of the compensation order.
The Legal Issue
Can a cheque issued as security for a loan attract criminal liability under Section 138 of the Negotiable Instruments Act if the underlying debt remains unpaid and statutory notice procedures are followed?
Arguments Presented
For the Appellant/Petitioner
The petitioner contended that the cheque was not issued for immediate discharge of a legally enforceable debt but as collateral security. He relied on the absence of a written agreement specifying the cheque as payment and alleged that bank officials filled the cheque without his knowledge. He argued that the presumption under Section 139 NI Act should not apply because the cheque was not issued for consideration. He further claimed that the trial court failed to appreciate the evidence and that the prosecution did not prove the existence of a debt at the time of issuance.
For the Respondent/State
The bank argued that the cheque was issued in the context of a loan transaction where repayment was due in installments, and the cheque served as a mechanism to ensure discharge of the liability. It produced evidence of loan sanction, default, dishonour, and statutory notice. It relied on Sripati Singh v. State of Jharkhand to establish that security cheques are actionable under Section 138 if the debt remains unpaid. It emphasized that the petitioner admitted to receiving the notice and acknowledged the loan, thereby negating any claim of lack of liability.
The Court's Analysis
The Court examined the nature of the cheque and the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act. It noted that the petitioner never denied issuing the cheque or his signature on it. His defence - that the cheque was issued as security and misused - was not substantiated by any documentary or testimonial evidence. The Court observed that the burden to raise a probable defence under Section 139 lies on the accused, and the standard of proof is the preponderance of probabilities, not beyond reasonable doubt.
"If the accused is able to establish a probable defence which creates doubt about the existence of a legally enforceable debt or liability, the prosecution can fail."
The Court held that the petitioner failed to meet this threshold. The fact that the cheque was issued in the context of a loan transaction, coupled with the petitioner’s admission of the debt and failure to repay, established a prima facie case of liability. The Court further relied on Sripati Singh v. State of Jharkhand, which clarified that a security cheque is not immune from prosecution under Section 138 if the underlying obligation remains unfulfilled.
The Court also emphasized the limited scope of revisional jurisdiction under Section 397 CrPC. It found no error in the concurrent findings of the trial and appellate courts, which had meticulously evaluated the evidence. The petitioner’s failure to appear or deposit the interim amount further weakened his position.
The Court rejected the argument that the cheque was "blank" or filled without consent, noting that the complainant’s witness categorically denied these allegations during cross-examination, and no contrary evidence was adduced.
The Verdict
The petition was dismissed. The High Court upheld the conviction and sentence under Section 138 of the Negotiable Instruments Act. The petitioner is directed to surrender before the trial court within fifteen days to serve the sentence of one year simple imprisonment. The compensation of Rs. 8,00,000 awarded by the trial court stands confirmed. The trial court is directed to release any amount deposited by the petitioner upon application by the complainant within one week. All interim orders are vacated.
What This Means For Similar Cases
Security Cheques Are Not Immune from Criminal Liability
- Practitioners must advise clients that cheques issued as security for loans remain actionable under Section 138 if the debt is not repaid and statutory notice is served
- The mere label of "security cheque" does not negate liability; the existence of an underlying debt is the decisive factor
- Banks and lenders may proceed criminally against defaulters even if cheques were issued as collateral
Burden of Probable Defence Is Real and Substantive
- Accused must present credible evidence - documents, correspondence, or witness testimony - to rebut the presumption under Section 139
- Vague assertions of "cheque issued as security" without corroboration will not suffice
- Failure to appear in court or comply with interim orders weakens the defence and may be viewed as admission of guilt
Revisional Jurisdiction Is Not a Second Appeal
- High Courts will not re-appreciate evidence unless a glaring miscarriage of justice is evident
- Concurrent findings of fact by trial and appellate courts are entitled to high deference
- Revision petitions must focus on legal errors or procedural irregularities, not factual disputes
