The Himachal Pradesh High Court has reaffirmed that a cheque issued as security for a legally enforceable debt remains actionable under Section 138 of the Negotiable Instruments Act upon dishonour, provided the statutory presumption of liability is not rebutted. This judgment clarifies a persistent ambiguity in commercial litigation and reinforces the legislative intent behind reverse onus provisions in cheque bounce cases.
Background & Facts
The Dispute
The dispute arose from the issuance of a cheque bearing No. 001879 dated 23.02.2015 for Rs. 9,00,000 by the petitioner-accused in favour of the respondent-complainant. The complainant alleged that the cheque was issued to discharge a lawful liability of Rs. 9,00,000 owed to him. Upon presentation, the cheque was dishonoured by the Corporation Bank, Kangra, on account of "funds insufficient". The complainant issued a legal notice dated 15.03.2015 demanding payment within 15 days. The accused received the notice but neither replied nor made payment. Consequently, the complainant filed Complaint No. 85-III/2016 under Section 138 of the Negotiable Instruments Act.
Key Facts
- Cheque No. 001879 dated 23.02.2015 for Rs. 9,00,000 issued by the accused
- Dishonoured on 05.03.2015 by Corporation Bank, Kangra, with remark "funds insufficient"
- Legal notice dated 15.03.2015 served via registered post; acknowledged by accused
- No reply received to the notice; no payment made within statutory period
- Complainant examined himself as CW4 and four other witnesses
- Documentary evidence tendered: Cheque Ext.CW1/A, return memo Ext.CW1/B, legal notice Ext.CW2/A, postal receipt Ext.CW2/B, account statement Ext.CW3/A, sworn affidavit Ext.CW4/A, return memo Ext.CW4/B, ledger copies Ext.CW4/C
- Accused denied the case in his statement under Section 313 CrPC but led no evidence
- Accused claimed the cheque was issued as security to the complainant’s brother, not for direct liability
- Accused alleged the complainant operated a committee where members issued security cheques, but failed to examine any committee member
Procedural History
- 23.02.2015: Cheque issued by accused
- 05.03.2015: Cheque dishonoured by bank
- 15.03.2015: Legal notice served on accused
- 29.11.2023/04.12.2023: Trial Court (ACJM Kangra) convicted accused under Section 138 NI Act; sentenced to 6 months simple imprisonment and Rs. 12,00,000 compensation
- 26.11.2025: First Appellate Court (Addl. Sessions Judge, Kangra) dismissed appeal and upheld conviction
- 01.01.2026: High Court suspended substantive sentence on deposit of 30% compensation (Rs. 3,60,000) and personal bond of Rs. 50,000
- 24.04.2026: Criminal Revision Petition decided on merits; petition dismissed
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 not for discharge of a legally enforceable debt. He also sought release of the amount deposited under interim order.
The Legal Issue
The central question was whether a cheque issued as security for a debt can attract criminal liability under Section 138 of the Negotiable Instruments Act upon dishonour, and whether the statutory presumption under Section 139 stands rebutted merely by an unproven claim of security.
Arguments Presented
For the Petitioner
The petitioner’s counsel contended that the cheque was issued as a security instrument to the brother of the complainant, not for direct discharge of liability. He argued that since no debt was owed directly to the complainant, the presumption under Section 139 did not apply. He further challenged the validity of the legal notice on grounds of non-signature by the complainant and asserted that the courts below failed to appreciate the evidentiary gap. Reliance was placed on the principle that security cheques cannot be prosecuted unless the underlying debt is established.
For the Respondent
The respondent’s counsel submitted that the accused admitted issuance of the cheque and its signature. The complainant had adduced documentary and testimonial evidence proving the existence of a legally enforceable debt of Rs. 9,00,000. The legal notice was acknowledged and unchallenged in substance. The defence of security was speculative and unsupported by any corroborative evidence. The courts below correctly applied Sections 118 and 139 of the Act, and the burden of rebuttal was not discharged.
The Court's Analysis
The Court examined the legal framework under Section 138 and Section 139 of the Negotiable Instruments Act, emphasizing the statutory presumption that a cheque is issued for discharge of a legally enforceable debt. The Court noted that the accused never disputed the fact of issuance or his signature on the cheque, which triggered the presumption under Section 139.
"No doubt, aforesaid presumption is rebuttable, but for that purpose, accused is/was under obligation to raise probable defence. Probable defence could be raised by the accused by referring to the documents as well as evidence adduced on record by the complainant or by leading some cogent and convincing evidence."
The Court held that the accused’s claim of the cheque being issued as security to the complainant’s brother was not substantiated by any evidence. Merely alleging a security arrangement without producing witnesses or documents to corroborate it does not constitute a probable defence. The Court relied on M/s Laxmi Dyechem v. State of Gujarat to affirm that the standard of proof for rebutting the presumption is the preponderance of probabilities, not beyond reasonable doubt.
The Court further cited Sripati Singh v. State of Jharkhand to clarify that a cheque issued as security is not immune from prosecution under Section 138. The term "security cheque" is not statutorily defined but must be inferred from evidence. If the underlying debt remains unpaid and the cheque is presented for realization, dishonour attracts criminal liability.
"A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance... if the loan amount is not repaid... the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same."
The Court also rejected the challenge to the legal notice on technical grounds, noting that the accused admitted receipt and did not dispute its contents. The non-signature of the notice was deemed irrelevant where the accused acknowledged receipt and failed to respond.
Finally, the Court emphasized the limited scope of revisional jurisdiction under Section 397 CrPC, holding that concurrent findings of fact by two lower courts cannot be disturbed absent a glaring error or miscarriage of justice. No such error was found.
The Verdict
The criminal revision petition was dismissed. The conviction and sentence under Section 138 NI Act were upheld. The petitioner is directed to surrender before the trial court within fifteen days to serve the sentence of six months simple imprisonment. The compensation of Rs. 12,00,000 ordered by the trial court remains payable. The amount deposited by the accused (Rs. 3,60,000) shall be released to the complainant upon application within one week. All interim orders stand vacated.
What This Means For Similar Cases
Security Cheques Are Not Immune from Section 138
- Practitioners must advise clients that issuing a cheque as security does not automatically shield it from criminal liability under Section 138
- The critical factor is whether the underlying debt remains unpaid at the time of presentation
- Mere assertion of "security" without documentary or testimonial proof is insufficient to rebut statutory presumption
Burden of Rebuttal Is On the Accused
- The accused bears the burden to raise a probable defence by adducing evidence or pointing to contradictions in prosecution’s materials
- Speculative or uncorroborated defences will not suffice
- Failure to examine witnesses who could substantiate a security claim (e.g., third parties, committee members) renders the defence legally untenable
Legal Notice Validity Is Not Fatal if Receipt and Non-Response Are Proven
- Technical defects in notice (e.g., non-signature) are immaterial if the accused admits receipt and fails to respond
- Courts will look at substance over form, especially where the accused does not contest the notice’s content
- The statutory requirement of notice is satisfied if the accused had actual knowledge and opportunity to pay
