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of <h1>Signed undated security cheque in contract dispute can't trigger s.138 NI Act; later-filled cheque demand set aside</h1> HC held that criminal proceedings under s.138 Negotiable Instruments Act were not maintainable where the accused had issued a signed, undated cheque ... Validity of proceedings initiated under Section 138 of the Negotiable Instruments Act - signed undated cheque received as security - legally enforceable debt or liability - HELD THAT:- Section 138 of the Negotiable Instruments Act makes it clear that where the cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence under Section 138 of the Act. The explanation reads that for the purposes of this section, 'debt or other liability' means a legally enforceable debt or liability. Therefore, on the date when the cheque was handed over, there was no legally enforceable debt or other liability. An undated cheque was handed over as a security for the purpose of the contract. It was not handed over with the intention of making it as an instrument of immediate negotiation to discharge a subsisting liability or debt. Thus, this is a case where one of the parties to the contract had obtained a signed undated cheque as a security. As dispute arose between the parties, the cheque is now utilised by the complainant to resort to Sections 138 of the Act by filing in a date convenient to him. This is a case where the provisions under Section 138 of the act will not apply. A reading of the agreements between the parties does not lend support to such a view. Of course, the respondent referred to the later part of Clause 5. The later part shows that MI shall be at liberty to encash such cheques in settlement of the amounts due from the processor. That cheque was given in pursuance of an earlier agreement and not the latter agreement. Therefore, obviously, it does not refer to the cheque received. It refer to cheques and not the cheque. The clause provides the parties or the 1st party to initiate further proceedings including action under section 138 of the Act in respect of cheques handed over and that too with not to later agreement. Therefore, an undated cheque having been given only as security, the provision of Section 138 of the Negotiable Instruments Act are not at all attracted and hence, the complaint against the accused under section 138 of the Negotiable Instruments Act cannot be maintained at all. Issues involved: The issue involves quashing of proceedings u/s 138 of the Negotiable Instruments Act based on the contention that the cheque was given as security and not in discharge of any liability.Summary:Issue 1: Nature of Cheque IssuedThe complainant alleged that an advance was paid to the accused, who agreed to clear the amount within thirty days and provided a post-dated cheque. The petitioner argued that the cheque was given as security, not in discharge of any liability, citing clauses from the agreements between the parties.Issue 2: Legal Enforceability of DebtThe court analyzed Section 138 of the Negotiable Instruments Act, emphasizing that for an offense to occur, there must be a legally enforceable debt or liability. It was established that at the time of issuing the cheque, there was no subsisting liability or debt, as it was given as security under the contract.Issue 3: Discrepancy in Claim AmountA discrepancy was noted between the amount mentioned in the agreement for which the cheque was issued and the claim amount in the notice. The court concluded that the provisions of Section 138 would not apply as the cheque was given as security in accordance with the earlier agreement, and the claim exceeded the amount specified in the agreement.Conclusion:The court allowed the petition, quashing the proceedings against the petitioners under Section 138 of the Negotiable Instruments Act, as the undated cheque was given solely as security and not for immediate negotiation to discharge a debt. The court held that the legal provisions were not applicable in this case, leading to the closure of the case.
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