Collateral security cheque without existing debt does not attract Section 138 when enforceable liability is unproved.

A cheque taken as collateral security and signed before loan disbursement does not attract Section 138 of the Negotiable Instruments Act unless an existing legally enforceable debt or liability is proved on the relevant date. The complainant failed to show, on the evidence, that the cheque represented an outstanding liability when issued or presented, and the adverse inference from non-production of the later account extract supported that finding. Limitation did not cure the absence of enforceable liability. Leave to appeal was refused and the acquittal was upheld.

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Issues: Whether leave to appeal against the acquittal in a prosecution under Section 138 of the Negotiable Instruments Act, 1881 should be granted when the cheque was issued as security before disbursement of the loan and the complainant failed to establish that the cheque represented an existing legally enforceable debt or liability on the relevant date.

Analysis: The cheque in question was found to have been taken as one of several blank signed cheques at the time of sanctioning the loan, before the loan amount was disbursed. On the evidence, the cheque was therefore not issued in discharge of an existing debt or other liability, which is a necessary condition for attracting Section 138. The Court further accepted the trial court's adverse inference that the complainant did not produce the later account extract though it was available, and therefore failed to prove that the cheque amount was outstanding on the date of the cheque or presentation. The Court also held that the question of limitation did not support the acquittal, but that did not alter the absence of a legally enforceable liability when the cheque was issued.

Conclusion: Leave to appeal was refused and the acquittal was upheld; the cheque issued as collateral security before the loan disbursement did not attract Section 138 in the facts proved.

Ratio Decidendi: A cheque issued as collateral security before the creation of an existing legally enforceable debt or liability does not attract Section 138 of the Negotiable Instruments Act, 1881 unless such liability is proved to exist on the relevant date.

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