Security cheques may still trigger Section 138 where they secure an existing, crystallized liability and debt remains unpaid.

A written memorandum of understanding proving an outstanding liability can displace a bare denial of debt, especially where its genuineness is unchallenged and oral assertions cannot contradict the written terms under the Evidence Act. Statutory presumptions of consideration and liability under the Negotiable Instruments Act continue unless rebutted by evidence. A cheque described as a security cheque is not outside Section 138 if it is linked to an existing and crystallized liability that remains unpaid when the cheque is issued or presented. On that basis, dishonour may attract criminal liability where the drawer fails to rebut the presumptions.

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Issues: (i) Whether the memorandum of understanding proved the existence of a legally enforceable debt and rebutted the defence that no liability was outstanding; (ii) Whether cheques issued as security for an existing and crystallized liability can sustain prosecution under Section 138 of the Negotiable Instruments Act, 1881.

Issue (i): Whether the memorandum of understanding proved the existence of a legally enforceable debt and rebutted the defence that no liability was outstanding.

Analysis: The memorandum of understanding was proved and remained unchallenged as to its genuineness. It recorded an outstanding liability of Rs. 3 lakhs and provided for repayment in instalments. In view of Sections 91 and 92 of the Indian Evidence Act, 1872, the terms of the written instrument could not be contradicted by oral assertion. The accused's stand that only Rs. 60,000 was due was unsupported by evidence and did not displace the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881. The acquittal court's attempt to go behind the written document was legally impermissible.

Conclusion: The existence of a legally enforceable debt was proved, and the defence of no liability failed.

Issue (ii): Whether cheques issued as security for an existing and crystallized liability can sustain prosecution under Section 138 of the Negotiable Instruments Act, 1881.

Analysis: The expression "security cheque" is not a statutory exception in the Negotiable Instruments Act, 1881. A cheque issued as security may still fall within Section 138 when it is linked to an existing debt or liability that has crystallized and is payable on the date of issuance or presentation. The earlier decisions relied upon by the accused were distinguished on their facts, and the governing principle was that where the debt subsists and the cheque is intended to secure its payment, dishonour can attract criminal liability. On the facts, the cheques were issued against an admitted liability and were presented when the balance remained unpaid.

Conclusion: The security-cheque defence was rejected, and dishonour of the cheques attracted Section 138 of the Negotiable Instruments Act, 1881.

Final Conclusion: The acquittal was set aside, and the accused was convicted under Section 138 of the Negotiable Instruments Act, 1881.

Ratio Decidendi: A cheque issued as security for an existing and crystallized debt remains enforceable under Section 138 of the Negotiable Instruments Act, 1881 if the liability subsists when the cheque is issued or presented and the drawer fails to rebut the statutory presumptions.

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