Security cheques for contingent liability do not trigger cheque dishonour offence; complaint quashed on complainant's own documents.
Cheques issued only as security for a future contingent liability do not attract section 138 of the Negotiable Instruments Act unless they are drawn against an existing legally enforceable debt or liability. The complaint, MOU, guarantee deed, notice and affidavit showed the cheques were to be invoked only on default and had not been issued in discharge of any crystallised liability. On that material, no prima facie offence under section 138 was disclosed, so the complaint proceedings were quashed and the summoning order was set aside.
Issues: (i) Whether cheques issued as collateral security for a future contingent liability attract section 138 of the Negotiable Instruments Act, 1881. (ii) Whether the complaint and summoning order were liable to be quashed under section 482 of the Code of Criminal Procedure, 1973 on the basis of the complaint and accompanying documents.
Issue (i): Whether cheques issued as collateral security for a future contingent liability attract section 138 of the Negotiable Instruments Act, 1881.
Analysis: Section 138 applies only where the cheque is issued for discharge, in whole or in part, of a legally enforceable debt or other liability existing at the time of issuance. The complaint, MOU, deed of guarantee, statutory notice, and affidavit showed that the cheques were issued as security against a future liability dependent on performance by MMT and were to be invoked only on default. The liability had not crystallised when the cheques were drawn.
Conclusion: The cheques were not issued in discharge of an existing debt or liability and therefore did not attract section 138.
Issue (ii): Whether the complaint and summoning order were liable to be quashed under section 482 of the Code of Criminal Procedure, 1973 on the basis of the complaint and accompanying documents.
Analysis: At the summoning stage, the Magistrate was required to examine whether the complaint and the documents relied upon by the complainant disclosed a prima facie offence. The Court held that the complainant was bound by its own documents, which showed the cheques to be security cheques. On that material, no offence under section 138 was disclosed, and issuance of summons reflected a failure to apply the correct legal test.
Conclusion: The complaint proceedings were liable to be quashed and the summoning order was set aside.
Final Conclusion: The petitions succeeded because the cheques were treated as security for a future contingent liability, not as payment for an existing legally enforceable debt, and the criminal complaint under section 138 could not be sustained.
Ratio Decidendi: A cheque issued only as security for a contingent future liability, and not against an existing legally enforceable debt or liability, does not attract section 138 of the Negotiable Instruments Act, 1881; if this is evident from the complainant's own documents, the complaint may be quashed under section 482 of the Code of Criminal Procedure, 1973.
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