Security cheque dishonour attracts Section 138 when it represents an existing and legally recoverable debt or liability.

A cheque described as a security cheque still attracts Section 138 of the Negotiable Instruments Act, 1881 if, on the date of presentation, it was issued towards an existing and legally recoverable debt or liability. The decisive test is whether the underlying loan or instalment obligation had already arisen and become payable when the cheque was issued or presented. If the cheque represented a subsisting repayment liability, its dishonour falls within Section 138. The label of security, by itself, does not exclude criminal liability where an enforceable obligation exists.

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Issues: Whether dishonour of a cheque described as a security cheque attracts Section 138 of the Negotiable Instruments Act, 1881 when a legally enforceable debt or liability subsists on the date of the cheque.

Analysis: The cheque was described as a security cheque, but the surrounding transaction showed that it was issued in relation to repayment of instalments under a loan arrangement. The decisive test is whether, on the date of the cheque, an existing debt or liability was payable and legally recoverable. Where the loan had already been disbursed and the instalment had fallen due, the cheque represents an outstanding liability and dishonour falls within Section 138. The label of security does not by itself exclude criminal liability if the cheque is issued towards a subsisting obligation.

Conclusion: The cheque was issued towards an existing enforceable liability, and its dishonour attracted Section 138 of the Negotiable Instruments Act, 1881. The request to quash the complaint was rejected and the proceedings were quashed in favour of the applicant.

Ratio Decidendi: A cheque described as a security cheque is within Section 138 of the Negotiable Instruments Act, 1881 if, on the date of its presentation, it was issued towards an existing and legally recoverable debt or liability.

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