Security cheque defence failed where existing liability and statutory dishonour requirements under cheque dishonour law were satisfied.

A cheque issued under a memorandum of understanding towards balance sale consideration can attract Section 138 of the Negotiable Instruments Act where the underlying liability is supported by the arrangement and the issuance of post-dated cheques is admitted. The plea that the cheque was only a security cheque did not defeat liability, because the cheque was presented within time, dishonoured for insufficiency of funds, statutory notice was served, and payment was not made within the prescribed period. The Court also applied the principle that a signer of an inchoate negotiable instrument gives prima facie authority to complete it. The challenge to quashing the summoning order was rejected.

---

---

Issues: Whether the summoning order in proceedings under Section 138 of the Negotiable Instruments Act, 1881 was liable to be quashed on the ground that the cheque was issued only as a security cheque and that no existing liability subsisted at the time of issuance.

Analysis: The cheque was issued in terms of the memorandum of understanding towards the balance sale consideration, and the existence of the liability was supported by the terms of the arrangement and the admitted issuance of post-dated cheques. The cheque was presented within time, dishonoured for insufficiency of funds, statutory notice was issued and served, and payment was not made within the prescribed period. The Court also relied on the principle that a person who signs and delivers an inchoate negotiable instrument gives prima facie authority to complete it, and that a cheque issued towards an existing liability attracts Section 138 notwithstanding the plea that it was described as security.

Conclusion: The challenge to the summoning order was rejected and the petition was held to be without merit.

---