Security cheque in hire purchase transactions may not trigger cheque dishonour liability after repossession of the vehicle.

A cheque issued as security in a hire purchase transaction did not attract Section 138 of the Negotiable Instruments Act, 1881 where the vehicle had been seized by the financier and no legally enforceable debt existed on the date of presentation. The Court held that, after repossession, the post-dated cheque could not represent the full liability claimed, and the complainant had to pursue other recovery remedies for any balance. The Section 118 presumption did not establish an enforceable debt in these circumstances, so liability under Section 138 was not made out.

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Issues: Whether a cheque issued in the course of a hire purchase transaction, and presented after seizure of the vehicle, constituted a cheque issued towards a legally enforceable debt so as to attract Section 138 of the Negotiable Instruments Act, 1881.

Analysis: The accused had not repaid the instalments under the hire purchase agreement, and the vehicle had been seized by the financier. The Court held that once the financier had exercised the option of seizure, the post-dated cheque obtained in the transaction could not be treated as representing an enforceable liability for the full cheque amount. The cheque was treated as having been handed over as security at the time of borrowing, and after seizure the complainant had to work out other remedies for recovery of any balance amount. In those circumstances, the presumption under Section 118 of the Negotiable Instruments Act, 1881 did not advance the complainant's case to establish a debt enforceable on the date of presentation.

Conclusion: The cheque was not proved to have been issued towards a legally enforceable debt, and the offence under Section 138 of the Negotiable Instruments Act, 1881 was not made out.

Ratio Decidendi: A cheque issued as security in a hire purchase transaction does not attract Section 138 of the Negotiable Instruments Act, 1881 when, upon repossession of the vehicle, the underlying consideration has failed and no legally enforceable debt exists on the date of presentation.

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