Security cheque without enforceable debt does not support Section 138 prosecution when the underlying settlement basis is invalidated.

A cheque expressly recorded as a security cheque in a settlement deed does not attract Section 138 of the Negotiable Instruments Act, 1881 unless it is issued towards a subsisting legally enforceable debt or liability. Where the civil execution orders forming the basis of the settlement had already been quashed, the attachment and consequential steps also lost their legal foundation. On that footing, continuation of the complaint and the process order under Section 204 of the Code of Criminal Procedure, 1973 constituted abuse of process and could not be sustained.

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Issues: Whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 and the process order under Section 204 of the Code of Criminal Procedure, 1973 could be sustained where the cheque was expressly given as security in the settlement deed and the execution orders which formed the foundation of the arrangement had been quashed.

Analysis: The cheque in question was recorded in the deed of undertaking as a security cheque and not as an instrument issued in discharge of an existing and legally recoverable liability. The Court noted that proceedings under Section 138 of the Negotiable Instruments Act, 1881 lie only when the cheque is issued towards a legally enforceable debt or liability. It further held that the civil execution orders that gave rise to the settlement had already been set aside, so the attachment and all consequential steps lost their legal basis. In these circumstances, continuation of the criminal prosecution would amount to abuse of process and would permit prosecution on the basis of a cheque not supported by an enforceable debt.

Conclusion: The complaint under Section 138 of the Negotiable Instruments Act, 1881 and the process order issued under Section 204 of the Code of Criminal Procedure, 1973 were not sustainable and were quashed.

Ratio Decidendi: A cheque described and used as security, without a subsisting legally enforceable debt, does not attract Section 138 of the Negotiable Instruments Act, 1881, and criminal proceedings based on such a cheque cannot be sustained when the underlying foundation of the arrangement has been invalidated.

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