Security cheque under Section 138 NI Act can still attract prosecution if underlying liability survives at presentation.

In proceedings under Section 482 CrPC, the Madras HC held that a challenge to Section 138 NI Act prosecution on the ground that the cheque was issued only as security, or that the compromise agreement was void under Section 23 of the Contract Act, could not be decided where disputed questions of fact remained. The complaint and compromise arrangement disclosed a prima facie liability, and whether the cheque was issued towards discharge of a legally enforceable debt or merely as security was left to trial. A security cheque does not cease to attract Section 138 if the underlying liability survives on presentation.

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Issues: Whether the criminal proceedings under Section 138 of the Negotiable Instruments Act could be quashed on the grounds that the cheque was issued only as security and that the compromise agreement was void or founded on unlawful consideration.

Analysis: The plea that the compromise agreement was void and contrary to public policy was held to involve disputed questions of fact and the applicability of Section 23 of the Indian Contract Act, 1872 could not be conclusively examined in proceedings under Section 482 of the Code of Criminal Procedure, 1973. The Court found that the complaint and the compromise arrangement disclosed a prima facie liability, and the question whether the cheque was issued towards discharge of a legally enforceable debt or merely as security was a matter for trial. It was further held that a cheque described as security does not, by that label alone, cease to attract Section 138 of the Negotiable Instruments Act, 1881 if the underlying liability survives at the time of presentation.

Conclusion: The petition for quashing was not maintainable on the grounds urged, and the prosecution was allowed to proceed.

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