Security cheques and territorial jurisdiction under Section 138: quashing followed where no enforceable liability and no fresh summons were issued.

A cheque issued expressly as security, and not meant for presentation, does not support prosecution under Section 138 of the Negotiable Instruments Act unless it is shown to have been issued against an existing legally enforceable liability; the Court treated the MOU and contemporaneous correspondence as decisive and found the prosecution unsustainable. Where complaints were returned for want of territorial jurisdiction, the earlier summoning proceedings became ineffective, and the transferee court could not adopt the previous summons without issuing a fresh summoning order; that jurisdictional defect also vitiated the proceedings.

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Issues: (i) Whether cheques issued as security and not intended for encashment could sustain prosecution under Section 138 of the Negotiable Instruments Act, 1881 when the complainant claimed that the liability later crystallised; (ii) Whether summons originally issued by a court that later returned the complaints for want of territorial jurisdiction could be adopted by the transferee court.

Issue (i): Whether cheques issued as security and not intended for encashment could sustain prosecution under Section 138 of the Negotiable Instruments Act, 1881 when the complainant claimed that the liability later crystallised.

Analysis: The MOU placed on record specifically stated that the cheques were issued only for security purpose and were not to be presented for clearing. The Court held that the complainant's reliance on another clause relating to letters of credit did not convert the security cheques into cheques issued towards an existing enforceable debt. The contemporaneous correspondence also supported the petitioner's case that the cheques were never meant for encashment. On that basis, the Court treated the document as unimpeachable at the quashing stage and found that the statutory presumption could not override the clear contractual stipulation governing the cheques.

Conclusion: The cheques were security cheques and were not issued for, or encashable against, a legally enforceable debt or liability; prosecution under Section 138 of the Negotiable Instruments Act, 1881 was not maintainable.

Issue (ii): Whether summons originally issued by a court that later returned the complaints for want of territorial jurisdiction could be adopted by the transferee court.

Analysis: The Court noted the change in the law on territorial jurisdiction under Section 138 of the Negotiable Instruments Act, 1881 and held that once the complaints were returned, the earlier proceedings before the first court became non-est. Since the transferee court had to proceed on the basis of a fresh summons order, adoption of the earlier summoning order was held to be impermissible. The omission to pass a fresh summoning order was treated as a jurisdictional defect in the continuation of proceedings.

Conclusion: The adopted summoning orders could not survive, and the proceedings were liable to be quashed on this ground as well.

Final Conclusion: The complaints and all consequential proceedings were held unsustainable, as the cheques were found to be security instruments and the summoning process was vitiated by the jurisdictional defect.

Ratio Decidendi: A cheque issued only as security, and expressly not meant for presentation, does not support prosecution under Section 138 of the Negotiable Instruments Act, 1881 unless it is shown to have been issued against an existing legally enforceable liability; once complaints are returned for want of territorial jurisdiction, the earlier summons become ineffective and a fresh summoning order is required.

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