Security cheque can attract Section 138 liability once underlying debt crystallises, and disputed liability needs trial.

A cheque issued as security is not immune from Section 138 of the Negotiable Instruments Act merely because of that label; liability depends on whether an enforceable debt had crystallised by the date of presentation. If the underlying obligation becomes due, the cheque may attract statutory consequences. On the pleaded facts, disputed questions about completion of work, outstanding liability, and the exact debt amount could not be resolved at the quashing stage. The Delhi HC held that the existence of a legally enforceable liability was not shown to be absent at summoning, so the complaint and summoning order could not be quashed.

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Issues: (i) Whether a cheque issued as security could be presented and attract liability under Section 138 of the Negotiable Instruments Act, 1881; (ii) Whether, on the facts pleaded, a legally enforceable debt existed so as to justify refusal to quash the complaint and summoning order.

Issue (i): Whether a cheque issued as security could be presented and attract liability under Section 138 of the Negotiable Instruments Act, 1881.

Analysis: A cheque described as a security cheque is not immune from action under Section 138 merely because of its label. The controlling test is whether, on the date of presentation, an enforceable liability had crystallised. Where the underlying transaction creates a future obligation and the cheque is issued to secure performance or repayment, its character may mature into one issued in discharge of liability if the debt becomes due. The presumption arising from a signed cheque and the statutory framework governing negotiable instruments support this position.

Conclusion: The cheque could not be rejected as unenforceable solely because it was initially issued as security.

Issue (ii): Whether, on the facts pleaded, a legally enforceable debt existed so as to justify refusal to quash the complaint and summoning order.

Analysis: The parties disputed the extent of work completed, the amount recoverable under the contract, and the quantum of outstanding liability. The respondent asserted a crystallised liability exceeding the cheque amount, while the petitioner asserted a much smaller liability and challenged the presentation of the cheque. At the stage of quashing and summoning, the Court does not resolve such disputed factual questions on merits. The existence and exact quantum of liability required trial and could not be negatived at the threshold.

Conclusion: A legally enforceable liability was not shown to be absent at the summoning stage, and the complaint and summoning order were not liable to be quashed.

Final Conclusion: The petition failed because the dispute over liability was triable and the cheque, though issued in a security context, was capable of attracting the statutory consequences once liability was asserted to have crystallised.

Ratio Decidendi: A cheque issued as security may still attract Section 138 of the Negotiable Instruments Act, 1881 if the underlying liability crystallises by the time of presentation, and disputed questions regarding the exact debt amount are not ordinarily decided at the quashing stage.

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