Security cheques can attract Section 138 when a legally enforceable loan debt exists on presentation and remains unpaid.

Cheques issued as "security" in a loan transaction can still attract liability under Section 138 of the Negotiable Instruments Act if, on the date of presentation, a legally enforceable debt or liability exists. The controlling test is not the label on the cheque but whether the loan had been disbursed, repayment had fallen due, and the liability remained unpaid when the cheques were presented. On the stated facts, the borrower had not discharged the loan by any other means, the complainant's evidence stood unrebutted, and the dishonour therefore fell within Section 138. The acquittal was held unsustainable, and the conviction and sentence were restored.

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Issues: Whether cheques issued in connection with a loan transaction, though described as security cheques, attract liability under Section 138 of the Negotiable Instruments Act, 1881 when the loan remained unpaid on the due date.

Analysis: The agreement showed that the loan amount was advanced first and that the cheques were issued at the same time as assurance for repayment within the stipulated period. A cheque issued as security is not outside Section 138 merely because it is so described; the controlling test is whether, on the date of presentation, a legally enforceable debt or liability existed. Where the loan had been disbursed, repayment had fallen due, and the borrower had not discharged the liability in any other manner before presentation, dishonour of the cheques squarely attracts Section 138. The complainant's evidence remained unshaken and no rebuttal evidence displaced the liability.

Conclusion: The dishonoured cheques were issued against an existing and enforceable loan liability, so the offence under Section 138 was made out. The acquittal was unsustainable and the conviction and sentence were restored.

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