NIA S. 138 – Loan – Security cheque – Liability under.

PLR | Supreme Court Online

Negotiable Instruments Act, 1881 (26 of  1881), S. 138 – Security cheque  – There cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque  – When a cheque is issued and is treated as ‘security' towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as ‘security' cannot be presented prior to the loan or the instalment maturing for repayment towards which such cheque is issued as security – Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented – Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security – These are only the defences that would be available to the drawer of the cheque in a proceedings initiated under Section 138 of the N.I. Act. – Therefore, there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque – If such is the understanding a cheque would also be reduced to an ‘on demand promissory note' and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute – When a cheque is issued even though as ‘security' the consequence flowing therefrom is also known to the drawer of the cheque and in the circumstance stated above if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proceedings for recovery or the criminal proceedings for punishment in the fact situation, but in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation.

read HERE

PLRonline 498486