Presence of a legally recoverable debt at the time of issuing cheque is a necessity for an action under S. 138 NI Act

Karnataka High Court: A Single Judge Bench comprising of K. Somashekar, J., decided a criminal appeal filed under Section 378(4) CrPC, wherein the order of acquittal under Section 138 of Negotiable Instruments Act, passed in favour of the respondent by the trial court was upheld.

The respondent took a loan from the complainant Bank and issued a blank cheque as a security for the said loan. The respondent defaulted in re-payment of the loan and when the bank presented the said cheque for collection, they were returned with the endorsement ‘insufficient funds in the account’. Subsequently, the bank initiated proceedings under Section 138 of NI Act. However, the respondent was acquitted by the trial court holding that there was no liability existing at the time of issuing the cheque. The appellant Bank assailed the order of the trial court.

After evaluating the material on record, the High Court was of the view that there was no illegality committed by the trial court. The Court observed that the said cheque was not issued by the respondent towards a legally recoverable debt; it was only issued as a security for the loan which he had borrowed from the complainant. The Court relied on the Supreme Court decision in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., (2016) 10 SCC 458 wherein it was held that “if on the date of the cheque, liability or debt exists or the amount has become legally enforceable, the section is attracted and not otherwise”. In the facts and circumstances of the instant case, the Court found that at the time of issuance of the blank cheque, there was no legal liability of the respondent to pay any amount to the complainant; it was a security for a loan, the re-payment of which was to arise in future.

Accordingly, the Court dismissed the appeal finding it sans merit. [PCA and RD Bank Ltd. v. Suresh Das,  2018 SCC OnLine Kar 492, dated 27.2.2018]

Join the discussion

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.