Sanchayita Lahkar

The High Court of Delhi, Single Bench of Justice Neena Bansal Krishna dismissed a petition seeking to quash criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881. The dispute stemmed from a work contract in which a company issued a post-dated cheque as security for an advance payment, which was later dishonoured. The Court observed that such security cheques may mature into enforceable liabilities if the underlying obligation becomes due and remains unpaid, thereby attracting penal consequences under Section 138. Justice Krishna explained that post-dated cheques issued as security are meant to safeguard performance and may be presented when the promised liabilities are not met, holding that whether a debt existed in this case is a matter to be determined at trial.

The petitioner, Director of a construction company, sought quashing of a criminal complaint filed under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The respondent company had awarded a work order on 28 February 2013 for the supply and installation of GRC grills for a contract value of Rs. 56,86,633, with a 15% mobilization advance of Rs. 6,82,416. Against this payment, the petitioner’s company issued a cheque for an equivalent amount as security. Disputes arose after the respondent terminated the contract, alleging incomplete work.

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The petitioner contended that the cheque was issued only as security and not against an enforceable debt. The respondent argued that the cheque was issued under an indemnity bond allowing encashment in case of breach. Letters and emails exchanged between 2014 and 2015 formed the primary evidence of dispute over the amount due. The respondent presented the cheque, which was dishonoured with the remark “account closed.” A statutory notice under Section 138 was served, leading to a criminal complaint. The petitioner relied on the argument that the liability was civil in nature, while the respondent maintained it constituted a legally enforceable debt within the meaning of Section 138.

Justice Neena Bansal Krishna observed that “PDCs (Post-Dated Cheques) issued as security for financial liability mature into an actual outstanding liability, the legal position is nuanced.” The Court stated that “the determining factor is whether a legally enforceable debt or liability exists on the date the cheque is presented for encashment, and not on the date it was drawn or handed over.” It was further recorded that “where a cheque is given as security for a contract or a loan and the liability arising from that contract or loan crystallizes into a legally enforceable debt at a later date, the cheque, even if originally a ‘security’ one, assumes the character of a cheque issued in discharge of that debt.”

The Court referred to several Supreme Court precedents, including Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd., Sampelly Satyanarayana Rao v. IREDA Ltd., and Sripati Singh v. State of Jharkhand, observing that “a cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance.” Justice Krishna stated that “security cheques are only given to be utilised if subsequently, during the business transactions, certain liabilities arise which are not fulfilled by the Petitioners.”

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The Court further recorded that “if a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque.” The judgment stated that “even a blank cheque leaf, voluntarily signed and handed over by the accused, which is towards some payment, would attract presumption under Section 139 of the Negotiable Instruments Act.” It was noted that “whether the cheque amount was for the existing liability or an excess amount, is a matter of trial and cannot be considered at the stage of summoning.”

The Court directed that “there is no merit in the present Petition to quash the Complaint or to set aside the Summoning Order dated 18.12.2018. The Petition is hereby dismissed.” It also ordered that “the Petition along with pending Application(s), if any, is accordingly disposed of.”

Advocates Representing the Parties

For the Petitioners: Mr. Rajnish Kumar Gaind, Mr. Hemant Kaushik, and Mr. Himanshu Gupta, Advocates
For the Respondents: Mr. Umakant Kataria and Mr. Pulak Gupta, Advocates

Case Title: Manmohan Gaind v. Negolice India Pvt. Ltd.
Neutral Citation: 2025: DHC: 9845
Case Number: CRL.M.C. 1379/2021, CRL.M.A. 8542/2021 & CRL.M.A. 14167/2024
Bench: Justice Neena Bansal Krishna