Post-Dated Cheques Given As Security Can Attract Section 138 NI Act Once Liability Crystallizes: Delhi High Court

The Delhi High Court has held that Post-Dated Cheques (PDCs), issued as security for financial liability, can mature into an actual outstanding liability, thus attracting provisions under Section 138 of the Negotiable Instruments Act 1881, if dishonoured.

Justice Neena Bansal Krishna reasoned that security cheques are given to be utilised if certain liabilities arise during business transactions, which are not fulfilled by the drawer.

The bench observed,

“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 for the purpose of Section 138.”

It was further clarified that for offence under Section 138 to be attracted, the cheque must be for the discharge of a debt or liability, and the debt must be equal to or greater than the amount of the cheque presented.

The development comes in a plea to quash the complaint under Section 138 NI Act or to set aside the Summoning Order.

The Petitioner had argued that the impugned Cheque was merely a security cheque and could not have been presented by the complainant.

The Court however found this contention “untenable”, noting that the complainant had specifically alleged about there being existing liability of the Petitioner, when the cheque was presented to the Bank.

“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 observed.

Reliance was placed on Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Limited (2016) where the Apex Court held that whether a post-dated cheque is for “discharge of debt or liability” depends on the nature of the transaction. If on the date of the cheque, liability or debt exists or the amount has become legally recoverable, Section 138 is attracted.

On perusing the transactions between the parties, the Court said it is evident that the cheque was given to secure any loss that may be suffered by the complainant and when it was presented, the complainant had crystallized the outstanding liability.

As such, it dismissed the plea.

Appearance: Mr. Rajnish Kumar Gaind, Mr. Hemant Kaushik and Mr. Himanshu Gupta, Advocates for Petitioner; Mr. Umakant Kataria and Mr. Pulak Gupta, Advocates for Respondent

Case title: Manmohan Gaind v. Negolice India Pvt. Ltd.

Citation: 2025 LiveLaw (Del) 1477

Case no.: CRL.M.C. 1379/2021 

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