Presentation Of Security Cheque On Loan Default Not Criminal Breach Of Trust: Delhi High Court

The Delhi High Court has held that presentation of a security cheque by a bank upon default of loan repayment does not constitute the offence of criminal breach of trust under Section 409 IPC.Allowing the petitions filed by China Trust Commercial Bank (CTBC) and its officials, Justice Neena Bansal Krishna quashed the criminal proceedings initiated by a borrower's former director, observing,“...there was no entrustment of property by the Complainant to the Petitioners (CTBC); rather the very fact that it was a security cheque under the Loan Agreement, which was intended to secure any debt and liability which may arise under the Loan Agreement in future and for the realization of the same, the cheque would be presented. “The Court noted that the cheque in question was issued as a security under a Working Capital Demand Loan Agreement for ₹15 crore. As per the contractual terms, the bank was entitled to enforce the security upon default. It thus held that there was neither any entrustment nor any misappropriation of the cheque. It said,“The cheque was voluntarily issued as part of a commercial transaction and formed an integral component of the contractual security mechanism, intended to be encashed in case of default of Loan liability. The issuance of a security cheque pursuant to a commercial loan transaction, does not create a fiduciary relationship, but merely evidences a contractual arrangement between creditor and debtor. There is neither any entrustment nor any misappropriation of the cheques; the presentation of which was strictly in terms of the Loan Agreement.”The Court added that at best, the Complainant could argue that there was no legally enforceable liability for which the cheque could have been presented. However, the same would be a defence in proceedings under Section 138 NI Act and it would not constitute criminal breach of trust.The Court further found that the complaint had been filed as a “counterblast” to the cheque dishonour proceedings, calling it abuse of the process of law. Consequently, the summoning order and non-bailable warrants issued against the bank officials were set aside and the complaint was quashed.Appearance: Mr. Sanjay Gupta, Mr. Rajnish Gaur, Mr. Ateev Mathur and Mr. Amol Sharma, Advocates for Petitioners; Mr. Utkarsh, APP for the State. Mr. Ayush Jindal, Mr. Harsh Vashisht, Ms. Harshita Bansal, Mr. Pankush Goyal, Mr. Myank Sharma, Advocates for R2.Case title: China Trust Commercial Bank v. StateCitation: 2026 LiveLaw (Del) 36Case no.: CRL. M.C. 4979/2017Click here to read order

Presentation Of Security Cheque On Loan Default Not Criminal Breach Of Trust: Delhi High Court

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