INTRODUCTION
Today, I will talk about the case of Sripati
Singh (since deceased) through His Son Gaurav Singh v. State of Jharkhand &
Another, SLP (C) No. 252-253/2020, wherein the Hon’ble Supreme Court
discussed whether a Cheque issued towards ‘security’ attracts the provisions of
Section 138 of the Negotiable Instruments Act, 1881, or not.
S. 138 OF THE NI ACT
Basically, S. 138 of the NI Act provides for the
stipulations to be followed in case there is a dishonour of a Cheque that has
been issued for the discharge of a legally enforceable debt or other such
liability. In the present case, the Court discussed the status of a cheque that
has been issued as a ‘security’ to secure a payment. In order to understand
whether a cheque issued towards ‘security’ can attract the provisions of S. 138
of the NI Act or not, let us understand the pertinent observations by the Court.
OBSERVATIONS BY THE COURT
Firstly, the Court noted that “a cheque
issued as security pursuant to a financial transaction cannot be considered as
a worthless piece of paper under every circumstance. ‘Security’ in its true
sense is the state of being safe and the security given for a loan is something
given as a pledge of payment. It is given, deposited or pledged to make certain
the fulfilment of an obligation to which the parties to the transaction are
bound.”
Secondly, the Court further clarified that “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.”
Thirdly, the Court also stated that a cheque issued
as ‘security’ is an arrangement between the parties to a transaction indicating
that the ‘security’ is given only for ensuring the payment in case the borrower
fails to make such payment on time in terms of the arrangement arrived at between
the parties. In case of such an event, the holder of the cheque/drawee is free
to elect any proceedings, whether civil or criminal or under the NI Act, to
recover the concerned amount.
Fourthly, the Court cited the case of Sampelly
Satyanarayana Rao vs. Indian Renewable Energy Development Agency Ltd., Criminal
Appeal No.867 of 2016, to explain the meaning of “legally enforceable debt” as
mentioned in S. 138 of the NI Act. According to the Court, “whether a
postdated 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, the Section is attracted
and not otherwise.”
And lastly, upon cumulative consideration of the
legal position just discussed, the Court held that when a cheque is issued as ‘security’
to secure a payment and such payment is not made on designated time, then “the
cheque which is issued as security would mature for presentation and the drawee
of the cheque would be entitled to present the same. On such presentation, if
the same is dishonoured, the consequences contemplated under Section 138 and
the other provisions of N.I. Act would flow.”
HELD BY THE COURT
Therefore, it is to be understood that there is no
bar under S. 138 to present a cheque that has been issued for security purposes
provided that the borrower fails to make payment of the borrowed amount on time.
Those were the observations by the Court. So, what
are my concluding remarks?
CONCLUSION
S. 138 of the NI Act was enacted for speedy
disposal of financial disputes that arise out of negotiable instruments issued
by a party. The whole purpose of negotiable instruments is to provide fluidity
and certainty in payments. I concur with the reasoning of the Court that there
cannot be a hard and fast rule with respect to cheques issued ‘security’ that
the same cannot be presented under any circumstances. If such were the
intention of the legislature, it would have been reflected in the text of the
NI Act, either expressly or by way of necessary implication. Absence of the
same clearly signifies that such cheques issued as ‘security’ are not worthless
pieces of paper and can be encashed when the due date for payment has expired.
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