Security Cheque Bounce: Can a Case Be Filed under Section 138?

Many loans, business deals and rental agreements involve a "security cheque": a signed cheque, sometimes with the date or amount left blank, handed over as a guarantee of payment. When such a cheque is later presented and bounces, both sides ask the same question: can a criminal case be filed under Section 138 of the Negotiable Instruments Act, 1881?

The short answer is: it depends on whether money was legally due when the cheque was presented.

The key test: was a debt due on the date of presentation?

Section 138 applies to a cheque given for the discharge of a legally enforceable debt or other liability. The Supreme Court has explained that calling a cheque "security" does not, by itself, take it outside Section 138.

• In Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., (2016) 10 SCC 458, post-dated cheques given for loan instalments were held to be covered where the loan had been disbursed and the instalments had fallen due.
• In Sripati Singh v. State of Jharkhand (2021), the Court explained that if the borrower does not repay within the agreed time, the debt becomes due, and the security cheque can be presented. If it bounces, Section 138 can apply.

The other side of the same rule: if, on the date of presentation, no amount was due, for example because the loan was already repaid, the period for payment had not ended, or the liability the cheque secured never arose, the defence that no enforceable debt existed becomes available.

Situations where a case is generally possible

• A loan was given, the repayment date passed, and the borrower did not pay.
• Instalments under a loan or agreement fell due and were not paid.
• Goods were supplied or services provided, and the payment that the cheque secured became due.

Situations that may give a defence

• The loan or dues had already been fully repaid before the cheque was presented.
• The cheque was presented before the payment became due under the agreement.
• The cheque secured a liability that never arose, for example a deal that was cancelled before any obligation started.
• The amount filled in is higher than what was actually due.

Each of these depends on proof. Documents such as the agreement, repayment records and messages usually decide the outcome.

What about a blank signed cheque?

People often give a signed cheque with the amount or date left blank. In Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, the Supreme Court held that if a person voluntarily hands over a signed blank cheque, the presumption that it was given for a debt can still arise, even if the details were filled in by the payee, unless the drawer proves otherwise. Handing over blank signed cheques therefore carries real risk.

Practical tips

If you are giving a security cheque:

• Record in writing why the cheque is being given, and when it may be presented.
• Keep proof of every repayment.
• Once the dues are cleared, ask for the cheque back, or get a written letter confirming it will not be presented.
• Avoid giving blank signed cheques where possible.

If you are holding a security cheque:

• Present it only after the amount has actually become due.
• Fill in only the amount that is legally due on that date.
• Keep the agreement and the record of the outstanding amount ready.

The usual time limits still apply

A security cheque case follows the same steps as any cheque bounce case: presentation within the cheque's validity, a demand notice within 30 days of the return memo, 15 days for payment, and a complaint within one month after that. See: How to Send a Cheque Bounce Legal Notice under Section 138, and work out your dates with the cheque bounce deadline calculator.

If you have received a notice for a security cheque, read: Received a Cheque Bounce Notice? How to Reply and What Your Options Are.

This article is general information, not legal advice. Every case depends on its own facts and documents.