Proceedings under section 138 of the Negotiable Instruments Act cannot be quashed merely on the grounds that the cheque was issued as security. And if liability existed on the day when the cheque was issued, even though as security, criminal action can be initiated, the high court of Karnataka ruled.
A Bengaluru-based partnership firm and its directors challenged the February 1, 2021, order passed by a city magistrate court taking cognisance of a case registered by another firm for dishonour of the cheques.
The petitioners claimed that four cheques — for Rs 16.5 lakh each — were issued only as security and that a complaint cannot be initiated under the NI Act.
The other firm stated that it was owed Rs 77.5 lakh in relation to the purchase of certain materials. It argued that though cheques were given as security, there was a breach of assurances given in the Memorandum of Understanding entered into between them and claimed that the petitioner firm had assured that it would clear the balance amount.
Justice Sreenivas Harish Kumar pointed out that there are prima facie materials indicating that though the cheques in question were issued by way of security, legally enforceable debt did exist as on the date the cheques were issued.
"The proceedings under section 138 of the NI Act cannot be quashed under section 482 of the CrPC merely on the grounds that cheques were issued as security. It is a matter of defence to be established by the accused, who has issued the cheques.
"A clear decision to this effect can be taken only after appreciation of evidence. At the threshold, in the absence of any evidence, the quashing of proceedings should not be resorted to," the court said.
Published 23 October 2021, 19:29 IST