2021 INSC 0683
        REPORTABLE
   IN THE SUPREME COURT OF INDIA
   CRIMINAL APPELLATE JURISDICTION
    CRIMINAL APPEAL NOS. 1269­1270 OF 2021   
(Arising out of SLP(Criminal) No.252­253/2020)
Sripati Singh (since deceased) Through        ….Appellant(s)
His Son Gaurav Singh                                              
Versus
The State of Jharkhand & Anr.             ….  Respondent(s)
J U D G M E N T
A.S. Bopanna,J.
1. The appellant is before this Court assailing the order
dated   17.12.2019   passed   by   the   High   Court   of   Jharkhand
at   Ranchi   in   Criminal   M.P.   No.2635   of   2017   and   Criminal
M.P.   No.2655   of   2017.   Through   the   said   order,   the   High
Court has allowed the said Crl.Miscellaneous Petitions and
has set aside the orders dated 04.07.2016 and 13.06.2019
passed   by   the   Judicial   Magistrate   First   Class,   Palamau   in
Complaint   Case   No.1833   of   2015.     The   learned   Judicial
Magistrate   by   the   order   dated   04.07.2016   had   taken
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cognizance   of   the   offence   alleged   against   the   respondent
No.2   herein.     By   the   order   dated   13.06.2019   the   learned
Judicial   Magistrate   had   rejected   the   petition   filed   by   the
respondent   No.2   seeking   discharge   in   the   said   criminal
complaint.
2. The brief facts leading to the present case as pleaded
is that the appellant and the respondent No.2 are known to
each   other   inasmuch   as   the   respondent   No.2   and   the
daughter   of   the   appellant   were   pursuing   their   education
together   in   London.     On   their   return   to   India,   the
respondent   No.2   had   settled   in   Bangalore   and   due   to   the
earlier   acquaintance,   the   cordial   relationship   amongst   the
families   had   continued.     The   respondent   No.2   on   learning
that   the   appellant   was   involved   in   business,   had
approached   him   at   Daltonganj   and   sought   financial
assistance   to   the   tune   of   Rs.1   crore   so   as   to   enable   the
respondent No.2 to invest the same in his business.   Since
the   respondent   No.2   had   assured   that   the   same   would   be
returned,   the   appellant   placed   trust   in   him   and   the
appellant claims to have advanced further sum and in all a
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total   sum   of   Rs.2   crores   during   the   periods   between
January   2014   to   July   2014.   The   said   amount   was   paid   to
respondent   No.2   by   transferring   from   the   account   of
appellant’s   daughter   and   also   from   the   account   of   the
appellant.   Towards   the   said   transaction,   four   agreements
are   stated   to   have   been   entered   acknowledging   the   receipt
of the loan.  The said agreements were reduced into writing
on   non­judicial   stamp   papers   bearing   No.   B489155,
B489156, B489157 and B489159.  
3. The respondent No.2 assured that the amount would
be   returned   during   June/July   2015.   Towards   the   same,
three cheques amounting to Rs.1 crore was handed over to
the   appellant.     Thereafter,   three   more   cheques   for   Rs.1
crore   was   also   given.     The   appellant   is   stated   to   have   met
respondent   No.2   during   July   2015   when   the   respondent
No.2 assured that the amount will be repaid during October
2015.   Based   on   such   assurance,   the   appellant   presented
the   cheques   for   realisation   on   20.10.2015.     On
presentation,   the   said   cheques   were   returned   due   to
‘insufficient funds’ in the bank account of respondent No.2.
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The   appellant   therefore   got   issued   a   legal   notice   as
contemplated   under   Section   138   of   the   Negotiable
Instruments Act (“N.I. Act” for short).  Since the respondent
No.2 had taken the money on the assurance that the same
would   be   returned   but   had   deceived   the   appellant,   the
appellant contended that the respondent No.2 had cheated
him   and   accordingly   the   complaint   was   filed   both   under
Section   420   of   IPC   as   also   Section   138   of   N.I.   Act.     The
appellant   had   submitted   the   sworn   statement   of   himself
and witnesses. The learned Judicial Magistrate through the
order   dated   04.07.2016   took   cognizance   and   issued
summons to the respondent No.2.  
4. The   respondent   No.2   on   appearance   filed   a
miscellaneous petition seeking discharge from the criminal
proceeding,   which   was   rejected   by   the   order   dated
13.06.2019.   It is in that background, the respondent No.2
claiming to be aggrieved by the order dated 04.07.2016 and
13.06.2019 approached the High Court in the said criminal
miscellaneous   petitions.     The   High   Court,   through   the
impugned   order   has   allowed   the   petitions   filed   by   the
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respondent   No.2.     The   appellant   therefore   claiming   to   be
aggrieved is before this Court in these appeals.  
5. We have heard Mr. M.C. Dhingra, learned counsel for
the   appellant,   Mr.   Raj   Kishor   Choudhary,   learned   counsel
for   the   respondent   No.1,   Mr.   Keshav   Murthy,   learned
counsel   for   respondent   No.2   and   perused   the   appeal
papers.
6. The learned counsel for the appellant would contend
that   the   respondent   No.2   taking   advantage   of   the
acquaintance   with   the   family   of   the   appellant,   had
borrowed   the   amount   which   was   to   be   repaid   and   the
cheque   issued   was   towards   discharge   of   the   said   amount.
In the said circumstance, when the cheques issued was for
discharge   of   the   legally   recoverable   debt   and   it   had   been
dishonoured, the provisions of Section 138 of N.I. Act would
get   attracted.   Therefore,   the   complaint   filed   by   the
appellant   is   in   accordance   with   law.     It   is   his   further
contention   that   in   the   present   case   since   respondent   No.2
had   gained   the   confidence   of   the   appellant   due   to   the
acquaintance   with   his   daughter   and   in   that   circumstance
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when   the   amounts   which   had   been   taken   by   him   earlier
had   been   repaid   so   as   to   gain   the   confidence   and   having
received   substantial   amount   had   at   that   stage   not   made
arrangement for sufficient funds in the bank despite having
issued   the   cheques   to   assure   payment,   the   same     would
amount   to   the   respondent   No.2   cheating   the   appellant   by
design   and   therefore   would   attract   Section   420   IPC.     It   is
contended that towards the amount received, the same had
been   acknowledged   by   subscribing   the   signature   to   the
loan agreement. Further, when there was an undertaking to
repay   the   same,   the   cheque   was   issued   towards   such
discharge   of   legally   recoverable   debt   and   the   cheque   on
presentation after the agreed due date for repayment of the
loan   was   dishonoured,   the   same   would   constitute   an
offence.     In   that   regard,   it   is   contended   that   the   learned
Judicial Magistrate having taken note of the complaint and
the   sworn   statements   recorded   by   the   appellant   and   his
witnesses   had   taken   cognizance   and   issued   summons.     In
such   event,   the   order   passed   by   the   learned   Judicial
Magistrate   for   taking   cognizance   and   also   to   reject   the
discharge   petition   filed   by   the   respondent   No.2   was   in
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accordance   with   law.     It   is   contended   that   the   learned
Judge of the High Court had in fact committed an error in
arriving   at   the   conclusion   that   the   cheque   issued   by   the
respondent   No.2   was   towards   ‘security’   and   that   the   same
could not have been treated as a cheque issued towards the
discharge   of   legally   recoverable   debt.     It   is   contended   that
the   learned   Judge   has   proceeded   at   a   tangent   and
committed   an   error   and   as   such   the   order   passed   by   the
High Court calls for interference.
7. To contend that the cheque issued towards discharge
of   the   loan   and   presented   for   recovery   of   the   same   cannot
be   construed   as   issued   for   ‘security’   has   relied   on   the
decision   of   this   Court   in   the   case   of   Sampelly
Satyanarayana   Rao   vs.   Indian   Renewable   Energy
Development   Agency   Ltd .,   (Criminal   Appeal   No.867   of
2016)   and   in   M/s   Womb   Laboratory   Pvt.   Ltd.   vs.   Vijay
Ahuja   and   Anr .   (Criminal   Appeal   No.1382­1383   of   2019).
Hence, it is contended that the observation contained in the
order   of   the   High   Court   that   a   cheque   issued   towards
security   cannot  attract  the  provision  of  Section  138  of  N.I.
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Act is erroneous and the reference made by the High Court
to  the  decision  in   Sudhir   Kr.   Bhalla   vs .   Jagdish  Chand
and Others   2008 7 SCC 137 is without basis. The learned
counsel   therefore   contends   that   the   order   passed   by   the
High   Court   is   liable   to   be   set   aside   and   the   criminal
complaint be restored to file to be proceeded in accordance
with law.
8. Mr.   Keshav   Murthy,   learned   counsel   for   respondent
No.2   would   contend   that   the   learned   Judicial   Magistrate
without application of mind to the fact situation had taken
cognizance and issued summons and had not appropriately
considered   the   case   put   forth   by   the   respondent   No.2
seeking   discharge.   He   would   contend   that   the   High   Court
on   the   other   hand,   has   taken   note   of   the   entire   gamut   of
the case and has arrived at the conclusion that the offence
alleged both under Section 420 IPC and Section 138 of the
N.I.   Act   has   not   been   made   out.   It   is   contended   that   the
claim for the sum of Rs. 2 crores as made in the complaint
is without basis. It is his case that the respondent No.2 has
issued a comprehensive reply disputing the claim put forth
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by   the   appellant.   It   is   contended   that   from   the   very
complaint   and   the   statement   of   witnesses   recorded   by   the
learned   Judicial   Magistrate   it   is   evident   that   no   criminal
offence is made out in the instant case. Even if the case as
put   forth   in   the   complaint   is   taken   note,   at   best   the
transaction   can   be   considered   as   an   advancement   of   loan
for business purpose and even if it is assumed that the said
amount   was   not   repaid   it   would   only   give   rise   to   civil
liability and the appellants could have only filed a civil suit
for   recovery   of   the   loan.   The   statement   of   the   witnesses,
more   particularly   the   daughter   of   the   complainant   would
indicate the long­standing relationship between the parties
and also the monetary transaction which in any event does
not constitute a criminal offence. It is contended that under
any circumstance, the offence as alleged under Section 420
of   IPC   cannot   be   sustained.   Insofar   as   the   offence   alleged
against the respondent No.2 under section 138 of N.I. Act,
the   same   would   also   not   be   sustainable   when   the
complainant   himself   has   relied   on   the   loan   agreement
wherein   reference   is   made   to   the   cheque   being   issued   as
security for the loan. The learned counsel contends that the
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High   Court   in   fact   has   taken   note   of   these   aspects,
proceeded   in   its   correct   perspective   and   has   arrived   at   a
just   conclusion,   which   does   not   call   for   interference.   He
therefore, contends that the above appeals be dismissed.
9. In the  light  of  the rival contentions, a perusal of the
appeal papers would disclose that it is the very case of the
appellant   that   he   has   advanced   substantial  amount   of   Rs.
2   crores   to   the   respondent   No.2   by   way   of   financial
assistance   for   business   purpose.   While   taking   note   of   the
nature   of   the   transaction   and   also   the   proceedings
initiated,   it   is   necessary   for   us   to   remain   conscious   of   the
fact   that   the   proceedings   between   the   parties   is   at   the
preliminary   stage   and   any   conclusive   findings   rendered   in
relation   to   the   dispute   between   the   parties   would   affect
their   case   if   ultimately   the   appellants   were   to   succeed
herein   and   the   criminal   proceedings   are   to   be   restored   for
further   progress.   Therefore,   what   is   necessary   to   be
examined herein is, as to whether the appellant has   prima
facie   established   a   transaction   under   which   there   is   a
legally   recoverable   debt   payable   to   the   appellant   by   the
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respondent No.2 and as to whether the cheques in question
relating   to   which   the   complaint   has   been   filed   by   the
appellant   is   issued   towards   discharge   of   such   legally
recoverable   debt.     In   that   regard,   what   is   necessary   to   be
considered   is   also   as   to   whether   the   cheques   in   question
are   still   to   be   considered   only   as   ‘security’   for   the   said
amount   and   whether   it   was   not   liable   to   be   presented   for
recovery   of   the   legally   recoverable   debt.     The   question
which   would   also   arise   for   consideration   is   as   to   whether
the  complaint  filed by  the  appellant should be limited to  a
proceeding   under   Section   138   of   N.I.   Act   or   on   the   facts
involved, whether the invoking of Section 420 IPC was also
justified.  
10. While   considering   the   above   aspects,   it   is   evident
that the learned Magistrate having referred to the complaint
and sworn statement of the complainant and the witnesses
has   taken   cognizance,   issued   summons   and   has
consequently   arrived   at   the   conclusion   that   the   discharge
as sought by the respondent No.2 cannot be accepted.  The
High   Court   on   the   other   hand   having   referred   to   the   rival
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contentions has concluded as follows:­
“20. From the aforesaid facts and from the documents
of   the   complainant,   this   Court   finds   that   long
standing   'business   transaction   and   inability   of
refunding   a   loan   has   been   given   a   colour   of   criminal
offence   of   cheating   punishable   under   Section   420   of
the   Indian   Penal   Code.   A   breach   of   trust   with   mens
rea   gives rise to a criminal prosecution.   In this case
when   I   go   through   the   evidence   before   charge   of   the
complainant and the documents of the complainant, I
find   that   there   were   long   standing   business
transactions   between   the   parties.   Since   2011   money
was   advanced   by   the   complainant   and   his   family
members to the accused and the complainant witness
admits   that   money   was   also   transferred   from   the
account of the accused to the account of daughter of
the complainant.  From the evidence, I find that there
is   no   material   to   suggest   existence   of   any   mens   rea .
Thus, this case becomes a case of simplicitor case of
non­refunding   of   loan,   which   cannot   be   a   basis   for
initiating   criminal   proceeding.   The   Hon'ble   Supreme
Court in the case of Samir Sahay alias Sameer Sahay
versus State of UP & Anr. reported in (2018) 14 SCC
233   held   that   when   the   dispute   between   the   parties
was ordinarily a civil dispute resulting from a breach
of   contract   on   the   part   of   the   appellant   by   non­
refunding   of   amount   advanced,   the   same   would   not
constitute   an   offence   of   cheating.   In   this   case   also,   I
find   that   it   is   true   case   that   the   amount   of   loan   has
not been refunded, thus, this cannot come within the
purview   of   cheating,   though   the   complainant   by
suppressing   the   material   facts,   has   tried   to   give   a
different colour. Thus, I find that no case punishable
under   Section   420   of   the   Indian   Penal   Code   can   be
made out in this case. 
21.   Further,   I   find   that   it   is   the   documents   of   the
complainant, which show that the cheques were given
by   way   of   security.   Even   if   I   do   not   believe   the
statement   of   the   accused,   the   documents   of   the
complainant cannot be brushed aside. As held earlier,
supported   by   the   decision   of   the   Hon'ble   Supreme
Court in the case of "Sudhir Kumar Bhalla" (supra) a
cheque   given   by   way   of   security   cannot   attract
Section  138  of  the  Negotiable  Instruments  Act.  Since
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the   cheques   were   given   by   way   of   security,   which   is
evident   from   the   complainant's   documents   (though
this   fact   has   also   been   suppressed   in   the   complaint
petition),   I   find   that   Section   138   of   the   Negotiable
Instruments Act is also not attracted in this case.”
 
11. In the background of what has been taken note by us
and   the   conclusion   reached   by   the   High   Court,   insofar   as
the   High   Court   arriving   at   the   conclusion   that   no   case
punishable   under   Section   420   IPC   can   be   made   out   in
these facts, we are in agreement with such conclusion. This
is due to the fact that even as per the case of the appellant
the   amount   advanced   by   the   appellant   is   towards   the
business   transaction   and   a   loan   agreement   had   been
entered   into   between   the   parties.   Under   the   loan
agreement,   the   period   for   repayment   was   agreed   and   the
cheque   had   been   issued   to   ensure   repayment.   It   is   no
doubt true that the cheques when presented for realisation
were  dishonoured. The  mere  dishonourment  of  the  cheque
cannot   be   construed   as   an   act   on   the   part   of   the
respondent   No.2   with   a   deliberate   intention   to   cheat   and
the   mens   rea   in   that   regard   cannot   be   gathered   from   the
point   the   amount   had   been   received.   In   the   present   facts
and   circumstances,   there   is   no   sufficient   evidence   to
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indicate the offence under Section 420 IPC is made out and
therefore on that aspect, we see no reason to interfere with
the conclusion reached by the High Court.
12. Having   arrived   at   the   above   conclusion   and   also
having   taken   note   of   the   conclusion   reached   by   the   High
Court   as   extracted   above,   it   is   noted   that   the   High   Court
has   itself   arrived   at   the   conclusion   that   the   instant   case
becomes   a   simpliciter   case   of   non­refunding   of   loan   which
cannot   be   a   basis   for   initiating   criminal   proceedings.   The
conclusion   to   the   extent   of   holding   that   it   would   not
constitute   an   offence   of   cheating,   as   already   indicated
above   would   be   justified.   However,   when   the   High   Court
itself   has   accepted   the   fact   that   it   is   a   case   of   non­
refunding of the loan amount, the first aspect that there is
a   legally   recoverable   debt   from   the   respondent   No.2   to   the
appellant is prima­facie established. The only question that
therefore needs consideration at our hands is as to whether
the contention put­forth on behalf of respondent No.2 that
an offence under Section 138 of the N.I. Act is not made out
as the dishonourment alleged is of the cheques which were
issued by way of ‘security’ and not towards discharge of any
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debt.
13. In order to consider this aspect of the matter we have
at the outset taken note of the four loan agreements dated
13.08.2014 which is the subject matter herein. Under each
of the agreements, the promise made by respondent No.2 is
to pay  the appellant a sum  of Rs.50 lakhs. Thus, the total
of which would amount to Rs.2 crores as contended by the
appellant.   Towards   the   promise   to   pay,   the   repayment
agreed by the respondent No.2 is to clear the total amount
within   June/July   2015.   Para   5   of   the   loan   agreement
indicates   that   six   cheques   have   been   issued   as   security.
The   claim   of   the   appellant   has   been   negated   by   the   High
Court only due to the fact that the agreement indicates that
the   cheques   have   been   given   by   way   of   security   and   the
complainant   has   also   stated   this   fact   in   the   complaint.
Though   the   High   Court   has   taken   note   of   the   decision   in
the case of   Sudhir Kumar Bhalla   (supra) to hold that the
cheque issued as security cannot constitute an offence, the
same   in   our   opinion   does   not   come   to   the   aid   of   the
respondent No.2. There is no categorical declaration by this
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Court   in   the   said   case   that   the   cheque   issued   as   security
cannot   be   presented   for   realisation   under   all
circumstances.   The   facts   in   the   said   case   relate   to   the
cheques   being   issued   and   there   being   alterations   made   in
the   cheques   towards   which   there   was   also   a   counter
complaint   filed   by   the   drawer   of   the   cheque.   Hence,   the
said decision cannot be a precedent to answer the position
in this case and the High Court was not justified in placing
reliance on the same.
14. In   fact,   it   would   be   apposite   to   take   note   of   the
decision   of   this   Court   in   the   case   of   Sampelly
Satyanarayana   Rao   (supra)   wherein   this   Court   while
answering   the   issue   as   to   what   constitutes   a   legally
enforceable   debt   or   other   liability   as   contained   in   the
Explanation   2   to   Section   138   of   N.I.   Act   has   held   as
hereunder:­
“10.   We   have   given   due   consideration   to   the
submission advanced on behalf of the appellant as well
as   the   observations   of   this   Court   in   Indus   Airways
(supra) with reference to the explanation to Section 138
of the Act and the expression "for discharge of any debt
or   other   liability"   occurring   in   Section   138   of   the   Act.
We   are   of   the   view   that   the   question   whether   a
post­dated   cheque   is   for   "discharge   of   debt   or
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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.
11.   Reference   to   the   facts   of   the   present   case   clearly
shows   that   though   the   word   "security"   is   used   in
Clause   3.l   (iii)   of   the   agreement,   the   said   expression
refers   to   the   cheques   being   towards   repayment   of
instalments.   The   repayment   becomes   due   under   the
agreement,   the   moment   the   loan   is   advanced   and   the
instalment   falls   due.   It   is   undisputed   that   the   loan
was duly disbursed on 28th February, 2002 which
was prior to the date of the cheques. Once the loan
was disbursed and instalments have fallen due on
the   date   of   the   cheque   as   per   the   agreement,
dishonour   of   such   cheques   would   fall   under
Section   138   of   the   Act.   The   cheques   undoubtedly
represent   the   outstanding   liability.
12.   Judgment   in   Indus   Airways   (supra)   is   clearly
distinguishable.   As   already   noted,   it   was   held   therein
that liability arising out of claim for breach of contract
under   Section   138,   which   arises   on   account   of
dishonour   of   cheque   issued   was   not   by   itself   at   par
with   criminal   liability   towards   discharge   of
acknowledged   and   admitted   debt   under   a   loan
transaction.   Dishonour   of   cheque   issued   for   discharge
of   later   liability   is   clearly   covered   by   the   statute   in
question.   Admittedly,   on   the   date   of   the   cheque   there
was   a   debt/liability   in   presenti   in   terms   of   the   loan
agreement,   as   against   the   case   of   Indus   Airways
(supra),   where   the   purchase   order   had   been   cancelled
and   cheque   issued   towards   advance   payment   for   the
purchase   order   was   dishonoured.   In   that   case,   it   was
found   that   the   cheque   had   not   been   issued   for
discharge   of   liability   but   as   advance   for   the   purchase
order which was cancelled.  Keeping in mind this fine
but   real   distinction,   the   said   judgment   cannot   be
applied   to   a   case   of   present   nature   where   the
cheque   was   for   repayment   of   loan   instalment
which   had   fallen   due   though   such   deposit   of
cheques   towards   repayment'   of   instalments   was
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also described as "security" in the loan agreement.
In applying the judgment in Indus Airways (supra),
one   cannot   lose   sight   of   the   difference   between   a
transaction   of   purchase   order   which   is   cancelled
and   that   of   a   loan   transaction   where   loan   has
actually   been   advanced   and   its   repayment   is   due
on the date of the cheque.
13.     Crucial   question   to   determine   applicability   of
Section   138   of   the   Act   is   whether   the   cheque
represents   discharge   of   existing   enforceable   debt
or   liability   or   whether   it   represents   advance
payment   without   there   being   subsisting   debt   or
liability.   While   approving   the   views   of   different
High   Courts   noted   earlier,   this   is   the   underlying
principle   as   can   be   discerned   from   discussion   of
the said cases in the judgment of this Court.”
                                                  ( emphasis supplied )
The   said   conclusion   was   reached   by   this   Court   while
distinguishing   the   decision   of   this   Court   in   the   case   of   Indus
Airways   Pvt.   Ltd.   Vs.   Magnum   Aviation   Pvt.   Ltd.   (2014)   12
SCC 539 which was a case wherein the issue was of dishonour
of post­dated cheque issued by way of advance payment against
a   purchase   order   that   had   arisen   for   consideration.   In   that
circumstance,   it   was   held   that   the   same  cannot   be   considered
as   a   cheque   issued   towards   discharge   of   legally   enforceable
debt.
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15. Further,   this    Court   in    the   case   of    M/s Womb 
Laboratories Pvt. Ltd.  (supra) has held as follows:­
“5.   In   our   opinion,   the   High   Court   has   muddled
the   entire   issue.   The   averment   in   the   complaint
does indicate that the signed cheques were handed
over   by   the   accused   to   the   complainant.   The
cheques were given by way of security, is a matter
of defence. Further, it was not for the discharge of
any debt or any liability is also a matter of defence.
The relevant facts to countenance the defence will
have to be proved­ that such security could not be
treated   as   debt   or   other   liability   of   the   accused.
That would be a triable issue. We say so because,
handing over of the cheques by way of security per
se   would   not   extricate   the   accused   from   the
discharge of liability arising from such cheques.
6. Suffice it to observe, the impugned judgment of
the   High   Court   cannot   stand   the   test   of   judicial
scrutiny. The same is, therefore, set aside.”
16. 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. If in a transaction,
a loan is advanced and the borrower agrees to repay the
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amount in a specified timeframe and issues a cheque as
security to secure such repayment; if the loan amount is
not   repaid   in   any   other   form   before   the   due   date   or   if
there   is   no   other   understanding   or   agreement   between
the   parties  to  defer  the  payment   of  amount,  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. 
17. When   a   cheque   is   issued   and   is   treated   as
‘security’   towards   repayment   of   an   amount   with   a   time
period being stipulated for repayment, all that it ensures
is  that   such  cheque   which   is  issued  as  ‘security’  cannot
be presented prior to the loan or the instalment maturing
for   repayment   towards   which   such   cheque   is   issued   as
security. Further, the borrower would have the option of
repaying   the   loan   amount   or   such   financial   liability   in
any other form and in that manner if the amount of loan
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due   and   payable   has   been   discharged   within   the   agreed
period,   the   cheque   issued   as   security   cannot   thereafter
be presented. Therefore, the prior discharge of the loan or
there being an altered situation due to which there would
be   understanding   between   the   parties   is   a   sine   qua   non
to not present the cheque which was issued as security.
These are only the defences that would be available to the
drawer   of   the   cheque   in   a   proceedings   initiated   under
Section  138  of the  N.I. Act. Therefore,  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.   When   a   cheque   is   issued   even   though   as
‘security’   the   consequence   flowing   therefrom   is   also
known   to   the   drawer   of   the   cheque   and   in   the
circumstance stated above if the cheque is presented and
dishonoured,   the   holder   of   the   cheque/drawee   would
have   the   option   of   initiating   the   civil   proceedings   for
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recovery   or   the   criminal   proceedings   for   punishment   in
the   fact   situation,   but   in   any   event,   it   is   not   for   the
drawer  of the cheque to dictate terms with regard to the
nature of litigation. 
18. If   the   above   principle   is   kept   in   view,   as   already
noted,   under   the   loan   agreement   in   question   the
respondent   No.2   though   had   issued   the   cheques   as
security,   he   had   also   agreed   to   repay   the   amount   during
June/July   2015,   the   cheque   which   was   held   as   security
was   presented   for   realization   on   20.10.2015   which   is   after
the period agreed for repayment of the loan amount and the
loan   advanced   had   already   fallen   due   for   payment.
Therefore,   prima   facie   the   cheque   which   was   taken   as
security   had   matured   for   payment   and   the   appellant   was
entitled to present the same. On dishonour of such cheque
the   consequences   contemplated   under   the   Negotiable
Instruments   Act   had   befallen   on   respondent   No.2.   As
indicated above, the respondent No.2 may have the defence
in   the   proceedings   which   will   be   a   matter   for   trial.   In   any
event,   the   respondent   No.2   in   the   fact   situation   cannot
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make a grievance with regard to the cognizance being taken
by   the   learned   Magistrate   or   the   rejection   of   the   petition
seeking discharge at this stage.  
19. In   the   background   of   the   factual   and   legal   position
taken note supra, in the instant facts, the appellant cannot
be non­suited for proceeding with the complaint filed under
Section   138   of   N.I.   Act   merely   due   to   the   fact   that   the
cheques   presented   and   dishonoured   are   shown   to   have
been issued as security, as indicated in the loan agreement.
In   our   opinion,   such   contention   would   arise   only   in   a
circumstance   where   the   debt   has   not   become   recoverable
and   the   cheque   issued   as   security   has   not   matured   to   be
presented for recovery of the amount, if the due date agreed
for payment of debt has not arrived. In the instant facts, as
noted,   the   repayment   as   agreed   by   the   respondent   No.2   is
during June/July 2015. The cheque has been presented by
the appellant for realisation on 20.10.2015. As on the date
of presentation of the cheque for realisation the repayment
of   the   amount   as   agreed   under   the   loan   agreement   had
matured   and   the   amount   had   become   due   and   payable.
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Therefore,   to   contend   that   the   cheque   should   be   held   as
security   even   after   the   amount   had   become   due   and
payable   is   not   sustainable.   Further,   on   the   cheques   being
dishonoured   the   appellant   had   got   issued   a   legal   notice
dated   21.11.2015   wherein   inter­alia   it   has   been   stated   as
follows:­
“You request to my client for loan and after accepting
your word my client give you loan and advanced loan
and   against   that   you   issue   different   cheque   all
together valued Rs. One crore and my client was also
assured   by   you   will   clear   the   loan   within   June/July
2015 and after that on 26.10.2015 my client produce
the   cheque   for   encashment   in   H.D.F.C.   Bank   all
cheque   bearing   No.402771   valued   Rs.   25   Lakh,
402770   valued   Rs.25   lakh,   402769   valued   Rs.   50
lakh,   (total   rupees   one   crore)   and   above   numbered
cheques was returned with endorsement "In sufficient
fund". Then my client feel that you have not fulfil the
assurance.”
20. The notice as issued indicates that the appellant has
at   the   very   outset   after   the   cheque   was   dishonoured,
intimated   the   respondent   no.2  that   he   had  agreed   to   clear
the loan by  June/July 2015 after  which the appellant had
presented   the   cheque   for   encashment   on   26.10.2015   and
the assurance to repay has not been kept up.
21. In the above circumstance, the cheque though issued
as security at the point when the loan was advanced, it was
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issued as an assurance to repay the amount after the debt
becomes   due   for   repayment.   The   loan   was   in   subsistence
when   the   cheque   was   issued   and   had   become   repayable
during   June/July   2015   and   the   cheque   issued   towards
repayment   was   agreed   to   be   presented   thereafter.   If   the
amount   was  not  paid  in  any  other   mode  before  June/July
2015, it was incumbent on the respondent No.2 to arrange
sufficient   balance   in   the   account   to   honour   the   cheque
which was to be presented subsequent to June/July 2015. 
22. These   aspects   would   prima­facie   indicate   that   there
was   a   transaction   between   the   parties   towards   which   a
legally   recoverable   debt   was   claimed   by   the   appellant   and
the   cheque   issued   by   the   respondent   No.2   was   presented.
On   such   cheque   being   dishonoured,   cause   of   action   had
arisen   for   issuing   a   notice   and   presenting   the   criminal
complaint under Section 138 of N.I. Act on the payment not
being made. The further defence as to whether the loan had
been discharged as agreed by respondent No.2 and in that
circumstance   the   cheque   which   had   been   issued   as
security   had   not   remained   live   for   payment   subsequent
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thereto   etc.   at   best   can   be   a   defence   for   the   respondent
No.2   to   be   put   forth   and   to   be   established   in   the   trial.   In
any event, it was not a case for the Court to either refuse to
take cognizance or to discharge the respondent No.2 in the
manner   it   has   been   done   by   the   High   Court.   Therefore,
though   a   criminal   complaint   under   Section   420   IPC   was
not   sustainable   in   the   facts   and   circumstances   of   the
instant case, the complaint under section 138 of the N.I Act
was maintainable and all contentions and the defence were
to be considered during the course of the trial.
23. In   that   view,   the   order   dated   17.12.2019   passed   by
the   High   Court   of   Jharkhand   in   Cr.M.P   No.2635   of   2017
with   Cr.M.P   No.2655   of   2017   are   set   aside.   Consequently,
the order dated 04.07.2016 and 13.06.2019 passed by the
Judicial   Magistrate   are   restored.   The   complaint   bearing
C.C. No.1839 of 2015 and 1833 of 2015 are restored to the
file   of   the   Judicial   Magistrate,   limited   to   the   complaint
under Section 138 of N.I. Act to be proceeded in accordance
with law. 
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24. All   contentions   of   the  parties   on   merit   are   left  open.
We   make   it   clear   that   none   of   the   observations   contained
herein   shall   have   a   bearing   on   the   main   trial.   The   trial
court shall independently arrive at its conclusion based on
the evidence tendered before it.
25. The   appeals   are   allowed   in   part   with   no   order   as   to
costs.
26. Pending application, if any, shall also stand disposed
of.
…………………….J.
(M.R. SHAH)
                                                         …………………….J.
                                                    (A.S. BOPANNA)
New Delhi,
October 28, 2021 
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