Supreme Court: In the matter where the question as to whether the dishonour of a post-dated cheque given for repayment of loan installment which is also described as “security” in the loan agreement is covered by Section 138 of the Negotiable Instruments Act, 1881, was before the bench of Dipak Misra and A.K. Goel, JJ, it was held that the dishonour of cheque for discharge of existing liability is covered by Section 138 of the Act. The Court further explained that the question whether a post-dated 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.
As per the facts of the case, the loan agreement in question recorded that post-dated cheques towards payment of installment of loan (principal and interest) were given by way of security. The clause of the Agreement that came up for consideration was “The loan together with the interest, interest tax, liquidated damages, commitment fee, upfront fee prima on repayment or on redemption, costs, expenses and other monies shall be secured by deposit of Post-dated cheques towards repayment of installments of principal of loan amount in accordance with agreed repayment schedule and installments of interest payable thereon.”
Interpreting the word “security” is used in the said clause, the Court held that the said expression refers to the cheques being towards repayment of installments. The repayment becomes due under the agreement, the moment the loan is advanced and the installment falls due. Once the loan was disbursed and installments 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. [Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., , 2016 SCC OnLine SC 954, decided on 19.09.2016]