{"id":266727,"date":"2022-05-11T11:00:20","date_gmt":"2022-05-11T05:30:20","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=266727"},"modified":"2022-05-13T15:17:21","modified_gmt":"2022-05-13T09:47:21","slug":"ni-act-cheques-security-quashment-proceedings-supreme-court-judgments-india-legal-law-research-updates-news","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2022\/05\/11\/ni-act-cheques-security-quashment-proceedings-supreme-court-judgments-india-legal-law-research-updates-news\/","title":{"rendered":"Cheque issued as a security and not in discharge of legally recoverable debt; Is the contention sufficient to quash proceedings under N.I. Act at pre-trial stage? SC examines"},"content":{"rendered":"<p style=\"text-align: justify;\"><strong>Supreme Court:<\/strong> While rejecting an appeal to quash proceedings under Section 138 of the N.I. Act, 1881 at pre-trial stage, the Division Bench comprising of K.M. Joseph and <strong>Hrishikesh Roy*<\/strong>, JJ., held that when there is legal presumption, it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged, without first permitting the trial Court to evaluate the evidence of the parties.<\/p>\n<p style=\"text-align: justify;\">The Bench upheld the impugned judgment of Delhi High Court wherein the High Court had \u2013 while acting as a quashing court under Section 482 of CrPC \u2013 refused to quash proceedings at pre-trial stage. The Bench observed,<\/p>\n<blockquote>\n<p style=\"text-align: justify;\"><strong><em>\u201cThe quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested.\u201d<\/em><\/strong><\/p>\n<\/blockquote>\n<h4 style=\"text-align: justify;\"><span style=\"color: #800000;\"><strong>Factual Backdrop <\/strong><\/span><\/h4>\n<p style=\"text-align: justify;\">Evidently, the complainant invested a substantial sum in the appellant\u2019s company, however as some dispute arose between them, the parties decided that the invested money would be returned to the complainant and the shares allotted to the complainant will be proportionately transferred to the appellant. Pursuant to such compromise, the four cheques were issued by the appellant, which on being presented by the complainant, got dishonourned due to insufficient fund. Consequently, proceedings under NI Act came in picture.<\/p>\n<h4 style=\"text-align: justify;\"><span style=\"color: #800000;\"><strong>Submissions of the Parties<\/strong><\/span><\/h4>\n<p style=\"text-align: justify;\">The appellant argued that without satisfying the essential ingredients for the offence under Section 138 of the N.I. Act to the effect that the dishonoured cheque received by the complainant was against <em>\u201clegally enforceable debt or liability\u201d,<\/em> the criminal process could not have been issued. According to the appellant, the cheques in question were issued as \u201csecurity\u201d for buyback of shares and not in discharge of any \u201clegally recoverable debt\u201d and therefore they could not have been prematurely presented to the bank and should have been presented for encashment only after transfer of the complainant\u2019s shareholding in the appellant\u2019s company.<\/p>\n<p style=\"text-align: justify;\">On the contrary, the complainant contended that when the cheques were issued and the signatures thereon were admitted, the presumption of a legally enforceable debt would arise in favour of the holder of the cheque. The complainant argued that the appellant should first pay and then as per the usual practice in the trade, the shares would be transferred to the appellant in due course within the time permitted by law.<\/p>\n<h4 style=\"text-align: justify;\"><span style=\"color: #800000;\"><strong>Analysis and Conclusion<\/strong><\/span><\/h4>\n<p style=\"text-align: justify;\">In <em>HMT Watches Ltd. v. M.A. Abida<\/em>, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/fcJEQEl5\">(2015) 11 SCC 776<\/a>, and in <em>Rajiv Thapar v. Madan Lal Kapoor<\/em>, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/y8bUhiE9\">(2013) 3 SCC 330<\/a>, it has been held that unless the Court is fully satisfied that the material produced would irrefutably rule out the charges and such materials being of sterling and impeccable quality, the invocation of Section 482 Cr.P.C power to quash the criminal proceedings, would be unmerited.<\/p>\n<p style=\"text-align: justify;\">The Bench opined that when there is legal presumption, it would not be judicious for the quashing Court to carry out a detailed enquiry on the facts alleged, without first permitting the trial Court to evaluate the evidence of the parties. The quashing Court should not take upon itself, the burden of separating the wheat from the chaff where facts are contested. The Bench observed,<\/p>\n<blockquote>\n<p style=\"text-align: justify;\"><strong><em>\u201cThe consequences of scuttling the criminal process at a pre-trial stage can be grave and irreparable.\u201d<\/em><\/strong><\/p>\n<\/blockquote>\n<p style=\"text-align: justify;\">The Bench stated that at any rate, whenever facts are disputed the truth should be allowed to emerge by weighing the evidence. Otherwise, the accused may get an un-merited advantage in the criminal process. Hence, the Bench held that when the cheque and the signature were not disputed by the appellant, the balance of convenience was in favour of the complainant\/prosecution and the accused will have due opportunity to adduce defence evidence during the trial, to rebut the presumption.<\/p>\n<p style=\"text-align: justify;\">In the light of above, the Bench reached to following findings:<\/p>\n<ol style=\"text-align: justify;\">\n<li>In shares transactions, there is a time lag between money going out from the buyer and shares reaching to the seller.<\/li>\n<li>The burden of proving that there is no existing debt or liability, is to be discharged in the trial.<\/li>\n<li>The legal presumption of the cheque having been issued in the discharge of liability must also receive due weightage.<\/li>\n<li>In a situation where the accused moves Court for quashing even before trial has commenced, the Court\u2019s approach should be careful enough to not to prematurely extinguish the case by disregarding the legal presumption which supports the complaint.<\/li>\n<\/ol>\n<p style=\"text-align: justify;\">Consequently, the Bench held that when the proceedings are at a nascent stage, scuttling of the criminal process is not merited. Hence, the impugned judgment was upheld as the same was found to be rendered by applying the correct legal principles.<\/p>\n<p style=\"text-align: justify;\">[Rathish Babu Unnikrishnan v. State (NCT of Delhi), <a href=\"http:\/\/www.scconline.com\/DocumentLink\/KY4iQ85E\"><b>2022 SCC OnLine SC 513<\/b><\/a>, decided on 26-04-2022]<\/p>\n<hr \/>\n<h4 style=\"text-align: justify;\">*Judgment by: Justice Hrishikesh Roy<\/h4>\n<hr \/>\n<p style=\"text-align: justify;\"><strong>Appearance by:<\/strong><\/p>\n<p style=\"text-align: justify;\">For the Appellant: Krishnamohan K., Advocate<\/p>\n<p style=\"text-align: justify;\">For the Complainant: K.M. Nataraj, ASG and Rebecca M. John Senior Counsel<\/p>\n<hr \/>\n<h4 style=\"text-align: justify;\"><span style=\"color: #000080;\">Kamini Sharma, Editorial Assistant has put this report together<\/span><\/h4>\n<p style=\"text-align: justify;\">\n","protected":false},"excerpt":{"rendered":"<p>\u201cThe quashing proceedings must not become an expedition into the merits of factual dispute, so as to conclusively vindicate either the complainant or the defence.\u201d<\/p>\n","protected":false},"author":67011,"featured_media":266735,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,9],"tags":[3029,36639,34595,2862,49403,32601,4571],"class_list":["post-266727","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-supremecourt","tag-cheque_bounce","tag-commercial-dispute","tag-company-law","tag-dishonour_of_cheque","tag-ni","tag-shares","tag-trial"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.4 (Yoast SEO v26.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Cheque issued as a security and not in discharge of legally recoverable debt; Is the contention sufficient to quash proceedings under N.I. Act at pre-trial stage? SC examines | SCC Times<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2022\/05\/11\/ni-act-cheques-security-quashment-proceedings-supreme-court-judgments-india-legal-law-research-updates-news\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Cheque issued as a security and not in discharge of legally recoverable debt; Is the contention sufficient to quash proceedings under N.I. Act at pre-trial stage? 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This presumption can be rebutted by\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Enquiry into Debt or Liability","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/12\/Enquiry-into-Debt-or-Liability.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/12\/Enquiry-into-Debt-or-Liability.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/12\/Enquiry-into-Debt-or-Liability.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/12\/Enquiry-into-Debt-or-Liability.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":305440,"url":"https:\/\/www.scconline.com\/blog\/post\/2023\/10\/21\/allahabad-high-court-directs-magistrate-conclude-ni-act-proceedings-expeditiously-legal-news\/","url_meta":{"origin":266727,"position":1},"title":"Allahabad HC directs Magistrate to conclude NI Act proceedings expeditiously without going into unnecessary technicality","author":"Apoorva","date":"October 21, 2023","format":false,"excerpt":"Allahabad High Court noted that the Supreme Court has issued several directions to deal with the pendency of dishonor of cheque cases and for their expeditious disposal","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"allahabad high court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/04\/allahabad-high-court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/04\/allahabad-high-court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/04\/allahabad-high-court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/04\/allahabad-high-court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":214277,"url":"https:\/\/www.scconline.com\/blog\/post\/2019\/05\/03\/del-hc-import-of-s-9-ni-act-defining-holder-in-due-course-cannot-be-pre-judges-petition-for-quashing-cheque-dishonour-complaint-dismissed\/","url_meta":{"origin":266727,"position":2},"title":"Del HC | Import of S. 9 NI Act defining &#8216;holder in due course&#8217; cannot be pre-judged; petition for quashing cheque dishonour complaint dismissed","author":"Bhumika Indulia","date":"May 3, 2019","format":false,"excerpt":"Delhi High Court:\u00a0Sunil Gaur, J. dismissed a petition seeking quashing of a complaint filed under Section 138\u00a0(dishonour of cheque)\u00a0of the Negotiable Instruments Act, 1881, with a liberty\u00a0to the petitioner to raise his pea before the trial court. The petitioner sought quashing of the complaint by recourse to Section 142(1)(a). Rakesh\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":249658,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/06\/11\/section-138-ni-act-5\/","url_meta":{"origin":266727,"position":3},"title":"All HC | Can complaint under S. 138 NI Act be quashed for failure to disclose date of service of notice? Court says it is a matter of evidence","author":"Bhumika Indulia","date":"June 11, 2021","format":false,"excerpt":"Allahabad High Court: Vivek Varma, J., refused to quash a complaint case filed under Section 138 NI Act and directed the trial court to expedite the hearing. Instant application was filed to quash the proceedings of a Complaint Case under Section 138 of Negotiable Instruments Act, 1881pending in the Court\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":129291,"url":"https:\/\/www.scconline.com\/blog\/post\/2017\/05\/06\/only-drawer-of-cheque-can-be-made-an-acccused-in-proceedings-for-dishonour-of-cheque\/","url_meta":{"origin":266727,"position":4},"title":"Only drawer of cheque can be made an acccused in proceedings for dishonour of cheque","author":"Saba","date":"May 6, 2017","format":false,"excerpt":"Gujarat High Court: A Bench comprising of J.B. Pardiwala, J. has directed quashing of criminal proceedings against the applicant and co-accused husband, for dishonour of cheque under Section 138 of the Negotiable Instruments Act. The Applicant filed an application under Section 482 of the CrPC, invoking inherent powers of the\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/04\/GujHC.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/04\/GujHC.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/04\/GujHC.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/04\/GujHC.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2016\/04\/GujHC.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":343268,"url":"https:\/\/www.scconline.com\/blog\/post\/2025\/03\/08\/complaint-under-s-138-of-ni-act-cannot-be-transferred-for-lack-of-territorial-jurisdiction-of-court-sc\/","url_meta":{"origin":266727,"position":5},"title":"Can a complaint under S. 138 of N.I. Act be transferred from one Court to other for lack of territorial jurisdiction of Court? SC answers","author":"Editor","date":"March 8, 2025","format":false,"excerpt":"For the purpose of transfer of any case or proceedings under Section 406 of the CrPC, the case must fall within the ambit of the expression \u201cexpedient for the ends of justice\u201d.","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"S. 138 NI Act case transfer","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/03\/S.-138-NI-Act-case-transfer.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/03\/S.-138-NI-Act-case-transfer.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/03\/S.-138-NI-Act-case-transfer.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/03\/S.-138-NI-Act-case-transfer.webp?resize=700%2C400&ssl=1 2x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/266727","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67011"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=266727"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/266727\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/266735"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=266727"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=266727"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=266727"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}