The Delhi High Court has observed that the cheques issued only for security purpose and not for depositing to the bank are not encashable for any existing debt or liability.

“It is thus, held that the impugned cheques were security cheques given for a specific purpose and could not have been encashed for a liability which may have subsequently arisen,” Justice Neena Bansal Krishna said.

The Court was dealing with five pleas filed by an entity- Sri Sai Sapthagiri Sponge Private Limited challenging the trial court orders summoning it in five cheque bouncing complaints filed by M/s Magnifico Minerals Pvt. Ltd.

It was alleged that Rs. 1 crore 91 lakh was due and recoverable from Sri Sai Sapthagiri. In discharge of the liability, five cheques were issued, which, on presentation in the bank, were dishonoured with the remarks “STOP PAYMENT.”

It was Sri Sai Sapthagiri's case that the cheques were handed over to Magnifico Minerals on the assurance that they would not be encashed and were only to be shown to the Banker as security.

It was alleged that the latter intentionally and fraudulently deposited the cheques in order to coerce and pressurise the former into making payment.

On the other hand, Magnifico Minerals contended that even if the cheques in question were issued as security, they were issued against a contingent liability, which later crystallised, making the cheque amounts payable towards a legally enforceable debt.

Allowing the pleas, the Court held that the impugned cheques were security cheques given for a specific purpose and could not have been encashed for a liability which may have subsequently arisen. The Complaints under Section 138 of the Negotiable Instruments Act 1881 are therefore, liable to be quashed, it added.

“In the light of the aforesaid discussion, it is concluded that the cheques in question were security Cheques and were not issued or encashable for any legally enforceable liability or debt and the Complaints under S.138 NI Act on account of dishonour of such cheques, is not maintainable,” the Court said while quashing the summoning orders.

Title: SRI SAI SAPTHAGIRI SPONGE PVT. LTD v. THE STATE (GNCT OF DELHI) & ANR

Citation: 2025 LiveLaw (Del) 1375

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