Cheques are routinely handed over “as security” — against a loan, an advance, a supply contract or a business arrangement. When one of them is later presented and bounces, the drawer usually argues that it was never meant as payment, so Section 138 of the Negotiable Instruments Act, 1881 cannot apply. The payee argues that the money was owed and the cheque was given to cover exactly that. Both positions have support in the case law, and the label on the cheque is not what decides it.
What Section 138 actually requires
Section 138 applies to a cheque drawn “for the discharge, in whole or in part, of any debt or other liability”, and its explanation says this means a legally enforceable debt or liability. So the question is never simply whether the cheque was called “security”. It is whether, when the cheque was presented, there was a legally enforceable debt that the cheque could discharge.
The Supreme Court's test: has the debt crystallised?
In Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd. (2016), post-dated cheques had been given as security for the repayment of a loan. The Supreme Court held that Section 138 was attracted: the loan had been disbursed, the instalments had fallen due, and the cheques covered that liability. Calling them “security” did not take them outside the section. The test was whether there was a debt or liability on the date of the cheque.
In Sripati Singh v. State of Jharkhand (2021), the Court explained the point further. A cheque issued as security is not a worthless piece of paper. If the loan is not repaid within the agreed period, or by another mode, the debt becomes due and payable, and the lender is entitled to present the security cheque. If it is then dishonoured, Section 138 can follow. The Court also noted the other side: if the amount has been repaid, or the liability has otherwise been discharged before the due date, the cheque should not be presented.
Put simply, a security cheque can attract Section 138 where, on the date it is presented, a legally enforceable debt has crystallised and the amount is due.
When the defence is stronger
The drawer's position is stronger where no debt existed, or none was yet due, when the cheque was presented. In Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd. (2014), cheques had been given as advance payment under a purchase order that was later cancelled. The Supreme Court held that there was no legally enforceable liability when the cheques were drawn, so Section 138 was not attracted. In Sampelly, the Court distinguished that case on the basis that a loan, unlike a cancelled supply contract, was a subsisting liability.
A related issue arises where part of the debt has been paid. In Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel (2022), the Supreme Court held that where part of the amount had been paid after the cheque was given, and the cheque was then presented for the full original sum without recording that payment, the offence under Section 138 was not made out.
Other situations — a contract still in progress, a disputed account, a guarantee where the principal debtor has not yet defaulted — depend heavily on the facts and the documents. There is no blanket rule either way.
The presumption under Section 139, and how it is rebutted
Section 139 says that, unless the contrary is proved, the court will presume that the holder received the cheque for the discharge of a debt or other liability. In Rangappa v. Sri Mohan (2010), the Supreme Court held that this presumption includes the existence of a legally enforceable debt.
The presumption is rebuttable. The drawer does not have to disprove the debt beyond reasonable doubt; it is enough to raise a probable defence on the preponderance of probabilities. In Basalingappa v. Mudibasappa (2019), the Court confirmed that the accused may do this through the complainant's own evidence and cross-examination, and does not necessarily have to step into the witness box. Once a probable defence is raised, the burden shifts back to the complainant to prove the debt.
In a security cheque case, this is where the contest usually happens. The drawer will try to show that nothing was due on the date of presentation; the payee has to be ready to show that it was.
Blank signed cheques
Security cheques are often handed over signed but with the amount or date left blank. In Bir Singh v. Mukesh Kumar (2019), the Supreme Court held that where a drawer voluntarily hands over a signed cheque, the presumption under Section 139 applies even if the details were filled in by someone else, unless there is evidence that the cheque was not given towards any liability. Whether the cheque was filled in by the drawer or the payee is not by itself a defence.
That does not mean any amount written in will stand. The amount still has to match a legally enforceable debt, and a drawer can contest that on the evidence. A payee who fills in a blank cheque should be able to show exactly how the figure was arrived at.
Before a security cheque is presented
Much of the dispute in these cases can be narrowed before the cheque goes to the bank. A few points are worth checking first:
- Is the amount actually due? Check the agreement for the due date and any notice or cure period. Presenting before the debt falls due gives the drawer an easy answer.
- Does the cheque amount match the balance? If part has been repaid, the cheque should not be presented for the original sum as if nothing had been paid. How that is handled in a particular case is a question for the advocate.
- Is there a written demand on record? A demand or reminder before presentation shows that the default came first and the cheque second.
- Is the cheque still valid? Security cheques often sit in a drawer for months. A cheque presented after its validity has expired cannot found a Section 138 case.
None of this guarantees an outcome, but it removes the arguments that are easiest for the drawer to make.
Documents that help the payee
- The agreement — a loan agreement, promissory note, purchase order or contract that says what the cheque secured and when the money became due.
- Proof that money moved — bank statements showing the loan or advance was disbursed. Cash transactions are harder to prove and can raise separate tax questions.
- A ledger or statement of account — showing payments made, the balance outstanding and how the cheque amount was calculated.
- Acknowledgments — letters, emails or messages in which the drawer accepted the debt or asked for time.
- The default — reminders or demands showing that the due date passed without payment before the cheque was presented.
For the drawer, the same list works in reverse: proof of repayment, of a cancelled contract, or of a liability that had not yet fallen due.
The timeline still applies
A security cheque that is presented and dishonoured follows the same steps as any other: presentation within validity, a written demand within 30 days of learning of the dishonour, 15 days for the drawer to pay, and a complaint within one month after that. Those steps are explained in Section 138 timeline explained.
Where the criminal route does not fit — for instance, because the debt had not crystallised when the cheque was presented — the underlying claim may still be pursued civilly, subject to limitation. The money recovery desk covers that route.
Holding a security cheque that has bounced?
Send the cheque, the return memo and the agreement or ledger behind it. The desk maps what was due on the date of presentation to the documents, and advocates handle any notice or filing.
See the Section 138 deskFAQs
Can a security cheque be prosecuted under Section 138?
It can, if a legally enforceable debt had become due on the date the cheque was presented. The Supreme Court has held that calling a cheque security does not by itself take it outside Section 138. If nothing was due on that date, the drawer's defence is stronger.
Who has to prove the debt in a security cheque case?
Section 139 presumes the cheque was given for a debt or liability. The drawer can rebut this by raising a probable defence on the preponderance of probabilities. If that happens, the payee has to prove the debt with documents.
Is a blank signed cheque valid for a Section 138 case?
The Supreme Court has held that if a signed cheque was voluntarily handed over, the presumption applies even if someone else filled in the details. The amount filled in must still correspond to a legally enforceable debt.
Related guides
- Section 138 timeline explained — the 30, 15 and one-month deadlines, with a worked example.
- Cash in a property deal — s.269SS and s.269ST — the tax angle when the money behind a cheque was paid in cash.
The desks these connect to: cheque bounce under Section 138 for the notice and complaint, and money recovery and civil dues where the debt is better pursued civilly.
This guide is general and informational — not legal advice, not a solicitation, and no substitute for professional advice on your facts. Outcomes depend on facts, documents, forum, limitation and applicable law.