• Cheque as Security

I had invested in a firm Bangalore that had given cheque as security against my investment.
Currently it has stopped all payments towards the investment and is unwilling to pay as for the agreement, My question is :  Will I be able to bounce the cheques and file as case against them as for the NI ACT? Can I Bounce the cheques in my native place where I have my bank account? In that case he has to travel there and take up the case which most likely would result in an out of court settlement? Will the court allow the case to be tried under the NI ACT 138 or will dismiss the case, as the cheque is cheque against security of investment and as for my knowledge 138 NI act is not applicable for cheque bounce cases that are for cheques against security?
Asked 1 year ago in Criminal Law from Bangalore, Karnataka
Religion: Hindu
1) you can present the cheques and if dishonoured file complaint under section 138 of NI act 

2) you should file the case from where the cheques were issued by the accused 

3) delhi high courtin case of S uresh Chandra Goyal vs Amit Singhal has held There is no magic in the word "security cheque", such that, the moment the accused claims that the dishonoured cheque (in respect whereof a complaint under Section 138 of the Act is preferred) was given as a "security cheque", the Magistrate would acquit the accused. The expression "security cheque" is not a statutorily defined expression in the NI Act. The NI Act does not per se carve out an exception in respect of a 'security cheque' to say that a complaint in respect of such a cheque would not be maintainable. There can be mirade situations in which the cheque issued by the accused may be called as security cheque, or may have been issued by way of a security, i.e. to provide an assurance or comfort to the drawee, that in case of failure of the primary consideration on the due date, or on the happening (or not happening) of a contingency, the security may be enforced. While in some situations, the dishonor of such a cheque may attract the penal provisions contained in Section 138 of the Act, in others it may not
Ajay Sethi
Advocate, Mumbai
23377 Answers
1226 Consultations
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In ICDS Ltd. Vs. Beena Shabeer &Anr. (2002) 6 SCC 426, the cheque in question had been issued by the guarantor (wife) of the principal debtor (husband) in respect of a hire purchase agreement entered into by the principal debtor with the complainant for purchase of a car. The cheque in question was issued by the guarantor towards part payment to the appellant/complainant. The same was returned unpaid on account of insufficient funds. The issue raised before the Supreme Court was whether a complaint under Section 138 of the NI Act was maintainable in respect of the said cheque. The High Court had come to the conclusion that when a cheque was issued as security, no complaint would lie under Section 138 of the NI Act, since the cheque issued could not be said to be for the purpose of discharging any debt or liability. The High Court held that the cheque must be for payment of money from out of the drawer's account. In the case of a cheque issued by a guarantor or surety, it could not be said to be for immediate payment of money. The High Court placed reliance on the decision of the Kerala High Court in Sreenivasan Vs. State of Kerala (1999) 3 K.L.T. 849 wherein the Kerala High Court had observed:

"A comparative reading of the principle laid down by the Andhra Pradesh High Court and the mandatory provisions laid down in Section 138 of the Negotiable Instruments Act is crystal clear that when a cheque has been issued as a security, no complaint will lie under Section 138 of the Negotiable Instruments Act."
31. The Supreme Court reversed the decision of the High Court by placing reliance on the language of Section 138 of the NI Act. Section 138 begins with the word, 'where any cheque......'. These three words were held to be significant. In particular, emphasis was laid on the use of the word, 'any'-which suggests that, if, for whatever reason a cheque drawn on an account maintained by the drawer with the banker in favour of another person for the discharge of any debt or other liability is dishonoured, the liability under Section 138 NI Act cannot be avoided. The Supreme Court also emphasized that the legislature had been careful enough to use not only the expression "discharge, in whole or in part, of any debt", but has also included the expression 'other liability' in the language of Section 138 NI Act. The Supreme Court held that the issue regarding the liability of a guarantor and the principal debtor being co-extensive, was out of purview of Section 138 of the NI Act and did not call for any discussion. The Supreme Court held:

"11. .........The language of the Statute depicts the intent of the law-makers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of the Act. 'Any cheque' and 'other liability' are the two key expressions which stand as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the Statute. Any contra interpretation would defeat the intent of the legislature. The High Court, it seems, got carried away by the issue of grantee and guarantor's liability and thus has overlooked the true intent and purport of Section 138 of the Act."
Thus, the view taken by the Kerala High Court in Sreenivasan (supra) was clearly not approved by the Supreme Court. The Supreme Court rejected the wide proposition that the dishonour of a security cheque issued by a guarantor from his account would not attract Section 138 of the NI Act.
Ajay Sethi
Advocate, Mumbai
23377 Answers
1226 Consultations
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1) what is the clause in your investment agreement? 

2) the investment agreement must have mentioned that in event of any dispute it would be subject to jurisdiction of courts at bangalore only 

3) as per the ordinance you can file case in Puri 

Ajay Sethi
Advocate, Mumbai
23377 Answers
1226 Consultations
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1. Do not call it a security cheque now,

2. You can show that the date has been written now to make the cheque valid for repaying you the amount,

3. You can deposit the cheque deposited and if it is bounced, you can file a case u/s138 of N.I. Act.
Krishna Kishore Ganguly
Advocate, Kolkata
12143 Answers
233 Consultations
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Hi, as per law once the cheque is issued then it is for consideration so provisions of the Negotiable Instrument Act will apply whether cheque is issued for security purpose or not.

2. As per amended law you can file a complaint either in drawer bank or drawee bank. 
Pradeep Bharathipura
Advocate, Bangalore
4105 Answers
133 Consultations
4.3 on 5.0
1. Were the cheques dated when it was given to you and mentioned in the agreement?

2. If not then put a current date on the cheques and argue that the company has converted the security cheques to currently issued cheques by putting dates on them.
Krishna Kishore Ganguly
Advocate, Kolkata
12143 Answers
233 Consultations
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1. You can file the cheque bouncing case at Puri Court as per the recent Ordnance,

2. Only thing is that you shall have to advance adequate argument for treating your cheques as currently updated chques from security cheques, if those were not dated,

3. Additionally, you can file a recovery suit also against the Company.
Krishna Kishore Ganguly
Advocate, Kolkata
12143 Answers
233 Consultations
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Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two year, or with fine which may extend to twice the amount of the cheque, or with both: …”.

The language of this legal provision is very clear. The offence of dishonour of cheque is made out only if the cheque had been issued for the discharge of any debt or other liability. If the cheque had been issued as a “security”, and if such cheque bounces, no offence is made out under Section 138 of the Negotiable Instruments Act.
T Kalaiselvan
Advocate, Vellore
14158 Answers
128 Consultations
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For your information all the cheques against the investment also are backed by an agreement which mentions the cheques are security against the investment in the firm of which has both parties have a copy (of the agreement).
This confirms that the cheque has been for security purpose only and not for any legally liable debt.




In the above context I have already bounced the cheques at my native town i.e. Puri in Orissa, The cheques were issued in Bangalore but as the cheque expiry date came near I was forced to deposit the cheques in the bank at my native town .  The cheques are already dishonoured. Now the situation is that the cheque is issued in bangalore  deposited at puri and dishonoured at puri , and the investment agreement bearing the cheque number as security cheque is from Bangalore, Karnataka on e-stamp Karnataka. As for the new ordinance (http://www.ndtv.com/india-news/president-mukherjee-re-introduced-ordinance-on-cheque-bounce-cases-1220886) which says that the place of dishonour of cheque is jurisdiction for trail, So I want to file the case here at PURI ? Is it possible?
Yes as per the new ordnance you can file cheque bounce case in Puri itself.
The amendment passed by the Lok Sabha provides that cases of bouncing of cheques can be filed only in a court in whose jurisdiction the bank branch of the payee (person who receives the cheque) lies.
T Kalaiselvan
Advocate, Vellore
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1. The cheque can be presented for payment and a cheque bounce prosecution launched against the drawer even if it has been issued as a security of investment. There is no embargo placed by the law on the initiation of cheque bounce prosecution on the basis of a cheque issued as security.

2. What the court will do cannot be foretold by me.

3. In view of the ordinance promulgated by the centre the cheque bounce case can be filed at the place where the payee resides. You can jolly well file the case in Puri.
Ashish Davessar
Advocate, Jaipur
18246 Answers
449 Consultations
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