These cases are very common in various Courts of India. I can understand your concern in this regard. This practice is being adopted as a matter for recovering the outstanding in case of eventuality. From the lender side they are more concerned about the recovery of the money with the contracted interest amount.

Hon'ble Supreme Court has held that if in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow. When a cheque is issued even though as ‘security’ the consequence flowing therefrom is also known to the drawer of the cheque and in the circumstance stated above if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proceedings for recovery or the criminal proceedings for punishment in the fact situation, but in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation.

However, there are always defences available as per facts and circumstances of each case. Since you have already received the summons, therefore, the case has to appropriately defended. Detailed discussion is required with complete documents. 

You may contact my secretary to connect with for clarification. 

File petition in HC for quashing of 138 case filed against you as there is debt due and payable 

you have been regular in paying EMI and entire amount is not due and payable 

3) complaint under Section 138 of the Negotiable Instruments Act (NI Act) cannot be quashed when there are disputed questions of fact

The act on part of bank is legal and is in consonance of law. Bank never accept cheque as security. So when you failed in making payment bank had deposited cheque to recover pending EMI. In loan agreement also bank keep clause for recovery of entire loan amount at once. Nothing wrong on part of bank. No purpose would be served in approaching high court. 

Your principles al defence that blank cheque was given as security 

that amount mentioned in cheque was not due and payable as only 2 EMI were outstanding 

3) when a blank cheque is issued you authorise the bank to fill in details and present the cheque for payment 

4) the fact that bank can sell the property does not prevent bank from filing case on basis of dishonoured cheque 

There is no legal infirmity in using the security cheque for recovering the defaulted loan amount. 

The bank issued a statutory legal demand notice before filing the cheque bounce case, whereas you failed to avail the opportunity.

Therefore the bank has exercised its right to recover the loan amount especially when you continuously defaulted the EMI for two months. 

The bank cannot make it NPA for two months default. hence for putting pressure on you they have adopted this method. 

The high court may not entertain any petition for quash. hence you may better contact bank itself and negotiate settlement amount.

You may justify your case from your angle, but the law do not prevent bank from taking this legal action through cheque bounce case.

You can challenge bank's case on merits in the trial court.

You can contest the cheque bouncing case on merits on grounds that entire amount was not due and payable 

1. Misuse of Section 138 in Secured Loan:

   • Section 138 of the Negotiable Instruments Act (NI Act) applies to cheques issued for discharging a debt or liability, not as security.
   • Your home is the pledged security, and the bank’s action of depositing the entire loan amount cheque despite ongoing EMI payments is disproportionate and abusive.

2. Key Legal Points in Your Favor:

   • 
     Blank Cheques Taken as Security: Courts have held that cheques given as security are not actionable under Section 138 unless explicitly stated as a repayment instrument in the agreement.
   • 
     Non-NPA Account: Since your account is not classified as NPA, the bank cannot justify depositing the cheque for the full loan amount.
   • 
     Partial Liability: With only two EMIs overdue, the bank should seek recovery for the outstanding amount, not initiate criminal proceedings for the entire loan amount.

3. Action Plan:

   • 
     Challenge Jurisdiction: File a petition under Section 482 CrPC in the High Court to quash the complaint. Argue:

     • The cheque was for security, not repayment.
     • The entire loan amount was not due.
     • The property is mortgaged, providing sufficient recourse for the bank.

   • 
     Highlight Abuse of Process: Emphasize that Section 138 is being misused as a coercive tool, ignoring the secured nature of the loan.
   • 
     File a Counterclaim: If needed, initiate a counter-complaint for harassment or abuse of legal process.

4. Precedents Supporting Your Case:

   • 
     ICDS Ltd. v. Beena Shabeer (2002): Cheques given as security are not covered under Section 138.
   • 
     Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency (2016): Security cheques do not constitute "legally enforceable debt or liability."

5. Next Steps:

   • Engage a competent lawyer to file a quashing petition in the High Court.
   • Emphasize that the criminal proceedings are unwarranted since the bank has adequate security and recovery mechanisms (e.g., SARFAESI Act).

Conclusion: Courts have frowned upon the misuse of Section 138 for secured loans. With strong legal arguments and precedents, you can effectively challenge this case.

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

If you are aggrieved by the act of the bank then you can make a complaint against the bank with the Banking Ombudsman and get your grievances redressed. 

If you believe that the bank's services are deficient you are at your liberty to drag the bank to consumer distress redressal commission for compensation and remedy. 

Besides what all you discussed in your latest post,  can be taken up during trial proceedings and the same can be challenged properly. 

On the whole the bank is very well within its rights to file this cheque bounce case,  in any case the court will certainly hear your side  reasons also before passing the judgment. 

It can be only filed when there is existing liability against you in date of dishonour of cheque 

A cheque issued as security for a loan or other financial liability is considered to mature when the loan or installment is due. The drawer can present the cheque if the loan or installment is not repaid in any other way.

2)  The Apex Court in the case of Sampelly Satyanarayana Rao v Indian Renewable Energy Development Agency Limited(Sampelly case) held that wherein a post-dated cheque described as ‘security’ in the loan agreement is dishonoured, the same would be punishable under Section 138 of NIA. 

3) 

where a cheque is issued as security for a time specific loan, then on default of repayment of loan the security cheque issued would mature, if then the security cheque is dishonored, “the consequences contemplated under Section 138 and other provisions of N.I. Act would flow.” On a similar tangent, in the case of Sunil Todi,  SC  observed that a security cheque issued for advancement of a loan would be mature for presentation upon the default of repayment of loan. Upon dishonour of such a security cheque, the same would lie under the ambit of Section 138.

4) filing of PIL would be a futile exercise 

Why PIL for Misuse of Security Cheques?

1. Ethical and Legal Concerns:

   • 
     Tangible Security: If the loan is secured by property, depositing cheques not mentioned in the agreement raises questions of fairness and legitimacy under the NI Act.
   • 
     Non-negotiable Cheques: Security cheques not tied to repayment or mentioned in the loan agreement cannot constitute a negotiable instrument for criminal proceedings.

2. Unfair Practices:

   • Banks taking security cheques without documentation in agreements exploit borrowers' vulnerabilities during loan disbursal.
   • Agreements should clearly state the purpose and use of such cheques to maintain transparency and fairness.

3. Grounds for PIL:

   • Misuse of Section 138 of NI Act: Highlight how banks coerce borrowers by depositing security cheques despite having tangible security (e.g., property).
   • 
     Policy Reform: Request RBI and Supreme Court to issue guidelines or ban the practice of accepting and using "security cheques" for secured loans.
   • 
     Consumer Protection: Demand fair loan agreements that avoid one-sided terms favoring lenders.

4. Steps to File PIL:

   • Document your case and similar instances of misuse.
   • File the PIL in the High Court or Supreme Court with the help of a public-spirited lawyer.
   • Seek systemic reform to protect borrowers from harassment and coercive practices.

5. Strengthen Your Case:

   • Use legal precedents (e.g., ICDS Ltd. v. Beena Shabeer, Sampelly Satyanarayana Rao) to argue that banks are misusing cheques given as security.
   • Highlight unfair agreements that omit mention of cheques as security.

For detailed, personalized advice, consider a phone consultancy.
Hope you find the information helpful. You are free to contact me for further discussion. If you could spare two minutes of your time to write a review, it would be really grateful and very happy to read it.

Thank you.
Shubham Goyal

1. If you have given the cheques duly signed, you are liable for this commitment.

2. How did you come to know that this cheque was not mentioned in the agreement, if you were knowing it earlier nothing prevented you from handing over the cheque to the bank then 

You will be given an opportunity to be heard about your grievances and the evidences you rely upon to rebut the allegations leveled against you in the trial proceedings. 

You can go for writ petition for quashing of the said complaint before HC