The Himachal Pradesh High Court has dismissed a criminal revision petition filed by one Daulat Ram, affirming his conviction under Section 138 of the Negotiable Instruments (NI) Act. The Court held that even a cheque issued as a “security” can be presented for encashment if the underlying debt is not repaid, and its dishonour attracts criminal liability.
Justice Sandeep Sharma, presiding over the case, observed that the petitioner failed to rebut the statutory presumptions under Sections 118 and 139 of the Act, which assume a cheque is issued toward the discharge of a lawful liability.
Background of the Case
The matter originated from a loan of ₹1,50,000 obtained by the petitioner, Daulat Ram, from the H.P. State Co-Operative Agriculture & Rural Development Bank (Loan Account No. PGH-119). Following defaults in repayment, the petitioner issued a cheque (No. 438622) dated January 6, 2020, for ₹75,985 to regularize the account.
Upon presentation, the cheque was dishonored with the remarks “Funds Insufficient.” Despite a legal notice served by the Bank, the petitioner failed to make the payment, leading to a complaint under Section 138 of the NI Act before the Judicial Magistrate First Class (JMFC), Shillai.
On July 6, 2022, the trial court convicted the petitioner, sentencing him to three months of simple imprisonment and directing him to pay compensation of ₹85,985. This judgment was subsequently affirmed by the Additional Sessions Judge, Sirmaur, on September 4, 2023.
Arguments of the Parties
The petitioner’s counsel, Mr. Parkash Sharma, argued that the courts below erred in appreciating the evidence. He contended that the cheque was issued merely as a “security” and had been misused by the Bank. It was also stated during the proceedings that the petitioner had not complied with a previous High Court order to deposit 25% of the compensation amount.
Conversely, the respondents maintained that the issuance of the cheque and the signatures were undisputed. They argued that since the petitioner failed to lead any positive evidence to prove the “security” claim or rebut the statutory presumption, the conviction was well-founded.
Court’s Analysis
The High Court emphasized that once the signatures and issuance of a cheque are admitted, the “reverse onus” clause comes into effect. Citing the Hon’ble Apex Court’s decision in M/s Laxmi Dyechem V. State of Gujarat (2013), the Court noted:
“If the accused/drawer of the Cheque in question neither raises a probable defence nor able to contest existence of a legally enforceable debt or liability, statutory presumption under Section 139 of the Negotiable Instruments Act… comes into play.”
Regarding the petitioner’s primary defence that the cheque was for security, the Court relied on the Supreme Court’s ruling in Sripati Singh v. State of Jharkhand (2021), which clarified that a security cheque is not a “worthless piece of paper.” Justice Sharma noted:
“Cheque, even if issued as a ‘security’ can also be presented for encashment, if amount taken or promised to be repaid is not paid.”
The Court further clarified that the NI Act does not per se carve out an exception for “security cheques.” If a debt exists at the time of presentation, the dishonour of such a cheque attracts Section 138.
Final Decision
Finding no material irregularity or miscarriage of justice, the High Court upheld the concurrent findings of the lower courts. Justice Sharma observed that the petitioner’s revision was devoid of merit as he failed to extract anything contrary during the cross-examination of the Bank’s manager or lead any evidence to “probabilise” his defence.
The Court dismissed the revision petition and directed the petitioner to surrender before the trial court forthwith to serve the awarded sentence. The interim stay on the sentence was vacated, and the bail bonds were cancelled.
Case Details:
- Case Title: Daulat Ram v. H.P. State Co-Operative Agriculture & Rural Development Bank and Another
- Case No.: Cr. Revision No. 80 of 2024
- Date of Decision: March 25, 2026
- Bench: Justice Sandeep Sharma
