The High Court of Delhi, in a judgment pronounced on November 11, 2025, has held that a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881, cannot be quashed at the summoning stage merely on the grounds that the dishonoured cheque was given as ‘security’ or that the amount represented in the cheque is disputed.
Justice Neena Bansal Krishna, dismissing a petition (CRL.M.C. 1379/2021) filed under Section 482 of the Cr.P.C., ruled that the question of whether the cheque amount corresponds to an existing liability or is in excess of it “is a matter of trial and cannot be considered at the stage of summoning.”
The petition was filed by Mr. Manmohan Gaind, Director of M/s Mahesh Prefab Pvt. Ltd., seeking the quashing of Criminal Complaint No. 1982/2017 filed by M/s Negolice India Pvt. Ltd. (Respondent) and the subsequent summoning order dated 18.12.2018 issued by a Metropolitan Magistrate.
Background of the Case
The case originates from a Work Order dated February 28, 2013, awarded by the Respondent to the Petitioner’s company for the “Supply and Installation of GRC Grills” for a total consideration of Rs. 56,86,633/-.
As per the contract, the Respondent paid a 15% mobilization advance of Rs. 6,82,416/-. Against this, the Petitioner’s company issued an advance cheque (the “impugned cheque”) for the equivalent amount of Rs. 6,82,416/- as security.
The Petitioner stated that the Respondent later “illegally, arbitrarily, abruptly and unjustly terminated the contract,” leading to a dispute over the final accounts.
On March 26, 2014, the Petitioner’s company sent a final bill claiming work done to the value of Rs. 5,85,472/-. After adjustments, the Petitioner asserted that only a balance of Rs. 69,647/- was payable to the Respondent.
The Respondent, in its letter dated April 18, 2014, refuted this, claiming only Rs. 3,20,881/- worth of work was completed and demanded a refund of the unadjusted advance, calculated as Rs. 3,61,847/-. The Petitioner’s subsequent request for a “joint measurement” was not acceded to by the Respondent.
On May 31, 2014, the Respondent reiterated its demand for Rs. 3,61,847/- and threatened to present the full security cheque. In response, the Petitioner’s company sent a legal notice on June 6, 2014, calling upon the Respondent not to present the cheque, stating the amount payable was disputed and not Rs. 6,82,416/-.
Despite this, the Respondent presented the impugned cheque, which was returned unpaid with the remark “account closed.” After a statutory notice on December 22, 2015, and a reply from the Petitioner reiterating the cheque was for security, the Respondent filed the criminal complaint in February 2016, leading to the summoning order of December 18, 2018.
Petitioner’s Arguments
The Petitioner challenged the complaint and summoning order, arguing that the Ld. Magistrate had issued the order “mechanically and in a routine manner.”
The primary contention was that the cheque was “admittedly, given as security” and not for the discharge of an existing debt, which is a sine qua non for an offence under Section 138. It was argued that the dispute was of a “civil nature” and being improperly converted into a criminal prosecution.
The Petitioner further submitted that the presentation of the cheque was mala fide because the Respondent’s own written demand was only for Rs. 3,61,847/-, yet it presented a cheque for the much larger amount of Rs. 6,82,416/-.
Respondent’s Arguments
The Respondent contended that the cheque was issued as part of the contract and an Indemnity Bond dated March 8, 2013, with an “express and willful promise” that it could be encashed if the Petitioner failed to perform or “in the discharge of the existing and outstanding liability for payment of damages including recovery of unadjusted advance payment.”
The Respondent claimed the Petitioner failed to complete the work by the contract deadline. It was submitted that the total recoverable debt was Rs. 7,20,649/-, which included the unadjusted advance (Rs. 3,61,847/-), penalty (Rs. 2,84,331/-), and interest (Rs. 74,471/-), as per the contract and Indemnity Bond. The cheque was presented to recover these “outstanding dues/losses.”
Court’s Analysis and Findings
The High Court examined two primary issues: the nature of the ‘security cheque’ and the existence of a ‘legally enforceable debt’.
On the first issue, the Court, referring to the Supreme Court’s judgment in Sripati Singh vs. State of Jharkhand (2022), observed that a security cheque is not a “worthless piece of paper.” Justice Krishna noted, “‘Security’ in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment.” The Court cited the apex court’s finding that if a loan is not repaid by other means, “the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same.”
The Court also referenced Bir Singh vs. Mukesh Kumar (2019), which held that a person who signs and hands over a cheque “remains liable unless he adduces evidence to rebut the presumption” that it was for a debt.
Based on this, the High Court held: “Thus, this contention of the Petitioner that the impugned Cheque was merely a security cheque and could not have been presented, is untenable.”
On the second issue, regarding the legally enforceable debt, the Court noted the dispute over the amount due. The Petitioner claimed only Rs. 69,647/- was payable, while the Respondent, in its final legal notice, had crystallized its claim at Rs. 7,20,641/- (including penalties and interest).
The Court found that the Indemnity Bond (dated March 8, 2013, as per paras 19 and 45) linked the cheque to a potential future liability for “liquidated damages” in case of loss, with the “final decision in respect whereof shall vest in the Owner.”
The Court observed: “There was thus, a dispute amongst the parties inter-se about the work which was done and the amount which was due and payable by one to the other.”
The judgment’s crucial finding on this point was: “For an offence under Section 138 of the NI Act to be attracted, the cheque must be for the discharge of a debt or liability, and the debt must be equal to or greater than the amount of the cheque presented. Whether the cheque amount was for the existing liability or an excess amount, is a matter of trial and cannot be considered at the stage of summoning.”
Decision
Concluding the judgment, Justice Krishna stated, “From the above narrative, it is evident that firstly this cheque was given to secure any loss that may be suffered by the Complainant. Furthermore, the Complainant has crystallized the outstanding liability under the Contract of Rs. 7,20,641/- and has consequently presented the Cheque of Rs. 682416/-.”
The Court held that “It cannot be at this stage, said that there is no legally enforceable liability. What exactly is the amount due and payable to the Complainant is a disputed fact which can be proved only during the trial.”
Finding “no merit in the present Petition,” the High Court dismissed the plea to quash the complaint and set aside the summoning order.
