Criminal proceedings under Section 138 NI Act are unsustainable for security cheques where no prior demand notice or loan recall occurred.

The Petitioners (Directors/Guarantors of KRPM Infrastructure Pvt. Ltd.) challenged a summoning order dated 06.06.2024 and a revisional order dated 22.04.2025 arising from a complaint under Section 138 of the Negotiable Instruments (NI) Act read with Section 420 IPC.

The Respondent Bank sanctioned a term loan of ₹40 Crores to the company, for which the Petitioners provided undated, blank security cheques.

On 20.02.2024, the Bank filled and presented four cheques of ₹70 Lakhs each, which were dishonored for "insufficient funds".

The Petitioners contended the loan was active, EMIs were being paid, the account was not an NPA, and a substantial sum of ₹2.68 Crores was paid between February and June 2024, which was suppressed from the Magistrate.

Whether the presentation of undated security cheques without a prior demand notice or a formal declaration of default is sustainable under Section 138 of the NI Act.

Whether the criminal proceedings constitute an abuse of process when the loan agreement is subsisting and the alleged default was rectified through restructured payments.

The court primarily applied Section 138 of the Negotiable Instruments Act, 1881, regarding the dishonor of cheques for discharge of debt.

It considered Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (inherent powers of the High Court).

The court referenced *Sripati Singh v. State of Jharkhand* (2022) regarding the treatability of security cheques as matured late payments.

The court referenced *Syndicate Bank v. Channaveerappa Beleri* (2006) regarding the necessity of a demand notice to crystallize a guarantor's liability.

It also noted the principle from *MSR Leathers v. S. Palaniappan* (2013) regarding statutory timelines for cheque presentation.

The court reasoned that under Article 9 and Clause 2 of the Master Facility Agreement and Deed of Guarantee, the Bank was contractually obligated to issue a notice of demand to the borrower and guarantors to rectify a default before invoking security.

The record indicated that the Bank had unilaterally restructured the loan, imposed higher interest, and the Petitioners were actively servicing the debt, having paid over ₹3.33 Crores during the relevant period.

Since the loan agreement was subsisting and the Bank failed to prove a crystallized "Event of Default" or a prior demand notice as per contractual protocols, the presentation of the cheques was premature.

The court found that the Bank suppressed the fact of ongoing repayments from the Trial Court, rendering the continuation of criminal proceedings an abuse of judicial process rather than a pursuit of justice.

The High Court held that permitting the continuation of Section 138 proceedings in a subsisting commercial venture where the default stood addressed would be an injustice.

Consequently, the Court allowed the petitions, quashed the Complaint Cases, the Cognizance Order, and the Revisional Order.