Dishonour of security cheque attracts Section 138 only if existing liability is proved at issuance.

The applicant (original complainant) alleged that he sold industrial oil worth ₹5,08,000 to the respondent (accused) on 09.12.2014

The accused paid ₹33,000 and allegedly issued a cheque for the balance of ₹4,75,000 on 05.04.2015, which was dishonored for "insufficient funds" on 15.04.2015

While the Magistrate convicted the accused [p. 7], the Sessions Judge (Appellate Court) acquitted him on 26.02.2019

The Appellate Court noted that the complainant’s own legal notice (Exh. 21) described the cheque as a "security" and found a lack of documentary evidence (invoices/bills) to prove a legally enforceable debt

1. Whether the description of a cheque as a "security" in a legal notice automatically exempts it from the purview of Section 138 of the Negotiable Instruments Act

2. Whether the accused successfully rebutted the statutory presumption under Section 139 of the Act by disputing the existence of the debt and alleging coercion

The Court applied Sections 118, 138, and 139 of the Negotiable Instruments Act, 1881.

Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., which held that if a "security" cheque represents a subsisting liability on the date of its issuance, Section 138 is attracted

Indus Airways Private Limited v. Magnum Aviation Private Limited establishes that if a cheque is an advance for goods not supplied or if no debt exists at the time of drawing, it does not constitute a discharge of "debt or other liability"

The High Court observed that while the mere label of "security" does not invalidate a claim, the complainant must prove a subsisting debt

Here, the complainant failed to produce invoices, delivery challans, or ledger books to substantiate the ₹5,08,000 sale

The court noted that the accused had issued a legal notice (Exh. 22) on the very day of the cheque's date (13.04.2015), alleging the complainant obtained the cheque under duress at 5:00 AM

Furthermore, internal inconsistencies in the handwritten rojmel (daily diary) and blank pages therein weakened the complainant's case

The Court reasoned that these factors, combined with the complainant’s admission in Exh. 21 that the cheque was for "security," created a "probable defense" that shifted the onus back to the complainant, who failed to prove the debt beyond reasonable doubt

It held that a "sine qua non" for an offence under Section 138 is the existence of debt on the date the cheque is drawn

Given the lack of commercial documentation and the immediate protest by the accused regarding coercion, the Appellate Court's finding—that the cheque was not issued for a legally enforceable debt—was deemed a possible and reasonable view. Notice discharged.