Section 138 NI Act prosecution is unsustainable for third-party debts and unfulfilled security cheque conditions.

The respondent filed a complaint under Section 138 of the Negotiable Instruments Act (NI Act) against the petitioner, alleging the dishonour of a cheque for ₹5,82,450 with the remark "account closed"

The transaction related to investments made by the respondent in Sahara India, where the petitioner allegedly acted as an intermediary/agent

The petitioner contended that the cheque was issued as security, contingent upon the respondent fulfilling specific conditions endorsed on the reverse of the cheque, including the return of original documents

On 11.12.2024, the Judicial Magistrate First Class, Datia, framed charges against the petitioner, a decision subsequently upheld by the Sessions Court in revision on 28.02.2025

The petitioner then approached the High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), seeking quashment of the proceedings

1. Whether a person acting as a mere intermediary can be held liable under Section 138 of the NI Act for a debt primarily owed by a third party (Sahara India)

2. Whether the dishonour of a security cheque, issued subject to specific unfulfilled conditions, attracts criminal liability under the NI Act

3. Whether the statutory presumptions under Sections 118 and 139 of the NI Act can be invoked mechanically without establishing foundational facts

The court primarily applied Section 138 of the Negotiable Instruments Act, which mandates the existence of a "legally enforceable debt or liability" for an offence to be constituted

It further relied on Sections 118 and 139 of the NI Act, noting that while these sections create a presumption in favor of the holder, such presumptions are rebuttable and do not apply in isolation from foundational facts

Finally, the court invoked Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (the successor to Section 482 CrPC), which grants the High Court inherent powers to quash proceedings to prevent the abuse of the process of law

The Court found that the essential ingredient of Section 138—a legally enforceable debt—was missing, as the respondent’s own complaint indicated that the liability resided with Sahara India, not the petitioner in his personal capacity

The Court noted that the cheque was explicitly a security cheque subject to conditions (the return of documents) which the respondent failed to fulfill before presentation

The Court reasoned that the trial court and revisional court erred by adopting a "mechanical" approach, relying solely on statutory presumptions without addressing the fact that the petitioner’s reply to the statutory notice and the endorsements on the cheque itself raised serious doubts about the subsisting liability

It was held that since the presentation of the cheque was contrary to the agreed terms, it did not constitute a valid basis for prosecution

It held that the lower courts failed to appreciate that the foundational facts required to invoke statutory presumptions were absent

Consequently, the High Court allowed the petition, setting aside the orders dated 11.12.2024 and 28.02.2025, and quashed the entire criminal proceedings arising from SC NIA No. 220 of 2022 against the petitioner