Facts
The Petitioners, acting as Directors and Guarantors for KRPM Infrastructure Pvt. Ltd., were granted a term loan of ₹40 crores by the Respondent Bank via a Master Facility Agreement (MFA) dated 24.03.2023.
Source reference: p.3, paras 3, 5At the time of execution, the Petitioners provided undated, blank security cheques.
Source reference: p.3, para 3On 20.02.2024, the Bank filled and presented four cheques of ₹70 lakhs each, which were dishonored for "insufficient funds".
Source reference: p.4, paras 7, 8The Bank initiated proceedings under Section 138 of the NI Act and Section 420 of the IPC.
Source reference: no citationThe Petitioners challenged the cognizance order dated 06.06.2024 and the revisional order dated 22.04.2025, arguing that the loan was being actively serviced, no "Event of Default" was declared, and ₹2.68 crores had been paid between the date of cheque presentation and the date of cognizance.
Source reference: p.4-5, paras 9, 12, 13Issues
Whether the presentation of security cheques was legally sustainable under Section 138 of the NI Act in the absence of a formal notice of default or recall of the loan as per the Master Facility Agreement.
Source reference: p.12, 16; paras 40, 43Whether the continuous repayment and restructuring of the loan by the Bank rendered the criminal prosecution an abuse of the process of law.
Source reference: p.18, para 49-50Law Applied
The Court primarily applied Section 138 of the Negotiable Instruments Act, 1881, regarding the dishonor of cheques for discharge of debt.
Source reference: p.2-3Section 420 of the Indian Penal Code, 1860, concerning cheating.
Source reference: p.3, para 1It interpreted the contractual obligations under the Indian Contract Act, 1872, specifically regarding the liability of Guarantors.
Source reference: p.14-16The court referred to the precedent in Sripati Singh v. The State of Jharkhand (2022) to distinguish the nature of security cheques.
Source reference: p.4, para 10The principle that criminal proceedings should not be used for "double vexation" when civil/contractual rectifications (like EMI restructuring) are active.
Source reference: p.6, para 18Reasoning
The Court observed that under Article 9 of the MFA, a "Security Cheque" can only be invoked upon a specific "Event of Default".
Source reference: p.16, para 43The record indicated that the loan account was subsisting, and the Bank had unilaterally restructured the loan by imposing higher interest rates, which the Borrower was paying.
Source reference: p.6, para 17; p.17, para 44The Bank failed to issue a prior Notice of Demand to the Guarantors to rectify the alleged default before presenting the cheques, as mandated by Clause 9.2 of the MFA and Clause 2 of the Deed of Guarantee.
Source reference: p.14, 17; paras 42, 46The Court reasoned that since the default was being addressed through restructured payments and the agreement remained active, the invocation of criminal machinery was premature and inequitable.
Source reference: p.18, para 47-49The Bank did not controvert the fact that substantial payments (₹2.68 crores) were made post-presentation, significantly altering the "legally enforceable debt" status required at the time of cognizance.
Source reference: p.17-18, paras 44, 48Holding
The Court held that permitting the continuation of the Section 138 proceedings under these circumstances constituted an abuse of the judicial process, as the underlying debt was being serviced through a restructured arrangement.
The Court answered that security cheques cannot be encashed without following the contractually agreed-upon notice protocols for default.
Source reference: p.17-18, paras 46-47Consequently, the High Court quashed the Complaint Cases and the Summoning Orders against the Petitioners.
Source reference: p.18, para 51Original Court PDF
Ms. Ritu Gupta & Ors. v. Kotak Mahindra Bank Ltd. [CRL.M.C. 4541/2025]
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