The Delhi High Court has held that cheques issued solely for security purposes and not meant for presentation in the bank cannot be encashed to recover any existing or future liability.

Justice Neena Bansal Krishna, while deciding five connected petitions, ruled that, “the impugned cheques were security cheques given for a specific purpose and could not have been encashed for a liability which may have subsequently arisen.”

The case involved Sri Sai Sapthagiri Sponge Pvt. Ltd., which had challenged trial court orders summoning it in five cheque dishonour complaints filed by M/s Magnifico Minerals Pvt. Ltd.. The respondent alleged that ₹1.91 crore was due from the petitioner, and five cheques were issued in discharge of that liability. However, upon presentation, the cheques were dishonoured with the remark “STOP PAYMENT.”

Sri Sai Sapthagiri contended that the cheques were handed over only as security, to be shown to the bank, and not meant for deposit. It alleged that Magnifico Minerals had wrongfully presented the cheques to exert pressure and coerce payment.

Conversely, Magnifico Minerals argued that even if the cheques were issued as security, they represented a contingent liability which later crystallised into a legally enforceable debt, making the dishonour actionable under Section 138 of the Negotiable Instruments Act, 1881.

Rejecting this contention, the High Court held that the cheques were indeed issued as security and not against an existing enforceable debt. Accordingly, the Court quashed the complaints, observing that Section 138 NI Act does not apply to cheques issued purely for security purposes.

“In light of the above discussion, it is concluded that the cheques in question were security cheques and were not issued or encashable for any legally enforceable debt or liability. The complaints under Section 138 NI Act are thus not maintainable,” the Court stated while setting aside the summoning orders.

Cause Title: Sri Sai Sapthagiri Sponge Pvt. Ltd. v. The State (GNCT of Delhi) & Anr.