In short. Yes, a bounced security cheque can attract section 138 of the Negotiable Instruments Act if, on the date of presentation, a legally enforceable debt equal to the cheque amount was due and unpaid (Sripati Singh v State of Jharkhand, 2021). It does not apply where the liability never arose, was discharged, or had not matured.
"It was only a security cheque" is the most common sentence we hear from people who receive a cheque bounce notice. Sometimes it is a complete answer. Often it is not. The law does not have a separate category of security cheques; it asks whether the cheque was drawn for a debt or liability that was legally enforceable when the cheque was presented. Calling a cheque security describes why it was handed over, not whether it can be enforced.
This post looks at that question from both sides: the lender, supplier or landlord holding a security cheque, and the borrower, distributor or tenant who gave one. The notice that must follow any dishonour is covered in our post on the cheque bounce legal notice and its 30-day deadline, and the remedy as a whole on our cheque bounce practice page.
- Short answer
- Can be a section 138 offence if the debt was due on presentation
- Leading ruling
- Sripati Singh v State of Jharkhand (2021)
- Not an offence
- Liability never arose, was paid off, or was not yet due
- Presumption
- Section 139 applies once the signature is admitted
- Part payments
- Must be endorsed on the cheque before presenting (section 56)
- Drawer's burden
- A probable defence on a balance of probabilities
Is a bounced security cheque a criminal offence?
It can be. Section 138 punishes the dishonour of a cheque drawn "for the discharge, in whole or in part, of any debt or other liability", and the explanation to the section says this means a legally enforceable debt or liability. Nothing in the section exempts a cheque because the parties called it security when it changed hands. In Sunil Todi v State of Gujarat (2021) the Supreme Court put it plainly: merely labelling a cheque as security does not change its character as an instrument meant to meet a legally enforceable debt.
What matters is timing and amount. A security cheque is given against a liability that may arise or fall due later: a loan instalment, payment for goods to be supplied, rent arrears, a guarantee. If that liability has crystallised by the time the cheque is presented, and the cheque amount reflects what is actually due, the security cheque behaves like any other cheque. If the liability never came into existence, or had been cleared, there is nothing for the cheque to discharge, and the prosecution fails.
What the Supreme Court said in Sripati Singh
Sripati Singh v State of Jharkhand (2021) is the case most often cited on this point. A lender had advanced a loan and received cheques as security, repayable by a particular time. The loan was not repaid, the cheques were presented and returned, and the High Court quashed the prosecution on the ground that security cheques could not attract section 138. The Supreme Court reversed that view.
The court said a cheque issued as security is not a worthless piece of paper. If the loan or instalment falls due and is not repaid in some other form, and there is no agreement to defer payment, the security cheque matures for presentation. If it is then dishonoured, section 138 applies. The drawer's answers are limited: that the debt had been discharged before the cheque was presented, or that the situation had changed in a way that created an understanding between the parties not to present the cheque. The court also said the holder may choose between civil recovery and criminal prosecution; the drawer cannot dictate which.
The court relied on its earlier decision in Sampelly Satyanarayana Rao v Indian Renewable Energy Development Agency (2016), where post-dated cheques given as security for loan instalments were held to be for a debt that existed when the cheques were drawn. Reading those two judgments together with Sunil Todi gives the working rule: the question is not why the cheque was handed over, but whether a debt equal to it was due and payable on the date it was deposited.
When a security cheque does not attract section 138
The clearest case is where the liability never arose. In Indus Airways v Magnum Aviation (2014) cheques were given as advance payment against purchase orders, the purchase orders were cancelled, and the cheques were later dishonoured. The Supreme Court held there was no section 138 offence, because at the time of presentation no debt was owed; the goods had never been supplied. Sunil Todi later explained that Indus Airways turned on exactly that point: the contract was cancelled before any liability came into being.
The second case is discharge. If the loan the cheque secured was repaid by bank transfer, or the supplies were paid for in full, the cheque no longer secures anything. Presenting it afterwards is presenting a cheque for which no debt exists. The third case is a cheque presented before the debt matured, for example a cheque for an instalment due in December presented in July without any default clause making the whole loan due earlier.
A fourth case is an understanding not to present. If the parties restructured the arrangement, agreed on a fresh payment schedule, or the holder promised in writing to return the cheque, presenting it in breach of that understanding undermines the prosecution. All four are factual defences. The drawer has to prove them, usually through documents.
The provisions that decide security cheque cases
Section 138 and its explanation, NI Act
The offence is the dishonour of a cheque drawn for the discharge of a debt or other liability, followed by failure to pay within 15 days of notice. The explanation limits "debt or other liability" to one that is legally enforceable. Security cheque disputes are almost always fought over this phrase.
Section 139, NI Act
The court presumes, unless the contrary is proved, that the holder received the cheque for the discharge of a debt or liability. In Rangappa v Sri Mohan (2010) the Supreme Court held that this presumption extends to the existence of a legally enforceable debt. The drawer rebuts it on a balance of probabilities, not beyond reasonable doubt.
Section 118, NI Act
The court presumes that every negotiable instrument was made or drawn for consideration. Together with section 139 it means that once the drawer admits his signature, the burden of showing that the cheque was not for a live debt moves to him.
Section 56, NI Act
Where part of the amount due on an instrument has been paid, the payment may be endorsed on it and the instrument negotiated for the balance. In Dashrathbhai Trikambhai Patel v Hitesh Mahendrabhai Patel (2022) the Supreme Court held that a cheque presented for its full amount after part of the debt had been repaid, without the part payment being endorsed, does not represent a legally enforceable debt on the date of presentation, and no section 138 offence is made out.
Common security cheque situations and how courts tend to see them
These are general tendencies, not rules. Each case turns on its documents and on the evidence at trial.
| Situation | When section 138 is likely to apply | When it is likely to fail |
|---|---|---|
| Post-dated cheques for loan instalments | Instalment fell due and was not paid; cheque presented after default | Instalment had been paid by other means; cheque presented early |
| Undated cheque given to a bank or NBFC at sanction | Loan recalled under the agreement and the amount filled in matches the dues | Amount filled in exceeds what was due, or loan was closed |
| Distributor or dealer security cheque | Goods supplied, invoices unpaid, ledger balance at least equal to the cheque | No supplies made, or account settled before presentation |
| Advance payment cheque for a purchase | Goods or services delivered and payment due | Order cancelled before any supply (Indus Airways) |
| Guarantor's cheque for another's loan | Borrower defaulted and guarantor's liability arose | Guarantee discharged or loan repaid |
| Tenant's security cheque to landlord | Rent or charges actually in arrears for the cheque amount | No arrears, or deposit already adjusted |
| Employee's cheque under a service bond | Amount is a fixed, agreed and enforceable sum actually due | Amount is a penalty or unliquidated damages not yet determined |
Blank signed security cheques: does it matter who filled them in?
Many security cheques are handed over signed but blank, with the date and amount left open. The Supreme Court in Bir Singh v Mukesh Kumar (2019) held that a person who voluntarily signs a blank cheque and hands it over is presumed to have authorised the holder to fill it in, and the section 139 presumption still applies even if the payee wrote in the amount. The fact that someone else filled in the details is not, by itself, a defence.
What the drawer can argue is that the amount written in was not what was due. If a supplier holds a blank cheque against a running account and fills in ₹8 lakh when the ledger shows ₹3 lakh outstanding, the cheque does not represent a legally enforceable debt for its full amount. The Dashrathbhai ruling on part payments supports this line: the cheque must match the debt on the day it is presented. The drawer needs the ledger, bank entries and correspondence to show the gap.
Holders should take the lesson the other way round. Fill in only what is due on the date of presentation, keep the working that shows how you arrived at the figure, and make sure the notice demands exactly that amount.
Undated cheques given to banks and NBFCs
Lenders, particularly NBFCs and small finance companies, routinely take undated signed cheques at the time of sanction, along with the loan agreement. When the borrower defaults, the lender recalls the loan under the agreement, fills in the date and the outstanding amount, and presents the cheque. If the recall was valid under the agreement and the amount matches the statement of account, courts usually treat the cheque as drawn for a debt due on presentation.
Borrowers in these cases should look at three things: whether the loan was actually recalled before the cheque was presented, whether the amount filled in includes penal charges or other sums the agreement does not justify, and whether any restructuring or settlement was agreed in between. Lenders often run arbitration or SARFAESI proceedings in parallel; the options in those cases are discussed in our post on credit card and personal loan default actions.
Guarantors, employment bonds and advance payments
A cheque given by a guarantor to secure someone else's loan can attract section 138. The section speaks of "any debt or other liability", and the Supreme Court has long held that this is not limited to the drawer's own debt. Once the borrower defaults and the guarantor's liability arises under the guarantee, the guarantor's security cheque can be presented. Our post on a guarantor's liability when the borrower defaults deals with the guarantee itself.
Employment bonds are different. Employers sometimes take a cheque from a new employee for a fixed sum payable if he leaves before a lock-in period ends. Whether that sum is legally enforceable depends on whether it is a genuine pre-estimate of training costs or a penalty, and courts have often been reluctant to treat such amounts as a debt due without adjudication. Our post on employment bonds and recovery of training costs explains the contract side.
Advance payment cheques, such as a buyer's cheque for a booking or a purchase order, follow Indus Airways. If the seller has not performed, there is no debt for the cheque to discharge. If the seller has delivered and the buyer has not paid, the position changes, as Sunil Todi showed in a case where electricity had been supplied after the cheque was issued.
Holding a security cheque? How to present it safely
For lenders, suppliers and landlords, most security cheque prosecutions fail because of what was done before the cheque was deposited.
Confirm the liability has fallen due
Check the agreement, invoices or loan schedule. The cheque should be presented only after the instalment, invoice or other amount has become payable and is unpaid. If the agreement needs a recall or demand first, send it and keep proof.
Work out the exact amount due
Prepare a statement of account showing what is owed on the date you plan to present. Deduct every part payment received. Keep this working with your file.
Deal with part payments
If the cheque already bears an amount and part has been repaid, endorse the part payment on the cheque under section 56 and present it for the balance, or take a fresh cheque. Presenting the full figure after part payment invites the Dashrathbhai defence.
Fill in blank details carefully
If the cheque was handed over blank, fill in a current date within the bounds of the agreement and only the amount actually due. Do not round up or add disputed charges.
Present within validity
A cheque is normally valid for three months from its date. Present it within that period and collect the return memo promptly if it is dishonoured.
Send the statutory notice
Send the section 138 notice within 30 days of learning of the dishonour, demanding exactly the cheque amount, and explain in the notice what the security was for and how the liability arose.
Gave a security cheque? Protect yourself before it is misused
If you have repaid the debt or the arrangement has ended, ask in writing for the cheque to be returned. A letter or email, sent at the time, saying that the loan has been closed and asking for the return of cheque number such-and-such, is often the best evidence you will ever have. If the holder replies refusing, or does not reply, that too is evidence.
Keep a clean record of every repayment, made by bank transfer where possible, and keep loan closure letters, no-dues certificates and settlement agreements. If you make a part payment, ask for it to be endorsed on the security cheque or for the cheque to be swapped for one for the reduced amount.
Instructing your bank to stop payment does not stop a section 138 case if a debt was due; a "payment stopped by drawer" return attracts the section like any other. That is discussed in our post on which cheque return reasons attract section 138. A stop payment instruction is still worth giving where the debt is genuinely discharged, but alongside a written explanation to the holder, not instead of one. Where a cheque has clearly been misused, for example presented for a fabricated amount after the account was settled, a police complaint or a civil suit for return of the cheque may be considered, though courts are slow to restrain criminal proceedings through a civil injunction.
How the drawer proves the cheque was only security
Once the signature is admitted, the presumption under sections 118 and 139 works against the drawer, and he has to show a probable defence. He can do that through his own evidence or through the complainant's answers in cross-examination. Courts look for documents: the agreement that describes the cheque as security, the ledger showing the account was settled, the bank statement showing repayment, the email asking for the cheque back, the reply sent to the legal notice.
A point Advocate B.K. Singh often makes to clients who say "it was only a security cheque" is that the word itself carries no weight in court. What carries weight is the paper trail showing what the security was for, and what happened to that liability before the cheque was deposited. A drawer with a loan closure letter and a request for return of the cheque usually has a defence worth taking to trial. A drawer with only the word "security" usually does not.
Cross-examination of the complainant matters as much as the drawer's own evidence. Questions about when the cheque was handed over, why it was undated, what the outstanding was on the date of presentation, and how the figure was worked out often bring out the gap between the cheque amount and the real debt. The standard is a balance of probabilities, so the drawer does not need to prove his case to the hilt; he needs to make his version more probable than the complainant's.
Can the High Court quash a case because the cheque was security?
Rarely. Whether a security cheque was for a debt due on presentation is a question of fact, and the High Court's power under section 528 BNSS (old section 482 CrPC) is not used to decide disputed facts. A petition saying "the cheque was only security" is usually dismissed with liberty to raise the defence at trial; Sripati Singh itself was a case where the High Court's quashing order was set aside.
The exception is where documents beyond dispute, often the complainant's own, show that no liability could have existed on the date of presentation: a cancelled purchase order and refund, a loan closure certificate issued by the complainant, or a settlement deed signed by both sides before the cheque was deposited. Even then, the petition must be filed promptly and must rely on documents the complainant cannot seriously deny.
A made-up example: a distributor's security cheque
Here's a made-up example. Neha runs a distributorship for a packaged foods company in Ghaziabad. When she signs up in 2024 she gives the company a signed, undated cheque as security for supplies on credit. Over the next year she buys stock regularly and pays by bank transfer. In mid 2025 she gives up the distributorship. The company's ledger shows ₹2,40,000 outstanding, which she disputes because of returned stock worth ₹90,000.
In September 2025 the company fills in ₹5,00,000 and the current date, presents the cheque, and it is returned "funds insufficient". A notice follows demanding ₹5,00,000. Neha replies within the 15 days, enclosing the ledger, her bank statements and the stock return note, and stating that at most ₹1,50,000 was ever due.
At trial, the company's officer admits in cross-examination that the ledger balance on the date of presentation was ₹2,40,000 and that no invoice supports the rest. On those facts the court is likely to find that the cheque for ₹5,00,000 did not represent a legally enforceable debt on the date it was presented. The company can still sue Neha civilly for whatever is genuinely due, but its criminal case rests on a cheque that was filled in for more than the debt.
Before you present, or contest, a security cheque
- Find the document that explains why the cheque was given: agreement, sanction letter, purchase order, guarantee, bond.
- Identify the date on which the secured liability fell due, and whether any demand or recall was needed first.
- Prepare a statement of account as on the date of presentation, with every payment credited.
- Check whether any part payment was made after the cheque was handed over, and whether it was endorsed.
- Check whether the cheque was handed over blank, and who filled in the date and amount.
- Look for any letter, email or message asking for return of the cheque, or promising not to present it.
- Check any restructuring, settlement or fresh payment schedule agreed after the cheque was given.
- Compare the amount in the legal notice with the cheque and with the statement of account.
Mistakes on both sides
- Holders presenting for the full figure. Filling in the maximum possible exposure rather than what is due on the day exposes the case to a straightforward defence.
- Holders presenting too early. Depositing a security cheque before the instalment or invoice falls due, or before the loan is recalled where the agreement requires a recall.
- Drawers relying on the word "security". Without documents showing discharge or that no liability arose, the presumption usually wins.
- Drawers staying silent. Not replying to the legal notice, and raising the security defence for the first time years later, weakens it.
- Drawers denying signatures. Denying a signature that bank records will confirm destroys credibility for every other point.
- Both sides ignoring the civil route. Where the amount genuinely due is disputed, a civil suit or a negotiated settlement is often a better use of everyone's time than a criminal trial over a figure.
The civil alternative for holders
If the security cheque is weak for section 138, the debt can still be recovered civilly. A summary suit under Order 37 of the Code of Civil Procedure is available for claims based on a cheque or a written contract, and the defendant needs leave of the court to defend. The trade-off between a criminal complaint and a civil claim is explained in our post on criminal case, summary suit or both, and old debts raise the separate question discussed in cheques given for time-barred debts.
Holders sometimes file both: a section 138 complaint on the cheque and a recovery suit for the full debt. That is permitted, since the two proceedings serve different purposes, but the amounts and the story must be consistent across both, because each will be read against the other.
What to do this week
If you hold a security cheque and the debtor has defaulted, put together the agreement and a statement of account before you deposit the cheque, and fill in only what is due. If you have received a notice on a security cheque you gave, find the documents that show what it was for and what has been paid, and reply within the 15 days with those facts.
If you would like an advocate to look at the cheque, the agreement and the account before you act, the team of Advocate B.K. Singh at B.K. Singh & Associates can review them and tell you how a court is likely to read the arrangement; you can write to us through the enquiry page. For civil recovery options, see our page on civil and property disputes in Delhi.
Frequently asked questions
Can a case be filed if a security cheque bounces?
Yes, if the debt the cheque secured was due and unpaid when the cheque was presented. The Supreme Court held in Sripati Singh v State of Jharkhand (2021) that the label security does not by itself defeat a section 138 case.
Is a blank signed cheque given as security valid for section 138?
Yes, it can be. The Supreme Court held in Bir Singh v Mukesh Kumar (2019) that a person who hands over a signed blank cheque is presumed to have authorised the holder to fill it in. The drawer can still show that the amount filled in was more than what was due.
What if I repaid the loan but the lender still presented my security cheque?
If the loan was discharged before the cheque was presented, there was no legally enforceable debt for the cheque to cover, and that is a defence. Prove it with bank statements, a closure letter, and any written request you made for the return of the cheque.
Can a security cheque be presented for the full amount after part payment?
Not safely. In Dashrathbhai Trikambhai Patel (2022) the Supreme Court held that if part of the debt has been paid, the cheque must be endorsed for the part payment and presented for the balance. Presenting it for the original figure does not attract section 138.
Does stopping payment on a security cheque avoid a cheque bounce case?
No. A return marked payment stopped by drawer still attracts section 138 if a debt was due. Stopping payment helps only where the debt was genuinely discharged or never arose, and you should explain that in writing to the holder.
Can an NBFC fill in the date and amount on my undated security cheque?
If the loan agreement allows it and the loan has been validly recalled, the lender can fill in the date and the outstanding amount. The amount should match the statement of account; inflated figures can be challenged at trial.
Is a guarantor liable if his security cheque bounces?
Usually yes, once the borrower has defaulted and the guarantor's liability has arisen. Section 138 covers cheques drawn for any debt or liability, not only the drawer's own debt.
Can an employer file a cheque bounce case on an employment bond cheque?
Only if the amount is a fixed, enforceable sum actually due. Where the bond amount is a penalty or unliquidated damages, courts have often been reluctant to treat it as a debt due, and the employer may have to sue civilly.
Can I get a security cheque case quashed by the High Court?
Rarely. Whether a debt was due is usually a factual question for trial. Quashing is realistic only where undisputed documents, often the complainant's own, show that no liability existed on the date of presentation.
What documents prove a cheque was only given as security?
The agreement describing it as security, proof of repayment or closure, ledger extracts, and any letter or message asking for its return. A reply to the legal notice raising the point early also helps.
Can the holder file both a cheque bounce case and a civil suit on a security cheque?
Yes. The criminal complaint and a civil recovery suit can run together because they serve different purposes. The amounts and facts pleaded in both must be consistent.
What if the security cheque was given for an advance that was later cancelled?
If the order or contract was cancelled before any liability arose, the cheque was not for an enforceable debt. The Supreme Court held so in Indus Airways v Magnum Aviation (2014).
Written and reviewed at B.K. Singh & Associates
Advocate B.K. Singh
Founder of B.K. Singh & Associates. MCA, LL.B., LL.M., with more than twenty years of practice before the Supreme Court, the Delhi High Court, district courts and tribunals across Delhi NCR. This article explains the general law as of 24 October 2026; it is not legal advice on your facts.