Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited
Background
The appellant, a company director, had given the respondent (a government renewable-energy financing agency) 18 post-dated cheques as "security" for loan installment repayments under a Rs. 11.5 crore loan agreement for a biomass power project. When the cheques were dishonoured, the respondent filed criminal complaints under Section 138 of the Negotiable Instruments Act. The appellant sought to have the complaints quashed by the Delhi High Court, arguing that since the cheques were described as "security" in the loan agreement and no debt was due on the date they were handed over, their dishonour could not attract criminal liability under Section 138. The High Court declined to quash the complaints (while noting its view was only prima facie), and the appellant approached the Supreme Court.
Decision Breakdown
The Supreme Court held that by the time each cheque actually fell due and was presented, the underlying loan installment had already matured into a present, legally enforceable debt, so even though the cheques were initially described as "security" when handed over, their dishonour on the due dates squarely fell within Section 138. The Court relied on its precedent in Rangappa v. Sri Mohan to note that once issuance and signature on a cheque are admitted, a presumption of a legally enforceable debt arises in favour of the holder, which the accused must rebut with more than a bare denial. It also reiterated that at the quashing stage, courts must proceed on the complainant's averments and cannot adjudicate the accused's factual defences. Finding no merit in the appeal, the Court dismissed it, while clarifying that the appellant remained free to raise his defence (that the cheques were purely security, not for a then-existing debt) at trial.
Lesson Learnt
Labelling a post-dated cheque as "security" in a loan agreement does not automatically shield it from criminal liability under Section 138 of the Negotiable Instruments Act: if the debt has actually matured and become due by the time the cheque is presented, its dishonour can still be prosecuted, and the borrower's defence on that point must be proved at trial, not used to short-circuit the case at the quashing stage.