Security Cheque Needs a Crystallised Debt: Raj HC on s.138

Security Cheques Need a Proved, Crystallised Debt Under Section 138; Ledger Alone Not Enough: Rajasthan High Court

Published: 28 October 2026 · NyayVidhan

The Rajasthan High Court refused a company leave to appeal against the acquittal of its clearing and forwarding agent in a cheque-bounce case (paras 1, 17). The two Rs 15 lakh cheques were said to be security under the agency agreement, but no loss had been quantified or demanded in writing as its indemnity clause required (paras 10-12). Issuing a security cheque does not prove a legally enforceable debt, and a computer-generated ledger alone did not prove the goods supplied (paras 13-14).

Key holdings

Mere issuance and dishonour of security cheques does not by itself prove a legally enforceable liability for the whole cheque amount (paras 10, 13).

Where an indemnity clause requires losses to be quantified and demanded in writing, the liability must crystallise that way; no such notice was issued here (paras 11-12).

A computer-generated ledger, without invoices, railway receipts or transport documents, did not prove that goods worth Rs 34,87,888 were supplied (para 14).

Finding no cogent ground to interfere, the Court refused leave and upheld the 2016 acquittal (paras 16-17).

Judgment digest by NyayVidhan: a summary of the court's judgment, not its text. The judgment itself is the authoritative version.

Brief Facts

M/s Saboo Sodium Chloro Limited alleged that its clearing and forwarding agent, the proprietor of M/s Sunny Sales, owed Rs 34,87,888 for goods supplied and issued two cheques of Rs 15,00,000 each, dated 18 October 2006, which were dishonoured on 4 November 2006 for insufficient funds; no payment followed the statutory notice of 11 November 2006 (para 3). The company examined its authorised representative and produced the agreement, ledger, cheques, return memos and notice; the accused led no defence evidence (para 3). On 24 November 2016 the Special Metropolitan Magistrate (N.I. Act Cases) No. 9, Jaipur Metropolitan, acquitted him (paras 1, 3). The company sought leave to appeal; no one appeared for the accused (paras 1, 8).

Court's Findings

The Court accepted that the cheques were issued in the course of the parties' business relationship, but held that "the mere issuance and dishonour of the cheques would not by themselves establish the existence of a legally enforceable liability" for the whole amount, particularly as they were stated to have been given as security under the agency arrangement (para 10). Condition No. 10 of the agreement made the agent liable for losses only as determined and quantified by the company and demanded in writing (paras 10-11). To enforce security cheques for breach of contract, the company therefore had to show that the liability had crystallised and was recoverable to the extent of the cheque amount (para 11). It was admitted that no notice specifying the amount claimed was ever issued (para 12). Security cheques may be invoked for an enforceable liability, but their issuance does not dispense with proof of a debt corresponding to the cheque amount (paras 13, 15). Nor was the Rs 34,87,888 outstanding proved: beyond a computer-generated ledger, there were no invoices, railway receipts or transport records showing dispatch and receipt of the goods (para 14). The Court concurred with the trial court (para 16).

Legal Principle

A cheque given as security supports a Section 138 prosecution only if the complainant proves a legally enforceable debt corresponding to the cheque amount. Where the agreement requires losses to be quantified and demanded in writing, the liability crystallises only then; issuance and dishonour alone, or a bare ledger, do not prove it (paras 10-15).

NyayVidhan's view · Practice note

Why It Matters

Suppliers holding security cheques from agents or distributors can read this order as a checklist before presenting them. If the agreement requires losses to be quantified and demanded in writing, do that first: here no notice specifying the amount was ever issued, so the liability had not crystallised (paras 11-12). Keep the dispatch trail as well: a computer-generated ledger without invoices, railway receipts or transport documents did not prove the supplies (para 14). The acquittal stood even though the accused led no defence evidence and was unrepresented in the High Court (paras 3, 8, 17). Read with Shaliwahan Singh Rathore, which held that the debt behind a security cheque is tested on presentation, not on signing.

Editorial comment by the NyayVidhan Editorial Desk. It is not part of the Court's judgment and is not legal advice.

Precedents Relied Upon

Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel & Anr. (2023) 1 SCC 578
Referred To Discussed at ¶ 6
Cited by the complainant's counsel, with the two cases below, for the submission that the trial court failed to give effect to the presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881 where the accused led no defence evidence (para 6). The Court's own reasoning does not refer to it (paras 10-16).
Rohitbhai Jivanlal Patel v. State of Gujarat & Anr. (2019) 18 SCC 106
Referred To Discussed at ¶ 6
Cited by the complainant's counsel for the submission that the trial court failed to give effect to the presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881 where the accused led no defence evidence (para 6). The Court's own reasoning does not refer to it (paras 10-16).
Sanjabij Tari v. Kishore S. Borcar & Anr. 2025 INSC 1158 2025 INSC 1158
Referred To Discussed at ¶ 6
Cited by the complainant's counsel for the submission that the trial court failed to give effect to the presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881 where the accused led no defence evidence (para 6). The Court's own reasoning does not refer to it (paras 10-16).