"It was only a security cheque" is the most common defence in these cases and one of the least successful, because it is argued as if it were a rule of law. It is not. Which defences do succeed, and on what evidence, is the subject of our note on Section 138 defences.
The presumption starts against the drawer
Once the signature is admitted or proved, Sections 118 and 139 of the Negotiable Instruments Act raise a presumption that the cheque was drawn for consideration and for the discharge of a legally enforceable debt or liability. The burden then shifts to the accused to rebut it, on the balance of probabilities.
The two sections do different work and it is worth keeping them apart. Section 118(a) presumes, until the contrary is proved, that every negotiable instrument was made or drawn for consideration. Section 139 presumes that the holder received the cheque for the discharge, in whole or in part, of any debt or other liability. In Rangappa v. Sri Mohan (2010) the Supreme Court held that the Section 139 presumption extends to the existence of a legally enforceable debt or liability, and not merely to the handing over of the cheque. That is why the security argument starts from behind: the law assumes the debt, and the accused has to displace the assumption.
Displacing it does not require the accused to enter the witness box. It can be done from the complainant's own documents, from the cross-examination of the complainant, and from bank statements and accounts brought on record. But it does require material. A suggestion put in cross-examination and denied is not evidence, and a defence that exists only in the final arguments is a defence that fails.
What "security" actually has to mean
The question is narrow: on the date the cheque was presented, was there a legally enforceable debt or liability? If yes, Section 138 applies even though the cheque was originally handed over as security. The defence only works where the accused shows there was no subsisting liability when the cheque was banked, because the loan had been repaid, or the obligation had not yet arisen.
So the evidence has to be directed at the date of presentation, not at the date the cheque changed hands. What actually works, in descending order of usefulness: a bank statement showing the principal repaid in full before presentation; the lender's own ledger or account statement showing a nil balance; a no dues or closure letter; the return of the other security taken at the same time; and correspondence in which the complainant himself treats the account as settled. What does not work: an assertion that everyone knew it was only security, a family witness who says so, and a reliance on the word "security" appearing in a document that also records a subsisting liability.
Two related situations are worth separating out. Where the amount filled in exceeds the liability, the argument is not that Section 138 does not apply at all but that the cheque was not drawn for the debt claimed, and it needs the true figure proved. Where the underlying debt was already time barred when the cheque was presented, the debt is not legally enforceable and the complaint is open to attack on that ground, so check the dates on the original transaction before anything else.
A cheque signed and handed over blank, later filled in by the holder for the amount due, is not automatically outside Section 138. Courts have upheld complaints on such cheques where the underlying liability was proved. What defeats the complaint is proof that the amount filled in exceeded the actual liability.
If you are the complainant
Keep the underlying transaction documented, because that is where this defence is answered. The loan agreement, the invoice, the ledger, the bank transfer of the principal, the acknowledgement of balance. The cheque proves the instrument; the paperwork proves the debt.
Does a cheque described as security still attract Section 138?
- The debt existed and was due when the cheque was presented? The label makes no difference. Section 138 applies.
- The debt had already been repaid before presentation? There is no subsisting liability, and the presumption can be rebutted on that footing.
- The cheque was for a liability that had not yet crystallised, such as a facility never drawn down? The stronger argument that there was no debt "then due" arises here, on evidence.
- The amount was filled in later by the holder? That alone does not defeat the complaint, but it opens the question of what sum was actually owed.
If you are the accused
Reply to the demand notice, properly and in time, setting out your actual case. A reply raising the security defence contemporaneously is worth a great deal more at trial than the same defence raised for the first time in evidence, two years later.
Say in the reply what the security was for, when the underlying obligation ended, and what document proves it. A bare denial helps nobody. The reply is the first thing the Magistrate reads alongside the complaint, and a specific, dated, document-backed reply is what turns the security defence from an assertion into a case. The rest of the sequence is set out in our guide to the Section 138 procedure.
Send the reply within the fifteen day period, by registered post with acknowledgement due, to the address on the notice and to the advocate who issued it, and keep the postal receipt. Enclose copies of the documents you rely on rather than merely referring to them, because a reply that annexes a bank statement is very hard for the complainant to characterise later as an afterthought. Do not offer to pay part of the amount in a reply that also denies liability; a without prejudice offer in a denial letter is the most commonly self-inflicted wound in these cases.
If you are the complainant reading that reply, treat it as a gift. It fixes the accused's case before he has seen your evidence, and every later departure from it is available in cross-examination.