Misuse of  Section 138 NI Act by depositing the security cheque issued for the satisfaction of the pre­disbursement condition of the loan and without any intimation presented to bank mentioning the amount which is not legally recoverable at the time of presenting the cheque does not attract the provisions of Section 138 NI Act.


It is respectfully submitted

1. That the applicant has taken loan from your client above named of Rs.____________/- (Rs. ____________in words) for the purpose of business disbursed on _________ and issued relevant documents and four blank cheques no.________, _______, _______, _______ without amount and date for the satisfaction of the predisbursement condition of the loan as per loan documents before the loan disbursement date i.e. __________ out of which cheque no. ________ is presented to bank without any intimation to the applicant and the amount filled in the cheque is not legally recoverable, so the applicant is not liable to pay the amount mentioned in the cheque.

2. That moreover the date of maturity of the loan account is _________. The statement of account on which the amount calculated is as on ________ and the date of the dishonored cheque is _________. It is apparent that as on the date on which the cheque was presented in bank i.e. on __________ the total amount of the loan had not become legally recoverable.

In Sampelly Satyanarayan Rao vs Indian Renewable Energy on 19 September, 2016, Supreme Court of India while deciding whether dishonored cheques issued to discharge existing liability fall under Section 138 of the act, the Supreme Court explained that the question of whether a post-dated cheque is for discharge of debt or liability depends on the nature of the transaction. Section 138 is attracted only if, on the date on which the cheque was issued, liability or debt existed or the amount had become legally recoverable.

3. That the applicant has undergone a financial crisis due to the losses (nearly ______ lakhs) incurred by him in the business and same is upfrontly intimated to your client beforehand through email dated __________ (attach the copy of Email sent earlier) and requested for support in such situation of crisis but you lender denied the request and the applicant towards his responsibility still paid 11 EMI’s out of 24 EMI’s i.e Rs.________/- out of _______ loan. Hence the applicant has no intention to cheat and defraud you and this situation of financial crisis cannot be taken as dishonest inducement coupled with fraud and cheating. The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating and fraud.

Even Supreme court has cleared the fact in the case Satishchadra RatanLal Shah V/s State of Gujarat on dated 03.01.2019 that :- In the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea. (See Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168). In the case before us, admittedly the appellant was trapped in economic crisis and therefore, he had approached the respondent no. 2 to ameliorate the situation of crisis. ..…..... The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred.

4. That the cheque no. _______ was given undated and blank before the disbursal of the loan and is a security cheque and was not issued for subsisting legally enforceable liability, your client cannot use the blank undated cheque given by the applicant to fulfill the pre¬disbursement condition to recover the outstanding amount. Hence the cheque no._______ does not lies within the realms of Section 138 NI Act. The cheque given as a pre¬disbursement condition is not the mode of repayment of the loan. The cheque was obtained prior to disbursement of loan at which time there was no subsisting liability. And the cheque is used by you in the contingent situation when the applicant faced issues in repaying the loan due to his economic crisis well informed to you. Hence the cheque doesn’t comply with the requirement of Section 138 NI Act as it was not issued for legally enforceable liability but for security which is invoked in case of contingency.

5. That your client is using the provisions of law to push the applicant to repay loan under threat of prosecution and punishment under Section 138 of the Negotiable Instruments Act, 1881and under the sections of fraud and cheating of Indian Penal Code, 1860.

This act is clearly condemned by Courts of Law like in case Ramakrishna Urban Cooperative Credit Society Ltd. v. Rajendra Bhagchand Warma (supra), the Bombay High Court relying on a series of judgments of Hon'ble High Courts and Supreme Court of India observed: However, the object was not to provide effective and speedy remedy for recovery of loans. Law makers must not have intended or imagined that money lenders or Banks would obtain blank or post dated cheques while sanctioning/disbursing loans as securities and would use them to malte debtors/borrowers to repay loan under threat of prosecution and punishment under Section 138 of the Negotiable Instruments Act. So, it is doubtful if provisions of Section 138 of the Negotiable Instruments Act would be attracted to a case in which a blank or post dated cheque is obtained by a Bank or money lender before or while sanctioning or disbursing loan amount as security for the loan.

Further in a case M/s Barclays Bank v/s Mr.Gupta, Delhi Court opined that :- “The purpose of Section 138 NI Act is to inculcate faith in the transaction dealing with Negotiable Instruments, specifically cheques. It cannot be the intention of the Legislature to make the cheque as a instrument for recovery of loans which are taken by lenders as blank signed cheques and which are used in the contingency of default making the drawer accused in a criminal case under Section 138 NI Act.

6.That in a case M.S. Narayana Menon @ Mani vs State Of Kerala & Anr on 4 July, 2006, The Supreme court stated that:- "52..................................... If the defence is acceptable as probable the cheque therefore cannot be held to have been issued in discharge of the debt as, for example, if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act."

7. Accordingly the applicant is not liable to pay the amount mentioned in the dishonored cheque as it is not due towards the applicant and the said cheque is issued for security would not come within the purview of Section 138 of NI Act and the applicant is into severe financial and economic crisis due to the losses incurred in business does not attract any cheating and fraud. If still your client initiates false criminal as well as civil proceedings, the whole responsibility will be on your client. It is been advised not to misuse the dishonored cheque no.________ and return the same to the applicant along with the memo of the bank. Further your client is requested to support the applicant by discussing relevant solutions for the re-payment/settlement of the said loan.


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  2. It is very help to me draft reply.thanqs a lot

  3. It is very help to me draft reply.

    thanqs a lot