Post-Dated Cheques Issued for Security Deposit Amount to a Legally Enforceable Debt; Supreme Court Upholds Conviction and Enhanced Compensation Under Section 138 of NI Act

The Supreme Court upheld the conviction and enhanced compensation under Section 138 of the NI Act, ruling that post-dated cheques issued for a security deposit constitute a legally enforceable debt.

On 04-03-2025, the Supreme Court Bench of Justice Vikram Nath and Justice Sandeep Mehta reviewed a set of miscellaneous appeals and held that the issuance of post-dated cheques by the appellant-accused constituted a legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881. The Court ruled that the dishonour of such cheques attracted penal consequences, irrespective of the respondent-complainant’s continued occupation of the premises. Affirming the concurrent findings of the lower courts, the Court rejected the appellant-accused’s contention that the cheques were issued as security and upheld his conviction along with the enhanced compensation.

The Supreme Court granted leave to hear the appeal challenging the judgment and final order dated 8th July 2024, passed by the learned Single Judge of the High Court of Karnataka at Bengaluru. The criminal revision petitions filed by the appellant-accused had been dismissed, thereby upholding his conviction under Section 138 of the Negotiable Instruments Act, 1881.

The appellant-accused and the respondent-complainant had entered into a lease-cum-rent agreement on 12th May 2014 concerning a residential flat owned by the appellant-accused. The respondent-complainant deposited a security amount of Rs.9,00,000/-, with the rental fixed at Rs.2,500/- per month. The agreement, valid for 11 months, required the appellant-accused to refund the security deposit upon the respondent-complainant vacating the premises. However, after the completion of the tenancy period, the appellant-accused failed to refund the security deposit, prompting the respondent-complainant to issue a legal notice on 18th June 2015. Due to financial constraints, the appellant-accused issued four post-dated cheques in favor of the respondent-complainant. Upon presentation, these cheques were dishonoured due to insufficient funds, leading to the institution of four separate criminal complaints before the trial court.

The trial court, by judgment dated 9th November 2016, convicted the appellant-accused for the dishonour of cheques and sentenced him to pay a fine amounting to Rs.3,00,000/-, with interest at 6% per annum. The respondent-complainant was awarded Rs.2,95,000/- as compensation, while Rs.5,000/- was forfeited to the State. The appellant-accused was directed to pay the amount within 30 days, failing which he would undergo simple imprisonment for one year. Aggrieved by this decision, both parties filed appeals before the appellate court, which dismissed the appeals of the appellant-accused and partly allowed those of the respondent-complainant. The appellate court affirmed the conviction and enhanced the compensation to Rs.9,00,000/-, with a default imprisonment of one year.

The appellant-accused then approached the High Court through multiple revision petitions, challenging both his conviction and the enhanced compensation amount. The High Court, through its common judgment dated 8th July 2024, dismissed the petitions, upholding the conviction and the increased compensation. The appellant-accused was directed to pay Rs.9,00,000/- on or before 31st July 2024, failing which he would undergo simple imprisonment for two years. However, the amount of Rs.5,000/- awarded to the State was set aside.

Before the Supreme Court, the appellant-accused contended that the cheques were issued as security under the lease agreement and that the respondent-complainant had not vacated the premises, continuing to occupy it without paying rent or maintenance. The appellant-accused argued that the respondent-complainant misused the cheques and maliciously instituted the complaints. He further submitted that he had filed a suit under the Karnataka Rent Act, 1999, for the respondent-complainant’s eviction and damages. The Small Causes Court, through its judgment dated 27th September 2019, directed the respondent-complainant to vacate the premises within two months. The eviction was ultimately executed on 8th January 2020 through an execution petition.

In contrast, the respondent-complainant maintained that the dishonour of cheques had no correlation with the rent dispute. He asserted that the appellant-accused was legally bound to refund the security deposit, which he failed to do, and that the trial court, the appellate court, and the High Court rightly convicted the appellant-accused under Section 138 of the NI Act. He urged the Supreme Court to dismiss the appeals and uphold the decisions of the lower courts.

Upon thorough consideration of the submissions and the material on record, the Supreme Court noted that the appellant-accused had issued four post-dated cheques totaling Rs.9,00,000/-, which were dishonoured upon presentation due to insufficient funds. The respondent-complainant had initiated criminal complaints, leading to the appellant-accused’s conviction. The court deliberated on whether the cheques were issued towards a legally enforceable debt and the implications of the respondent-complainant’s continued occupation of the premises. Ultimately, the Supreme Court rendered its decision based on the merits of the case, legal precedents, and the provisions of the NI Act.

Mr. Ashwin V. Kotemath, AOR and Mr. Harisha S.R., Advocate, represented the Appellant.

Mr. A. Lakshminarayanan, AOR Mr. Aravindh S., and Mr. M. Munusamy, U. Kathiravan, Advocates, appeared for the Respondent.

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REEDLAW 2025 SC 03001