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G Snehal (Audit Assistant)     27 May 2013

Dishonour of cheque given as security against unsecured loan

Can anyone please assist me to findout some legal remedy on herestated issue?

We have a near family friend to whom we have given unsecured loan against security of post dated cheques. The loan was given one year before. It was partly given by crossed cheques and partly by online bank transfer on various (four to five times all put together) occassions. When we deposited the cheques after the agreed time period for repayment, same were not honoured by the concerned person. And now he is not making  the repayment even after giving sufficient time. We also have a written agreement signed by him covering the loan given and its repayment date as was agreed by him at the time of taking loan.But the same is neither notarised nor registered anywhere. Do we have any legal remedy in the present situation? Kindly advise.



 8 Replies

Hemang (Advocate)     27 May 2013

There is no offence committed under Section 138 of the Negotiable Instrument Act, if the cheque that is bounced back was given by way of security. It is better, you file a civil suit for recovery of amount based on such instrument. 

1 Like

G Snehal (Audit Assistant)     27 May 2013

Thanks for your reply.

How strong is our side to prove the default and fradulant mind of the borrower? Will filing a civil suit really help to recover the money as there could be some loopholes in law which can help him escape or just let the matter linger in court for years together. What best could be done to get a early legal decision? Could you please assist further?

aks_aks123 (-)     02 June 2013

i am not too sure, but a dishonoured cheque under section 138 is a criminal offence. you can approach the court for reprive. the court shall issue notices and if the person fails to appear, then issue Non-Bailable Warrant.

it is not a matter of the amount or the purpose for which a cheque is issued, but that cheque has to be honoured.


you can again apply all the cheuqes, and upon their bouncing, within 15 days send legal notice to the individual. thereon, if you do not receive a reply, file a case in court. the usual time period for court issuing NBW is 6-12 months, if person fails to show up.

1 Like

G Snehal (Audit Assistant)     04 June 2013

Thanks for your reply...

Prasun Chandra Das (Banker)     05 June 2013

aks is wrong in saying that purpose  of chq issuance does not matter. as adv hemang says, sec 138 will not apply is the chqs are issued as security chqs.


but my question to g snehal is - how did you conclude that these are security chqs? it appears to me that the chqs were issued to repay the loan taken, and not as security chqs. these chqs are as good as PDCs taken for repayment of home loan or car loan. pls show a locan competent lawyer all the documents and seek advice.


if the chqs are not security chqs & if the chqs are within 3 months of chq date, you may present the chqs again and on bouncing, issue notices under sec 138 as per law. if filing a case under sec 138 is time barred, pls note that courts have the power to condone the delay if you can sufficiently prove that the delay was justified/beyond your control. again, pls consult a local competent lawyer with all documents.

1 Like

G Snehal (Audit Assistant)     11 June 2013

Dear Prasun

Thanks a million for your advise. Actually u are very well correct to note that the cheques are not security cheques which I understood only after reading your opinion. The cheques with us are PDSs valid as on today also and given in normal course as we give in case of  vehicle loan, personal loan etc.

I could more clearly say that the cheques are given to us by the front party with stated amount and date as we issue cheques in normal course may be to make caredit card payments/ bill payments etc.

Can you please  tell me what is the criteria to conclude that the cheque is a security cheque?

Thanks & Regards


LAXMINARAYAN - Sr Advocate. ( solve problems in criminal cases.     11 June 2013

1) There is lot of hype about security cheque, blank cheques and PDCS.

2) Bascically once cheque is bounced case can be filed and summons can be issued but the real test is to win the case.

3) Cheque bounce law is technical law and the benefit of lapses / doubts goes to  the accused.


Now this law is being amended and instead of criminal trial there will be ARBITRATION, because cheque cases are clogging the courts with no perceptible results.

Prasun Chandra Das (Banker)     12 June 2013

G Snehal:


Sec 139 of NI act says that "It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability." So any litigation under sec 138 will assume from the start that the chq was given in discharge of a liability and not as a security chq. It is the responsibility of the drawer of the chq to prove in court that he had issued the chq as security chq only.


Pls see a local advocate with all documents who can guide you properly. You can also checkout


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