Case at a Glance
A man borrowed Rs 2.10 lakh from a finance firm in 2015; he gave one cheque and his wife, as guarantor, gave another for the same amount ‘as security’. Both bounced. The husband was convicted under Section 138 of the Negotiable Instruments Act and served his sentence, while the wife’s trial was delayed after she stopped appearing. She asked the Rajasthan High Court to quash the case, arguing that a guarantor’s security cheque cannot ground prosecution and that her husband’s conviction ended the matter. The Court refused, holding that guarantor status or the label ‘security cheque’ does not by itself bar Section 138 proceedings, and left all defences to the trial court.
The petitioner’s husband took loans of Rs 1,00,000 on 13 April 2015 and Rs 1,10,000 on 8 August 2015 from a Jodhpur finance firm at 2.25% monthly interest. He issued a cheque for Rs 2,10,000, and the petitioner, as guarantor, issued another cheque for the same amount ‘as security’. The husband’s cheque was dishonoured on 14 June 2016 and the petitioner’s cheque, presented on 15 June 2016, was also returned for insufficient funds. A joint complaint under Section 138 was filed and cognizance taken on 3 August 2016; on 14 March 2018 the substance of accusation was read to both accused, who denied it.
Owing to matrimonial discord, the petitioner stopped appearing; she was declared an absconder on 19 July 2019, a standing warrant was issued and her bail bonds were forfeited. On 2 December 2019 the husband was convicted, sentenced to six months’ simple imprisonment and fined Rs 2,65,000, and he served the sentence. The petitioner later surrendered and got bail; according to the complainant, her trial has reached the stage of final arguments. She then sought quashing of the 14 March 2018 order and of the proceedings, arguing that the debt was her husband’s, that a security cheque cannot attract Section 138, that two cheques for one liability could not be pursued jointly, and that the complainant’s remedy was civil. The complainant pointed to an unexplained delay of about five years in filing the petition.
The Key Question Before the Court
Can Section 138 proceedings against a guarantor who issued a ‘security’ cheque be quashed under the High Court’s inherent powers because the loan was the husband’s and he has already been convicted and served his sentence?
Guarantor Status and the ‘Security’ Label Are Not a Shield
Justice Sunil Beniwal first held that Section 138 cases follow the summons-case procedure, so stating the substance of accusation under Section 251 CrPC on 14 March 2018 was proper. Applying the Supreme Court’s decision in ICDS Ltd. v. Beemna Shabeer, AIR 2002 SC 3014, he held that a guarantor’s cheque is not excluded from Section 138 merely because the loan was taken by the principal debtor: “the petitioner’s status as a guarantor does not, by itself, furnish a ground for quashing the proceedings.” Dilip Hariramani v. Bank of Baroda, (2022) 05 SC CK 0117, (2024) 15 SCC 443, was distinguished as a case about vicarious liability for a firm’s cheques, and the Bombay High Court’s decision in Shantaram Namdeo Sathe v. State of Maharashtra, (2019) 11 BOM CK 0055 was held to turn on its own evidence.
The Court added that “the mere description of a cheque as a security cheque does not, by itself, determine the applicability of the provision”, and that the order in which the two cheques were presented does not decide whether a legally enforceable liability existed; these are questions for trial. Nor did the husband’s imprisonment show that the debt had been paid. The complainant cannot recover twice and any recovery must be accounted for, but that does not end separate proceedings against the guarantor. Under Section 482 CrPC (Section 528 BNSS), the High Court does not ordinarily weigh disputed evidence or pre-empt issues pending trial.
What the Court Actually Held
- A guarantor who issues a cheque can be prosecuted under Section 138 of the NI Act; guarantor status alone is no ground for quashing.
- Calling a cheque a ‘security cheque’ does not, by itself, take it outside Section 138; whether a legally enforceable liability existed is for the trial court.
- The principal borrower’s conviction and completed sentence do not show the debt was discharged or end the proceedings against the guarantor, though the complainant cannot recover twice.
- The petition was dismissed; the petitioner may raise all her defences before the trial court, which must decide them on merits uninfluenced by the High Court’s observations.
Why This Judgment Matters
- Spouses and relatives often sign guarantor cheques for family loans; this ruling shows they can face Section 138 prosecution in their own right.
- It reiterates that the ‘security cheque’ defence is fact-dependent and usually decided at trial, not in a quashing petition.
- It clarifies that one accused’s conviction does not automatically close the case against a co-accused guarantor.
What Should Advocates Take Away From the Judgment?
For Guarantors
- Signing a cheque as guarantor or ‘security’ carries criminal exposure if it bounces; do not assume only the borrower is liable.
- Keep appearing before the trial court; non-appearance here led to absconder proceedings, forfeiture of bail bonds and years of delay.
For Counsel
- Raise the ‘security cheque’ and ‘no enforceable liability’ defences with evidence at trial; a quashing petition at an advanced stage is unlikely to succeed.
- Where the principal borrower has paid or been made to pay, place proof before the trial court to prevent double recovery.
Key Takeaways
- ICDS Ltd. v. Beemna Shabeer: a guarantor’s cheque can attract Section 138.
- The ‘security cheque’ label is not a complete defence.
- The husband serving his sentence does not end the wife’s trial.
- Defences go to the trial court; quashing petition dismissed.
Frequently Asked Questions
Can a guarantor be prosecuted for a bounced cheque?
Yes. Relying on ICDS Ltd. v. Beemna Shabeer, the Rajasthan High Court held that a guarantor’s cheque is not excluded from Section 138 merely because the loan was taken by someone else.
Is a security cheque outside Section 138?
Not automatically. The Court held that describing a cheque as a security cheque does not by itself decide whether Section 138 applies; the trial court must examine whether there was a legally enforceable liability.
Does the borrower’s conviction end the case against the guarantor?
No. The Court said the husband’s imprisonment does not show the debt was paid, though the complainant cannot recover twice and any recovery must be accounted for.
Conclusion
The petitioner’s case rested on the intuition that her husband’s loan, conviction and jail term should be the end of the story. The High Court held that the law does not work that way: a cheque she signed is her own instrument, and whether she is liable on it is a matter for evidence at trial.
Practical takeaway: Before signing a guarantor or ‘security’ cheque, understand that it can lead to criminal prosecution under Section 138; if prosecuted, build the defence at trial rather than relying on a quashing petition.
For more judgments, legal opinions and case analysis, visit courtkutchehry.com