Legal Question in Banking Law in India

Re: Cheques as security

It depends on the wording of your letter. Moreover any instrument given when not honoured will attract the provisions of the NI Act. In case of any further clarifications feel free to contact us.

Re: Cheques as security

Once the entire transaction is in the nature of Security, you cannot file a Complaint u/s.138 of N.I.Act, as the Provision is clear as to when a complaint is maintainable. However, you have the option to pursue civil remedies.

Re: Cheques as security

Your question itself has the answer...The cheques in question are given merely as a security and not towards discharge of any pre-existing liability or any legally enforceable debt. Moreover, in view of the fact that cheques were executed in the blank, the cheques are legally construed as inchoate instruments. By tendering them towards future outstandings the dealer is impliciting mandating through operation of law, the company in question to fill put the blank spaces with the amounts and figures and present it to the concerned bank for discharge of a future liability. An offence under section 138 of the Negotiable Instruments Act 1881 cannot be made out since the cheque is merely a security instrument. The proper remedy for the company would be to institute a civil suit based on the original cause of action arising out commercial transactions between the company and the dealer and on the dishonoured cheques for recovery of the amounts. There is, however, a cleavage of opinions on this subject as amongst the various High Courts in India and also the apex court in India. In the circumstances, it would be prudent to review the entire question of law under legal advisement.