The Bombay High Court said on Friday that a person who has issued a cheque as security against a loan can be prosecuted if the cheque is dishonoured.
Justice J.H. Bhatia dismissed an application filed by Neeta Jain (34) seeking quashing of a cheque-bounce complaint lodged against her.
Chandresh Nishar (31), a resident of Worli, had given Rs 8 lakh to Neeta’s father Jayantilal through four different cheques between April 12 and May 5, 2005. Neeta, in turn, gave Nishar cheques of the same amount as security. However, all her cheques were dishonoured.
Nishar then sent a demand notice to Neeta. When he didn't receive a satisfactory reply, he filed a compliant with the metropolitan magistrate at Dadar under the Negotiable Instruments Act in August 2005.
On August 3, 2005, the magistrate issued process against Neeta.
She challenged it before the Sessions Court, claiming that she had shifted to Sharjah with her husband and children in November 2001. She claimed that she was not in Mumbai in 2005 and even denied having issued the cheques to Nishar.
She claimed that she used to keep signed blank cheques with her father. Those cheques, she said, appear to have been misused.
On January 23, 2008, the Sessions Court asked the magistrate to record Neeta's statement before initiating any action.
On April 24, 2009, once again the magistrate issued process against Neeta after recording her statement.
In her statement, Neeta said that it was on her urging that Nishar gave a loan to Jayantilal and admitted that she had issued the cheques as security.
Her advocates Sandeep Kekane and M.K. Kocharekar argued that when the cheque is issued only as security and not for repayment of loan, the issuer cannot be prosecuted.
However, Justice Bhatia observed: “If the whole complaint and verification statement are read carefully, it becomes clear that the loan was advanced at the request of the accused… and towards the repayment of that loan, cheques were issued. The word 'security' was used it does not mean that the cheques were not issued for discharge of debt…”