Q: Is cheque bounced given as security an offence under section 138 of negotiable instrument act ?

 Ans: Cheque bounced given as a security 

If an accused or the drawer of the cheque, proves that the cheque issued, was not in discharge of any debt or liability, while issuing the cheque, as well as it was just given as security deposit, hence it would not attract the offence under the Section 138, of the Negotiable Instruments Act. 

Joseph Vilangadan v. Phenomenal Health Care Services

In this case, the appellants said that the given cheque was the refundable security deposit to ensure the performance of the work and the terms of the contract, as well as there was no existing debt or liability. Also, when the agreement was entered , there was no debt or liability on the part of the drawer, and it was mentioned in the terms of the contract that if the contractor fails to perform his services then the respondent or holder could encash and can recover the amount. But it did not happen so and the work was performed, and therefore, it did not come under the purview of  Section 138 and so it’s not an offence.

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