Legal Analysis: The Presumption of Validity in Pre-Signed Blank Cheques as Security Instruments

The legal framework surrounding pre-signed blank cheques given as security raises significant questions about their validity and the obligations of the parties involved. The recent Supreme Court judgment in K. Ramesh vs. K. Kothandaraman (Criminal Appeal No. 000763/2024) has once again reinforced

Presumption of Validity under Section 139 of Negotiable Instruments Act, 1881

The Supreme Court in the K. Ramesh case reiterated that a blank cheque leaf, voluntarily signed by the drawer and handed over to the payee towards some payment, carries the presumption that it was issued in discharge of a legally enforceable debt as per Section 139 of the NI Act. The Court observed, "Even if a blank cheque leaf is voluntarily signed and handed over by the accused towards some payment, it would attract the presumption under Section 139 of the Act, and in the absence of any cogent evidence to show that the cheque was not issued in discharge of the debt, the presumption would hold good."

This position is consistent with earlier landmark judgments such as Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Ltd. (2016), Sripati Singh vs. State of Jharkhand & Anr. (2021), and Sunil Todi vs. State of Gujarat & Anr. (2021). The Apex Court has consistently held that the mere assertion that a cheque was given as security does not absolve the drawer from liability. The court must assess whether a legally enforceable debt or liability existed on the date mentioned on the cheque or arose at the time of its presentation. The mandatory presumptions under Section 139 place the burden on the accused to prove that no legally enforceable debt existed when the cheque was issued or presented.

Landmark Judgments Supporting the Presumption under 139

1. Rangappa vs. Sri Mohan (2010)

The Supreme Court extended the presumption of a legally enforceable debt under Section 139 of the NI Act to cases where a cheque was issued as security. The Court held that the presumption applies even when the accused claims that the cheque was given only as a security and not for the repayment of a debt. The burden of proof lies on the accused to rebut the presumption by providing credible evidence.

2. Kishan Rao vs. Shankargouda (2018)

The Supreme Court reiterated the principle that a cheque issued as security can still attract the presumption under Section 139 of the NI Act. The Court emphasized that the drawer of the cheque must provide evidence to disprove the presumption that the cheque was issued in discharge of a debt or liability.

3. Bir Singh vs. Mukesh Kumar (2019)

The Supreme Court held that, "A meaningful reading of the provisions of the Negotiable Instruments Act, including Sections 20, 87, and 139, makes it clear that a person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for payment of a debt or in the discharge of a liability. It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer. If the cheque is otherwise valid, the penal provisions of Section 138 would be attracted." The Court further observed, "If a signed blank cheque is voluntarily presented to a payee towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence."

4. M/S Kalamani Tex vs. P. Balasubramanian (2021)

The Supreme Court emphasized that the burden to rebut the presumption under Section 139 of the NI Act lies heavily on the accused. Even when the cheque is presented as security, the accused must provide compelling evidence to disprove the existence of a debt or liability.

Implications for Parties

Security cheques are a powerful tool for ensuring payment, supported by strong legal backing. Businesses must ensure clear documentation and transparency to avoid disputes. Leveraging this legal position allows businesses to use security cheques confidently, knowing that their validity is upheld by the courts. However, it is crucial to manage all cheques—whether for security or payment—with a full understanding of the legal implications to minimize the risk of complications.

Conclusion

The Supreme Court's reaffirmation of Section 139 of the NI Act highlights that security cheques are presumed to be issued for a legally enforceable debt. This places the burden on the issuer to disprove this presumption if contested, making it essential for businesses and vendors to handle security cheques with clear, documented agreements.