In a major relief to Sri Sai Sapthagiri Sponge Pvt. Ltd., the Delhi High Court has quashed five criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881, holding that the cheques in question were issued purely for security purposes and could not be presented for encashment.
Justice Neena Bansal Krishna, delivering the judgment on October 27, 2025, observed that the complainant, Magnifico Minerals Pvt. Ltd., had misinterpreted the Memorandum of Understanding (MoU) between the parties and that security cheques cannot be converted into enforceable debts merely because a dispute later arises.
Background
The dispute dates back to business transactions involving the supply of imported coal by Magnifico Minerals Pvt. Ltd. to the petitioner company. According to the complainant, payments amounting to nearly ₹1.91 crore were due, following which five cheques - ranging from ₹25 lakh to ₹50 lakh - were issued by the Bellary-based company.
When these cheques were presented for encashment, they were dishonoured with the remark "Stop Payment." Subsequent legal notices went unanswered, prompting the complainant to file five separate complaints under Section 138 NI Act before the Magistrate in Bellary, Karnataka.
The complaints were later transferred to Patiala House Courts, New Delhi, after the Bellary court ruled it lacked jurisdiction. However, the summoning orders issued earlier by the Karnataka court were adopted by the Delhi Magistrate, which later became one of the central points of challenge.
Court's Observations
The Court delved deeply into the MoU dated 6 May 2014, which explicitly recorded that the cheques were given "for audit and security purposes only" and "not for depositing into the bank."
"The plain language of the MoU leaves no doubt," Justice Krishna observed, adding that Magnifico Minerals had "read the document in isolation" and failed to consider that it applied only to the Letters of Credit (LCs), not the cheques.
The judge pointed out that both parties had exchanged emails in 2014 where Sri Sai Sapthagiri Sponge Pvt. Ltd. clearly requested the complainant not to deposit the cheques, reaffirming their status as security instruments.
Rejecting the complainant's claim that such cheques became enforceable when dues arose, the Court held that the security nature of the cheques remained unchanged.
"These were security cheques given for a specific purpose and could not have been encashed for any liability that may have subsequently arisen," the Bench ruled.
Jurisdiction and Validity of Summoning Orders
The Court also found serious procedural lapses in how the summons were issued and adopted. The initial orders were passed by the Bellary Magistrate, who later returned the complaints for want of jurisdiction. Despite this, the Delhi Magistrate relied upon those very orders without issuing fresh summons.
Justice Krishna termed this a "clear procedural error," observing:
"Once a complaint is returned, all proceedings conducted in that court become non-est in the eyes of law. The adoption of those orders was legally untenable."
She further referred to amendments to Section 142 of the NI Act and the Supreme Court's judgments in Dashrath Rupsingh Rathod and Bridgestone India Pvt. Ltd. to explain that jurisdiction lies only where the cheque is presented for collection.
Decision
After examining the documents and submissions, the Court concluded that:
- The cheques were indeed security cheques and not meant for payment of any legally enforceable debt.
- The summoning orders adopted from the Bellary court were invalid as they emanated from a court lacking jurisdiction.
Accordingly, the Delhi High Court quashed all five complaints (CC Nos. 15098/2016, 15410/2016, 15373/2016, 1540/2019, and 1541/2019) and the related summoning orders dated April 8, April 27, and May 18, 2015, pending before the Patiala House Courts.
"The complaints under Section 138 of the NI Act, on account of dishonour of such cheques, are not maintainable," the Court declared while disposing of the petitions.
With that, Sri Sai Sapthagiri Sponge Pvt. Ltd. walked away with a clean slate - its long battle over so-called "security cheques" finally put to rest.
Case Title:- Sri Sai Sapthagiri Sponge Pvt. Ltd. vs. The State (GNCT of Delhi) & M/s Magnifico Minerals Pvt. Ltd.
