A cheque issued as security, without any legally enforceable debt or liability at the time of issuance, does not fall within the ambit of Section 138 of the Negotiable Instruments Act, 1881.

1. This application is filed to quash the proceedings initiated under Section 138 of the Negotiable Instruments Act, pending before the IX Metropolitan Magistrate, Saidapet, Chennai, in C.O. No. 6629 of 1997.

2.. The case of the complainant is that the complainant paid an advance of Rs. 35, 00, 000 to the accused. The accused had agreed that he will clear the advance amount of Rs. 35 lakhs within thirty days from the date of receipt of advance and also handed over a post dated cheque for a sum of Rs. 35 lakhs signed by the 2nd accused for and on behalf of the 1st accused. The transactions between the complainant and the accused came to an end in September 1996 and as on 17. 1997 towards the outstanding balance, the accused owe to the complainant along with interest is a sum of Rs. 39, 43, 405. When the cheque was presented for collection, it was returned on the ground that funds not arranged for. A notice issued also did not evoke any response except a payment of a sum of Rs.2, 00, 000. Hence, the complaint.

.3. Learned counsel for the petitioner submitted that the cheque in this case was not issued in discharge of any liability but was handed over only as a security and therefore, the provisions of section 138 of the Negotiable Instruments Act is not attracted. Learned counsel for the petitioner referred to the xerox copy of the agreements entered into between the parties. The xerox copy of the agreements produced along with the petition were also served on the counsel for the respondent. He also referred to the same. Therefore, it can be taken that the xerox copy of the agreement can be relied upon for the purpose of the disposal of this petition. There are two agreements. The first agreement was entered into on 212. 1995. The second agreement was entered into on 4. 1996. learned counsel for the petitioner would rely upon Clause (5) of the agreement, which reads as follows:

."MI i.e., the complainant, will be releasing at the request of the Processor need based advances and the outstanding advance at any time shall not exceed Rs. 35 Lakhs. The processor agreed to give a cheque for Rs. 35 lakhs to MI as security for the advance received from ML No advance shall remain unadjusted for a period of more than 30 days from the date of payment by MI and any overdue on this account shall be deemed to be a breach of this Agreement by the processor. It is further agreed by the processor that in the event of breach as above, MI shall be at "liberty to encash such cheques in settlement of the amounts due from the processor and initiate appropriate further proceedings including action under section 138 of the Negotiable Instruments Act, 1881."

.4. In pursuance of the agreement, the petitioner herein gave a post dated cheque for Rs. 35 lakhs. According to the petitioners counsel, it was an undated cheque. The second agreement also refers to a similar clause under Clause 5. It is not the case that any fresh cheque was issued towards security as mentioned in clause 5. Therefore, the fact remains that only one cheque was issued on 212. 1995 as security for the advance of Rs. 35 Lakhs received by the processor from the complainant. The 1st agreement does not contain the period during which the agreement will be in force. The 2nd agreement also does not contain any reference to the period of agreement. From the admitted case of the parties, it is clear that the cheque that was issued by the petitioner was as security for the advance received. According to the terms of the agreement, the said advance of Rs. 35 lakhs will be adjusted against the profits made by the accused in the transaction. Even according to the complaint, the supply should be completed on or before 33. 1997. Therefore, it cannot be accepted that the petitioner handed over a cheque for Rs. 35 lakhs dated 17. 1997. Since the cheque was issued at the time when the 1st agreement was entered into, the cheque must be post dated so as to coincide with the expiry of the