On September 19, 2016, the SC in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited[1] dealt with the issue of whether the dishonor of post-dated cheques that have been described as ‘security’ in a loan agreement, would attract criminal liability under Section 138 of the Negotiable Instruments Act, 1881 (‘Negotiable Instruments Act’), the penalty for which includes imprisonment for a term upto two years, or a fine, or both.The SC held that Section 138 of the Negotiable Instruments Act applies only if, on the date of issuance of the cheque, the liability or debt exists or the amount has become legally recoverable, and not otherwise. The SC further held that the issuance of a cheque and admitted signature on such cheque creates a presumption of a legally enforceable debt in favour of the payee, and a mere statement by the accused that the cheques were issued as “security” and not as repayment, would not rebut this presumption.In the present case, though the word “security” was used, the cheques were towards repayment of installments, which became due under the relevant agreement immediately upon advancement of the loan. Therefore, the dishonor of cheque was for an existing liability and covered under Section 138 of the Negotiable Instruments Act.[1]     Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited, (2016) 10 SCC 458.