LAHORE (Muhammad Ashfaq) - The Lahore High Court has issued an important ruling on security cheques, holding that merely presenting a cheque does not establish an automatic right to recover its amount. A claimant must first prove that the amount was actually due against the cheque.
The court clarified that where a cheque is issued as security, its payment depends on establishing the underlying financial liability.
Justice Asim Hafeez issued a six-page judgment on a petition filed by Muhammad Ehtisham. The court dismissed Nizami Feeds' appeal, upheld the decision of the lower court and rejected the claim for recovery of the cheque amount.
According to the judgment, the words "security cheque" were clearly written on the back of the cheque. A bank officer had also acknowledged before the court that it had been issued as security.
The court held that in such circumstances, the cheque could not be treated as an unconditional instrument of payment. Its encashment remained subject to the relevant conditions and proof of the outstanding amount.
The claimant had sought recovery of Rs3.95 million, but the court found the evidence presented in support of the claim insufficient and unreliable.
According to the judgment, only photocopies of account books were submitted, while the original records were not produced before the court. Nor had permission been obtained from the court to submit copies as evidence.
The court further noted that the account book was maintained in the name of "MA Form", whereas the cheque related to the defendant's personal bank account.
In addition, essential documents concerning the purchase of goods and orders were not produced. Consequently, the court declined to accept the account records as reliable evidence.
The judgment stated that when a cheque is issued as security, its mere possession or presentation does not establish entitlement to payment. The claimant must also prove that an actual amount became payable as a result of the underlying transaction.
The court rejected the recovery claim and upheld the lower court's decision. A separate claim for damages filed by the opposing party was also dismissed due to lack of evidence.
Justice Asim Hafeez dismissed all relevant appeals and ruled that neither party would be required to pay the other's litigation costs.
The ruling underscores the importance of producing credible evidence of an outstanding liability and the underlying transaction when seeking recovery through a security cheque.