Drawing Cheque Of Time-Barred Debt Resurrects Debt Through S.25(3) Of Indian Contracts Act, Triggers Liability U/S 138 NI Act: Delhi High Court

The Court said “The furnishing of a cheque of a time-barred debt effectively resurrects the debt itself by a fresh agreement through the deeming provision under section 25(3) of ICA. The original debt therefore, through section 25(3) of the ICA, becomes legally enforceable to the extent of the amount the cheque has been given.”

Further, “By the act of drawing a cheque, the promisor i.e. the drawer, is effectively stating that he has a liability to pay the drawee. Drawing of the cheque in itself, is acknowledgment of a debt or liability. It is the resurrection or the revival of the prior debt which would trigger the provisions under section 138 of NI Act. To deny a complainant/drawee of invoking the penal provisions under section 138 of NI Act, despite the categorical premise of section 25(3) of the ICA recognizing a fresh agreement to pay, would be an unfortunate disentitlement.”

A single judge bench of Justice Anish Dayal was considering the appellant's challenge to the order of the Trial Court, which acquitted respondent no. 2 under Section 138 of the Negotiable Instruments Act (offence of dishonour of cheque for insufficiency of funds).

Background

The appellant/complainant's father provided a loan of Rs. 3,50,000 to respondent no.2/accused in October 2011. In January 2014, the accused issued a cheque in the name of the complainant's father to discharge his liability.

However, the complainant's father passed away in July 2014 before presenting the cheque for encashment. After the death of the father, the accused issued a cheque dated 31 December 2015 to the complainant for repayment of the loan amount.

The cheque was however dishonoured twice on account of insufficient funds. Therefore, the complainant filed a case under Section 138 of the NI Act for dishonour of cheque before the Trial Court.

The Trial Court dismissed the complaint and acquitted the accused on the ground that the complainant could no longer legally recover the debt from the accused. It held that the debt could not be recovered on the date of issuance of the cheque as it was barred by the law of limitation and that the cheque in question did not extend the period of limitation under Section 18 of the Limitation Act.

The High Court stated that in cases of dishonour of cheques, furnishing of a cheque in itself invites a presumption of liability. It noted that even if the liability was of a previous period, it gets revived due to the furnishing of the cheque.

The Court referred to Section 25(3) of the Indian Contract Act and said that this provision was applicable in the case. It noted that in relation to a time-barred debt, a promise to pay a wholly or in part a debt which cannot be enforced by the creditor being barred by the law of limitation is a valid agreement, if it is made in writing and signed by the person as per Section 25(3) of ICA.

The Court further referred to Section 6 of the NI Act, which states that a cheque is a bill of exchange. A bill of exchange under Section 5 of the NI Act, is an instrument in writing signed by the maker directing payment of a certain sum of money to a certain person. In view of this, the Court stated that the cheque itself becomes a promise 'made in writing', signed by the debtor, which would otherwise not be required to be paid due to the law of limitation.

“Therefore, a priori the cheque itself becomes a promise made in writing signed by the person to pay wholly or in part debt, which otherwise, may not be payable due to law of limitation.”

It also stated that Section 139 NI Act would come into play in such cases. The provision provides for the presumption that the cheque received is for the discharge of any liability/debt, either in whole or in part. It held that a fresh agreement comes into operation by the tendering of the cheque. It stated that the drawer of the cheque is acknowledging a liability by issuing a cheque and thus cannot claim that the debt is barred by limitation.

“The contrary position of the accused that no debt or liability subsists having extinguished by the law of limitation, would be then unmerited and untenable, since a fresh agreement comes into operation by the tendering of the cheque. By issuing the cheque, the drawer is acknowledging a legally enforceable liability and he ought not be entitled to claim that the debt had become barred by limitation.”

In the present case, the Court noted that the Trial Court incorrectly analyzed the issue of time-barred debt. It noted that in assessing the limitation, the Trial Court determined the date of the loan as April 2012, thus taking the period of limitation to April 2015.

The Court noted that even though the loan was allegedly taken in 2012 as per the Trial Court's finding, the cheque presented to the father in 2014 would begin a fresh period of limitation. The Court held that the cheque presented in 2014 would amount to an acknowledgement in writing of the liability and thus a new period of limitation would commence as per Section 18 of the Limitation Act.

The Court thus set aside the Trial Court's order which had acquitted the accused.

Case title: RAJEEV KUMAR vs. THE STATE NCT OF DELHI & ANR.

Citation: 2024 LiveLaw (Del) 1055