S.4 Contract Act | Party Can't Dispute Legally Enforceable Liability Until 'Communication' Regarding Termination Of Contract Is Complete: Sikkim HC
The Sikkim High Court recently discussed Section 4 of the Contract Act which make stipulations regarding completion of a communication qua proposal, acceptance and revocation of a contract.In the instant case, involving interplay with Section 138 of the Negotiable Instruments Act, the bench of Justice Meenakshi Madan Rai made it clear that the Petitioner could not cover up dishonour of...
The Sikkim High Court recently discussed Section 4 of the Contract Act which make stipulations regarding completion of a communication qua proposal, acceptance and revocation of a contract.
In the instant case, involving interplay with Section 138 of the Negotiable Instruments Act, the bench of Justice Meenakshi Madan Rai made it clear that the Petitioner could not cover up dishonour of cheques issued by it in favour of the Respondent, merely because the latter had issued a communication for termination of contract. It noted that as on date when the cheques were dishonored, the communication regarding termination was not received by the Petitioner.
In this backdrop, the Court referred to Section 4 of the Contract Act and observed,
"Undoubtedly, the (Termination) Notice Exhibit 1 is dated 25-01-2018, Exhibit 11 stands testimony to the fact that it was booked in the post on 01- 02-2018 and received by the Petitioner only on 08-02-2018. It emerges that there was no termination of Contract when the cheques, Exhibits 1 and 2 were presented by the R1 on 30-01- 2018 before the Bank and came to be dishonoured."
It agreed with the Sessions Court, which had upheld the conviction order handed down by the Magistrate Court, that a communication of revocation is complete only against the person who makes it, when it is put into a course of transmission, so as to be out of his power. Hence, the communication of termination in this case was not complete (qua the Petitioner) when the cheques bounced.
"It will be seen that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made but a different rule is made about acceptance. Communication of an acceptance is complete in two ways – (1) against the proposer when it is put in the course of transmission so as to be out of the power of the acceptor; (2) as against the acceptor when it comes to the knowledge of the proposer."
The Petitioner had furnished two cheques with the Respondent as consideration for purchase of flat. The same were dishonoured on account of "insufficient funds".
The Petitioner claimed that he had deliberately stopped the payment in light of termination of contract.
The court noted that the communication regarding termination of contract was received by the Petitioner only on February 8, 2018 whereas the cheques were dishonored on January 30, 2018.
"The Agreement was subsisting between the parties in view of Section 4 of the Contract Act and considering the date of posting of Notice Exhibit 11 by the R1 to the Petitioner and the fact that it was received by the Petitioner only on 08-02-2018," Court said.
It further observed that the ground taken by the Petitioner that he had stopped payment is untenable as the Bank has clearly stated in its notes that the cheques were returned on account of insufficient fund.
The Court also applied the presumption under Section 139 of the NI Act regarding a negotiable instrument to be one for consideration. "If the negotiable instrument happens to be a cheque, Section 139 raises a further presumption that the holder of the cheque received the cheque in discharge in whole or in part of any debt or other liability," Court noted.
Petition was disposed in the aforesaid terms.
Case Title: Prahlad Sharma versus Dipika Sharma and Another
Citation: 2022 LiveLaw ( Sik) 6
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