2019 (9) TMI 1610 - HC - Indian Laws

Dishonor of cheque - insufficiency of funds - legally enforceable debt or not - service of statutory demand notice - time limitation - HELD THAT - Admittedly, the period of limitation for filing a suit is three years from the date of the debt. In this case, the debt was in January 2001 and the period of limitation expired in January 2004. In the opinion of this Court, since a plea of limitation is a legal issue based on proved facts, it can be raised at the revision stage also. Under Section 18 of the Limitation Act, 1963, if an acknowledgment of liability is given before the expiry of the period of limitation, the period of limitation will stand further extended - Consideration is an essential pre-requisite for a valid contract. While interpreting a penal provision, the normal rule is that, the interpretation that favours the accused would merit consideration. Of course, there are certain exceptions to this rule. The object of Section 138 of the N.I. Act is to protect the interest of diligent payees in commercial transactions. By virtue of the explanation extracted above, the expression debt means legally enforceable debt. It is axiomatic that the cheque should have been issued for a legally enforceable debt. When a cheque is issued for a time barred debt, it does not satisfy this minimum requirement - the cheque which gave birth to a fresh contract resurrects a time barred debt and the dishonour of such a cheque entails prosecution of the drawer under Section 138 of the N.I. Act, is too large a pill for the penal law to swallow. The cheque in this case has been issued after the expiry of three years from the date of the debt and therefore, the debt in this case was not a legally enforceable debt when the cheque was issued. A fortiori the prosecution founded under Section 138 of the N.I. Act on such a cheque is not maintainable and the accused deserves to be acquitted. The Criminal Revision Case is allowed.

Summary

Issues Involved:
1. Whether the prosecution under Section 138 of the Negotiable Instruments Act is maintainable for a cheque issued to discharge a time-barred debt.
2. Whether the issuance of a cheque for a time-barred debt amounts to a written promise to pay the said debt under Section 25(3) of the Indian Contract Act, 1872.
3. Whether the accused can raise the plea of limitation at the revision stage.

Issue-wise Detailed Analysis:

1. Prosecution under Section 138 of the Negotiable Instruments Act for a Time-Barred Debt:
The accused borrowed ?40,000 in January 2001 and issued a cheque for ?50,000 on 16.11.2006, which was dishonored due to insufficient funds. The complainant initiated prosecution under Section 138 of the N.I. Act. The trial court convicted the accused, and the appellate court upheld the conviction. The accused challenged these findings, arguing that the debt was time-barred, making the prosecution illegal. The court noted that the limitation period for filing a suit is three years from the date of the debt, which expired in January 2004. Therefore, the debt was not legally enforceable when the cheque was issued, rendering the prosecution under Section 138 of the N.I. Act unsustainable.

2. Issuance of a Cheque as a Written Promise under Section 25(3) of the Indian Contract Act:
The complainant argued that the issuance of the cheque amounted to an acknowledgment of liability, thus reviving the debt under Section 25(3) of the Contract Act. The court examined various judgments cited by both parties. The complainant relied on rulings from different High Courts, including Dinesh B. Chokshi v. Rahul Vasudeo Bhatt, which held that a cheque issued for a time-barred debt constitutes a promise under Section 25(3) and is thus enforceable. However, the court found that these rulings were either from other High Courts or not directly applicable. The court emphasized that a cheque cannot be construed as a "promise made in writing and signed by the payer" under Section 25(3). Even if construed as such, it would only create a new contract, and the dishonor of the cheque would not resurrect the time-barred debt for prosecution under Section 138 of the N.I. Act.

3. Raising the Plea of Limitation at the Revision Stage:
The respondent contended that the accused had not raised the limitation issue in the trial or appellate courts and thus should be precluded from doing so at the revision stage. The court held that since the plea of limitation is a legal issue based on proved facts, it can be raised at the revision stage. The court acknowledged that the debt was time-barred and that the accused had not acknowledged the debt in writing before the expiry of the limitation period.

Conclusion:
The court concluded that the cheque issued after the expiry of three years from the date of the debt did not represent a legally enforceable debt. Consequently, the prosecution under Section 138 of the N.I. Act was not maintainable. The court set aside the judgments of the lower courts and acquitted the accused of the charge under Section 138 of the N.I. Act.