2024 (9) TMI 1017 - HC - Indian Laws

Dishonour of Cheque - funds insufficient - legally recoverable debt or not due to limitation - acquittal of the accused/respondent - HELD THAT - The Supreme Court in A.V. Murthy v B.S. Nagabasavanna 2002 (2) TMI 1214 - SUPREME COURT recognized the application of Section 25 (3) of the ICA while disallowing a dismissal of a complaint under section 138 of NI Act, at the behest of a complainant, where a cheque had been given for a liability which was time-barred, it was held that ' Even under Section 139 of the Act, it is specifically stated that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in Section 138 for discharge, in whole or in part, of any debt or other liability. It is also pertinent to note that under sub-section (3) of Section 25 of the Indian Contract Act, 1872, a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits, is a valid contract.' The Supreme Court in S. Natarajan v Sama Dharman Anr. 2014 (7) TMI 1330 - SUPREME COURT expressed the opinion that, the High Court had erred in quashing the complaint under section 138 NI Act, on the ground that debt or liability was barred by limitation since that question can be decided only after evidence has been adduced being a mixed question of law and fact. In assessing limitation, the Trial Court determines the date of loan as approximately 30th April 2012 (para 40 of the impugned order), taking the period of limitation to April 2015. Cheque in question was issued on 31st December 2015 and therefore, the Trial Court held in favour of the accused, that they were able to rebut the statutory presumption that there was no legally enforceable debt. Considering that the Trial Court has considered the evidence, the principles in S. Natarajan Yogesh Jain may not be fully applicable at this stage. The matter is now in appeal against the acquittal and the Court has perused the evidence on record. Based on the analysis above and that the Trial Court itself found it unbelievable that a cheque of Rs. 3,50,000/- would be given in 2015, despite the accused having asserted in the trial that he had repaid the debt of the father, the only question remains is on the legal enforceability of the debt. 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 - 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. Impugned order dated 31st July 2017, acquitting the respondent no. 2, is set aside - List on 7th October 2024 for further directions. Respondent no. 2 be present on the next date scheduled.

Issues Involved:
1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act.
2. Limitation period for recovery of debt.
3. Presumption of liability under Sections 139 and 118 of the Negotiable Instruments Act.
4. Application of Section 25(3) of the Indian Contract Act, 1872.
5. Credibility and contradictions in the testimony of the accused.
6. Relevance of bank transactions as proof of repayment.

Issue-wise Detailed Analysis:

1. Legally Enforceable Debt Under Section 138 of the Negotiable Instruments Act:
The complaint was filed under Section 138 of the NI Act due to the dishonour of a cheque issued by the accused. The Trial Court dismissed the complaint, holding that the debt was not legally recoverable due to the limitation period. The High Court, however, found that the issuance of the cheque itself invokes a presumption of liability, making the debt legally enforceable.

2. Limitation Period for Recovery of Debt:
The Trial Court held that the debt was time-barred as the loan was given in October 2011, and the cheque was issued on 31st December 2015. The High Court disagreed, stating that the issuance of the cheque in 2015 revived the debt, making it enforceable under Section 25(3) of the Indian Contract Act, 1872.

3. Presumption of Liability Under Sections 139 and 118 of the Negotiable Instruments Act:
The High Court emphasized that under Sections 139 and 118 of the NI Act, there is a presumption that the cheque was issued for a legally enforceable debt. The burden of proof lies on the accused to rebut this presumption, which the accused failed to do convincingly.

4. Application of Section 25(3) of the Indian Contract Act, 1872:
The High Court applied Section 25(3) of the ICA, which states that a written promise to pay a time-barred debt is enforceable. The issuance of the cheque was considered a written promise, thus reviving the debt and making it legally enforceable.

5. Credibility and Contradictions in the Testimony of the Accused:
The High Court found the testimony of the accused to be inherently contradictory and not believable. The accused's claims of having repaid the debt partially and issuing the cheque to resolve a 'family dispute' were found to be unconvincing and specious.

6. Relevance of Bank Transactions as Proof of Repayment:
The accused presented bank transactions as proof of partial repayment. However, the High Court noted that these transactions did not explain why a fresh cheque of Rs. 3,50,000/- was issued in 2015. The Court found that the accused failed to establish that these transactions were towards the repayment of the loan in question.

Conclusion:
The High Court set aside the Trial Court's order, acquitting the accused, and held that the debt was legally enforceable due to the issuance of the cheque, which revived the time-barred debt under Section 25(3) of the ICA. The case was listed for further directions, and the respondent was required to be present on the next date scheduled.

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