2020 (2) TMI 176 - HC - Indian Laws

Dishonor of Cheque - legally enforceable debt and liability or not - offence punishable under Section 138 of the Negotiable Instruments Act 1881 or not - time barred debt - HELD THAT - Once a cheque is drawn for discharge of a time barred debt, it creates a promise which becomes an enforceable contract and therefore, it cannot be said that the cheque is drawn in discharge of debt or liability which is not legally enforceable. Therefore, the impugned judgment dated 16.9.1998 has to be set aside and is hereby set aside. The matter is remanded to the trial Court to decide, based on the evidence already recorded, whether the complainant has proved the ingredients of offence punishable under Section 138 of the Negotiable Instruments Act 1881 - Appeal allowed by way of remand.

Summary

Issues:
Appeal against order under Section 138 of Negotiable Instruments Act 1881 for dishonoured cheque due to time-barred debt.

Analysis:
1. The case involved an appeal challenging an order passed by the trial court in a matter under Section 138 of the Negotiable Instruments Act 1881. The appellant, an unpaid vendor, supplied paints to the accused in 1992, with the last supply on 30.6.1992. A cheque issued by the accused on 15.5.1997 for the due amount was dishonoured. Despite sending a notice, the accused denied liability, leading to the complaint under Section 138.

2. The trial court, considering the accused's argument of the debt being time-barred, relied on a judgment of the Andhra Pradesh High Court, stating that issuing a cheque for a time-barred debt does not lead to conviction under Section 138. The trial court dismissed the complaint without assessing the offence's ingredients, prompting the appeal.

3. The appellant argued that a Division Bench of the Bombay High Court held a different view, stating that a cheque for a time-barred debt creates an enforceable contract. The matter was referred to the Division Bench to decide if such a promise creates a legally enforceable debt under Section 138.

4. The Division Bench concluded that a cheque for a time-barred debt constitutes a promise under the Indian Contract Act, making it an enforceable agreement. The court emphasized that the debt must be legally enforceable for Section 138 to apply, and a time-barred debt does not qualify as such. The court held that a cheque for a time-barred debt creates a promise that is legally enforceable, setting aside the trial court's order and remanding the case for further consideration.

5. The judgment highlighted that a cheque for a time-barred debt results in a promise that becomes an enforceable contract, making the debt legally enforceable. The court directed the trial court to assess the evidence and determine if the offence under Section 138 is established. The matter was to be expedited due to the long duration of the dispute.

6. The judgment was set aside, and the case was remanded to the trial court for further proceedings. The accused and the complainant were directed to appear before the trial court for arguments and judgment within a specified timeline. The responsibility to inform the accused about the order was placed on the accused's advocate. The appeal was disposed of, with instructions for timely action based on the order.