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TMI Blog2012 (10) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that a cheque is a promise within the meaning of Sub-section (3) of Section 25 of the Contract Act. What follows is that when a cheque is drawn to pay wholly or in part, a debt which is not enforceable only by reason of bar of limitation, the cheque amounts to a promise governed by the Sub-section (3) of Section 25 of the Contract Act. Such promise which is an agreement becomes exception to the general rule that an agreement without consideration is void. Though on the date of making such promise by issuing a cheque, the debt which is promised to be paid may be already time barred, in view of Sub-section (3) of Section 25 of the Contract Act, the promise/agreement is valid and, therefore, the same is enforceable. The promise to pay time barred debt becomes a valid contract as held by the Apex Court in the case of A.V. Moorthy [ 2002 (2) TMI 1214 - SUPREME COURT] . Therefore, the first question will have to be answered in the affirmative. Under Section 118, there is a rebuttable presumption that every negotiable instrument was made or drawn for consideration. Section 139 creates a rebuttable presumption in favour of a holder of a cheque. The presumption is that the holder of a ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble the Chief Justice passed an order on the Administrative Side directing that these matters should be placed before a Division Bench. Accordingly, these Applications have been placed before this Court. The reference to Division Bench is for deciding the two questions formulated by the learned Single Judge under his Judgment and Order dated 23rd December, 2008. The said two questions are :- (i) Does the issuance of a cheque in repayment of a time barred debt amounts to a written promise to pay the said debt within the meaning of Section 25(3) of the Indian Contract Act, 1872 ? (ii) If it amounts to such a promise, does such a promise, by itself, create any legally enforceable debt or other liability as contemplated by Section 138 of the Negotiable Instruments Act, 1881 ? 2. We have heard Shri A.P. Mundargi, learned Senior Counsel who was appointed as Amicus Curiae to assist the Court, Shri Prakash Naik, Shri S.S. Kulkarni, Shri M.D. Mali, Shri Nitin V. Gangal and Shri S.V. Marwadi, the learned counsel representing the various parties. SUBMISSIONS: 3. Shri Mundargi, learned Senior Counsel appointed as Amicus Curiae has assisted the Court. He pointed out the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. It will be necessary to make a reference to the relevant provisions of the Contract Act. It will be necessary to make a reference to Section 2 of the Contract Act which is the interpretation clause. It reads thus:- 2. Interpretation clause.--In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:-- (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal; (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; (c) The person making the proposal is called the "promisor", and the person accepting the proposal is called the "promisee"; (d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise; (e) Every promise and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Contract Act reads thus:- 25. Agreement without consideration void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.--An agreement made without consideration is void, unless- (1) it is expressed in writing and registered under the law for the time being in force for registration of [documents], and is made on account of natural love and affection between parties standing in a near relation to each other; or unless (2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless (3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised 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. In any of these cases, such an agreement is a contract. 8. Thus, Sub-section (3) of Section 25 of the Contract Act is an exception to the general rule that an agreement made without considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 valid contract... (emphasis added) 10. A negotiable instrument is defined under Section 13 of the said Act of 1881. A negotiable instrument includes a cheque. A cheque is defined by Section 6 which reads thus:- 6. "Cheque".--A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. Explanation I.--For the purposes of this section, the expressions- (a) "a cheque in the electronic form&quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal order directing a certain person to pay a certain sum of money to a certain person. It involves a promise that such money would be paid. (emphasis added) 12. Thus, the Apex Court held that the drawer of a cheque promises to the person in whose favour the cheque is drawn or to whom a cheque is endorsed, that the cheque on presentation would yield the amount in cash. The Apex Court held that a bill of exchange is an instrument which involves a promise that the money payable under the instrument would be paid. Therefore, when a cheque issued towards the premium is returned dishonoured, the insured fails to perform his promise and, therefore, the insurer need not perform the reciprocal part of his promise. 13. The section 13 of the said Act of 1881 which defines negotiable instrument reads thus: 13. "Negotiable instrument".-- 1[(1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.] Explanation (i).--A promissory note, bill of exchange or cheque is payable to the order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to [two year], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within [thirty] days of the receipt of information by him from the bank regarding the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a cheque received the cheque of the nature referred to in Section 138 for discharge, in whole or in part of any debt or liability. Thus, under the aforesaid two Sections, there are rebuttable presumptions which extend to the existence of consideration and to the fact that the cheque was for the discharge of any debt or liability. 18. Under the Explanation to Section 138, the debt or other liability referred to in the main Section has to be a legally enforceable debt or liability. Merely because a cheque is drawn for discharge, in whole or in part of the debt or other liability, Section 138 of the said Act of 1881 will not be attracted. The provision will apply provided the debt or other liability is legally enforceable. Thus, Section 138 will not apply to a cheque drawn in discharge of a debt or liability which is not legally enforceable. There may be several categories of debts or other liabilities which are not legally enforceable. A debt or liability is legally enforceable if the same can be lawfully recovered by adopting due process of law. The emphasis is on the fact that the debt or other liability must be a legally enforceable liability. A debt or liability ceases to be le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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