Dishonour of a cheque issued to satisfy time-barred debt – Whether attracts criminal liability

Introduction

Today, courts are flooded with Cheque Dishonour cases to such an extent that in every metropolitan area and in big districts there are Special Courts of Judicial or Metropolitan magistrates to deal exclusively with these cases. Negotiable Instruments Act (NI Act) provides for the offence of cheque dishonour. Section 138, N.I. Act[i] provides for the situations when the cheque is said to be dishonoured. However, dishonour of a cheque is, by itself, not an offence under Section 138 of the N.I. Act. To become an offence, the following ingredients have to be fulfilled:

  1. Drawing of the cheque for debt or other liability.
  2. Presentation of the cheque to the bank.
  3. Return of the cheque unpaid by the drawee bank.
  4. Issuance of notice in writing to the drawer of the cheque demanding payment of the cheque amount.
  5. Failure of the drawer to make the payment within 15 days of receipt of the notice.

There is already a lot of jurisprudence on the various grounds of dishonour. Today’s article specifically focuses on law regarding issuance of cheque to satisfy time barred debt.

Arguments Raised

  • Sometimes during the trial accused accepts the fact that the dishonoured cheque belongs to him and bears his signature but he further contends that to satisfy the requirement of Section 138 NI Act the cheque should have been issued to discharge legally enforceable debt or liability and since the cheque was issued to satisfy time barred debt and such debts can’t be recovered legally, so such a cheque on the same principles cant said to be issued to discharge legally enforceable debt or liability.
  • Accused contends that promise made by him to repay the time barred debt is a void agreement as it is without consideration. Section 25(3) of the Indian Contract Act[ii] requires such a promise to be in writing and signed by the accused person.
  • Accused also argues that neither he has made any acknowledgment of debt in writing in terms of Section 18 Limitation Act[iii] nor in accordance of Section 19 of Limitation Act[iv] he made any kind of part payment to once again start the period of limitation afresh.
  • According to Article 19 of limitation act, the limitation period to recover money given on loan/lent is three years from the date it became due (the date decided between parties on which payment has to be made or instalment has to be deposited). So if a cheque is issued for any loan more than three years after it became due, it is said that the cheque is issued for a time barred debt.

What is Debt or other Liability under Section 138 NI Act

The Explanation appended to Section 138 explains the meaning of the expression “debt or other liability” for the purpose of Section 138. This expression means a legally enforceable debt or other liability. Section 138 treats dishonour of cheque as an offence, if the cheque has been issued in discharge of any debt or other liability. The Explanation leaves no manner of doubt that to attract an offence under Section 138, there should be a legally enforceable debt or other liability subsisting on the date of drawl of the cheque. In other words, drawl of the cheque in discharge of an existing or past adjudicated liability is sine qua non for bringing an offence under Section 138.

Aiyar’s Judicial Dictionary defines debt as follows:

“Debt is a pecuniary liability. A sum payable or recoverable by action in respect of money demand.”

Lindey L.J in Webb v. Strention defined debt as “… a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro.” The definition was adopted by Supreme Court in Keshoram Industries v. CWT. Justice Mookerjee writing for a Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee adopted the definition provided by the Supreme Court of California in People v. Arguello:

“Standing alone, the word ‘debt’ is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds: solvendum in praesenti and solvendum in future … A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt or does not become a debt until the contingency has happened.”

Thus, the term debt also includes a sum of money promised to be paid on a future day by reason of a present obligation. A post-dated cheque issued after the debt has been incurred would be covered by the definition of ‘debt’. However, if the sum payable depends on a contingent event, then it takes the color of a debt only after the contingency has occurred.

In Keshoram Industries v. CWT[v]  the Hon’ble Supreme Court went on to observe that the term debt also includes a sum of money promised to be paid on a future day by reason of a present obligation. A post-dated cheque issued after the debt has been incurred would be covered by the definition of ‘debt’.

Presumption under Section 139 of NI Act

According to Section 139 of NI Act 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 the discharge, in whole or in part, of any debt or other liability.

In short Section 138 of the Act has three ingredients, viz.:

  • that there is a legally enforceable debt;
  • that the cheque was drawn from the account of bank for discharge in whole or in part of any debt or other liability which pre- supposes a legally enforceable debt; and
  • that the cheque so issued had been returned due to insufficiency of funds.

The proviso appended to the said section provides for compliance of legal requirements before a complaint petition can be acted upon by a court of law. Section 139 of the Act merely raises a presumption in regard to the second aspect of the matter. Existence of legally recoverable debt is not a matter of presumption under Section 139 of the Act. It merely raises a presumption in favour of a holder of the cheque that the same has been issued for discharge of any debt or other liability.

So the complainant needs to prove the existence of debt that was legally recoverable, then only the presumption under Section 139 will come into play and court can presume that the dishonoured cheque was issued for legally recoverable debt or other liability.

However, the presumption under Section 139 of the N.I. Act is rebuttable and it is open to the accused to raise a defence wherein the existence of a legally enforceable debt or liability can be contested. Having regard to the definition of terms proved and disproved as contained in Section 3 of the Evidence Act as also the nature of the said burden upon the prosecution vis-a-vis an accused it is not necessary that the accused must step into the witness box to discharge the burden of proof in terms of the aforementioned provision. It is furthermore not in doubt or dispute that whereas the standard of proof so far as the prosecution is concerned is proof of guilt beyond all reasonable doubt; the one on the accused is only mere preponderance of probability.

Presumptions are rules of evidence and do not conflict with the presumption of innocence, because by the latter, all that is meant is that the prosecution is obliged to prove the case against the accused beyond reasonable doubt. The obligation on the prosecution may be discharged with the help of presumptions of law or fact unless the accused adduces evidence showing the reasonable possibility of the non-existence of the presumed fact.[vi]

Statute mandates raising of presumption but it stops at that. It does not say how presumption drawn should be held to have rebutted. Other important principles of legal jurisprudence, namely presumption of innocence as human rights and the doctrine of reverse burden introduced by Section 139 should be delicately balanced. Such balancing acts, indisputably would largely depend upon the factual matrix of each case, the materials brought on record and having regard to legal principles governing the same.

The Supreme Court in Krishna Janardhan Bhat vs. Dattatraya G. Hedge[vii], has elucidated the law in this regard and has held as under:

“The proviso appended to the said section provides for compliance of legal requirements before a complaint petition can be acted upon by a court of law. Section 139 of the Act merely raises a presumption in regard to the second aspect of the matter. Existence of legally recoverable debt is not a matter of presumption under Section 139 of the Act. It merely raises a presumption in favour of a holder of the cheque that the same has been issued for discharge of any debt or other liability”

An accused for discharging the burden of proof placed upon him under the act need not examine himself. He may discharge his burden on the basis of the materials already brought on records. An accused has a constitutional right to maintain silence. Standard of proof on the part of an accused and that of the prosecution in a criminal case is different.

Whether Cheque issued to discharge Time Barred debt attracts liability and raises presumption

No doubt, the promise to pay a time barred cheque (debt) is valid and enforceable, if it is made in writing and signed by the person to be charged therewith. But, it is clear from Section 138 of the Negotiable Instruments Act that in order to attract the penal provisions in the bouncing of a cheque in Chapter XVII, it is essential that the dishonoured cheque should have been issued in discharge, wholly or in part, or any debt or other liability of the drawer to the payee. The explanation to Section 138 defines the expression debt or other liability as a legally enforceable debt or other liability.

In Girdhari Lal Rathi v. P.T.V. Ramanujachari[viii], the Andhra Pradesh High Court clearly held that if a cheque is issued for a time barred debt and it is dishonoured, the accused cannot be convicted under section 138 of the N.I. Act, simply on the ground that the debt is not legally recoverable. The same ratio has also been laid down by the Bombay High Court in Ashwini Satish Bhat[ix] and Narendra V. Kanekar[x] and by a single judge of the Kerala High Court in the case of Sasseriyil Joseph[xi].

Sasseriyil Joseph case when reached Supreme Court it was affirmed by the Apex Court that Section 138 is attracted only if the cheque is issued for the discharge of a legally enforceable debt or other liability. If the cheque in question was issued in discharge of a time barred debt then it cannot be said that the cheque was issued in discharge of debt or other liability.

In Vijay Polymers Pvt. Ltd. & Anr. v. Vinnay Aggarwal[xii], relying upon the judgment of the Supreme Court in Sasseriyil Joseph (supra), it was observed that, cheques issued for a time-barred debt would not fall within the definition of ‘legally enforceable debt’, which is the essential requirement for a complaint under Section 138 of the NI Act; the extended meaning of debt or liability has been explained in the Explanation to the Section which means a legally enforceable debt or liability.

In Prajan Kumar Jain v. Ravi Malhotra[xiii], wherein, it has been held by the Court that, an acknowledgment to be encompassed within the ambit of Section 18 of the Limitation Act has to be an acknowledgment in writing as also within the prescribed period of limitation. These are the twin requirements which have to be fulfilled in order to be a valid acknowledgment under Section 18 of the Limitation Act. There is no force in the argument that by issuance of the cheque the limitation for realising the loan amount get extended, because at the time of issuance of the cheque the debt should be a legally recoverable debt. In case a cheque is issued for a time-barred debt and it is dishonoured, the accused cannot be convicted under section 138 of the Negotiable Instruments Act simply on the ground that the debt was not legally recoverable.

It is well-settled that the presumption, which is contained in Section 139 of the NI Act, only raises the presumption that the cheque has been issued for the discharge of a debt or liability and existence of legally recoverable debt is not a matter of presumption, as per the aforesaid provisions of law.

[i] https://indiankanoon.org/doc/1823824/

[ii] https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428&orderno=26

[iii] https://indiankanoon.org/doc/1529784/

[iv] https://indiankanoon.org/doc/1375684/

[v] 1966 SCR (2) 688

[vi] Hiten P. Dalal v. Bratindranath Banerjee [(2001) 6 SCC 16]

[vii] (2008) 4 SCC 54

[viii] [1997 (2) Crimes 658]

[ix] (1999)1 Goa L.T. 408

[x] 2006 Cri.L.J. 3111

[xi] 2001 Cri.L.J 24

[xii] Crl.M.C.1682/2008 & Crl.M.A.Nos. 6167/2008 & 12878/2008, Del HC

[xiii] 2009 SCC Online Del 3368


ABOUT THE AUTHOR

Harshit Sharma

Harshit is a Civil Judge-cum-JMFC at Rajasthan Judicial Services, and a doctoral candidate (Ph.D.) at NLU Jodhpur. He can be reached at harshitsharmanluj@gmail.com.

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