S 138 NI Act – Is Time Barred Debt A Legally Enforceable Debt?

Section 138 of the Negotiable Instruments Act deals with dishonour of a cheque drawn by a person on an account maintained by him with a banker for 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. Explanation to this Section provides that, for the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.

Thus, in order to apply Section 138 NI Act, the cheque drawn should be for the discharge of legally enforceable debt or other liability.

In Girdhari Lal Rathi vs P.T.V. Ramanujachari 1997 (2) Crimes 658, the Andhra Pradesh High Court held that, 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 as the debt was not legally recoverable. This view was followed in Sasseriyil Joseph vs Devassia 2001 CriLJ 24 :: 2000 (3) KLT 533 , by the High Court of Kerala and SLP filed against this was dismissed by the Apex Court.

But this view was overruled by the Division Bench of the Kerala High Court in Dr. K.K. Ramakrishnan v. Dr. K.K. Parthasarthy [2003 (2) KLJ 513 :: 2003 (2) KLT 613]. “When a person issues a cheque, he acknowledges his liability to pay. In the event of the cheque being dishonoured on account of insufficiency of funds he will not be entitled to claim that the debt had become barred by limitation and that the liability was not thus legally enforceable. He would be liable for penalty in case the charge is proved against him.“, it was held.

The Division Bench of the Bombay High Court in Dinesh B. Chokshi vs Rahul Vasudeo Bhatt also held that a cheque issued for discharge of a debt which is barred by law of limitation is itself a promise within the meaning of Sub-section (3) of Section 25 of the Contract Act. “A promise is an agreement and such promise which is covered by Section 25(3) of the Contract Act becomes enforceable contract provided that the same is not otherwise void under the Contract Act…. Once it is held that a cheque drawn for discharge of a time barred debt creates a promise which becomes enforceable contract, it cannot be said that the cheque is drawn in discharge of debt or liability which is not legally enforceable. The promise in the form of a cheque drawn in discharge of a time barred debt or liability becomes enforceable by virtue of Sub- section (3) of Section 25 of the Contract Act. Thus, such cheque becomes a cheque drawn in discharge of a legally enforceable debt as contemplated by the explanation to Section 138 NI Act.”, it was observed.

Recently, the Punjab & Haryana High Court in Sultan Singh V Tej Partap, 2022(1) RCR (Criminal) 712, followed this view taken in Ramakrishnan and held that 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 India Contract Act and the said promise by itself would create a legally enforceable debt.

Also refer:

S.Kamatchi and others vs. M/s.Arkaa Medicament 2009 (3) MWN (Cr.) DCC 31 [Madras HC]

M.P.Farook vs K.Sasikumar  [Madras HC]

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