Furnishing of Cheque For Time-Barred Debt Effectively Resurrects Debt: Karnataka High Court Upholds Conviction U/S 138 NI Act
The Bench noted that an act of drawing cheque operates as written acknowledgment triggering Section 138 NI Act proceedings even after expiry of limitation.
The Karnataka High Court held that furnishing a cheque toward a time-barred debt resurrects the underlying obligation by forming a fresh agreement through the deeming provision under Section 25(3) of the Indian Contract Act, 1872. The Court observed that drawing a cheque constitutes a written promise and acknowledgment of liability, rendering the debt legally enforceable and attracting criminal liability under Section 138 of the Negotiable Instruments Act upon its dishonour.
Dismissing a criminal revision petition filed by an accused challenging his conviction, the Court clarified that the issuance of a cheque for a pre-existing monetary liability, even if issued after the expiration of the three-year limitation period, operates as a valid acknowledgment of debt. Consequently, an accused drawer cannot escape penal consequences by pleading that the underlying financial claim was time-barred prior to the drawing of the instrument.
A Single-Judge Bench comprising Justice H.P. Sandesh noting a Supreme Court judgement, observed, “…Having considered the material in detail, in paragraph No.37, the Apex Court held that 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 recoverable and enforceable to the extent of the amount the cheque has been given. It is further held that by the act of drawing a cheque, the promisor i.e., the drawer, is effectively stating that he has a liability to pay the drawee. Drawing of the cheque in itself, is acknowledgment of which would trigger the provisions under Section 138 of NI Act”, the Bench noted.
Advocate Shridhara K appeared for the petitioner and Advocate Yadunandan N appeared for the respondent.
The dispute arose when the complainant, K.R. Puttaswamy, initiated proceedings under Section 138 of the Negotiable Instruments Act following the dishonour of a cheque worth Rs. 4,00,000 issued by the accused, Ganesh. According to the complainant, the accused had borrowed the sum on October 5, 2015, with a promise of 18% annual interest, and subsequently issued the instrument on October 24, 2018, toward repayment, which was returned unpaid upon presentation.
The I Additional Civil Judge and JMFC, Mysuru, convicted the petitioner on February 8, 2024, which was subsequently affirmed on September 12, 2024, by the III Additional Sessions Judge, Mysuru. The petitioner thereafter approached the High Court in revision, contending that the cheque was issued after three years from the transaction date without intervening correspondence, making it a time-barred debt, and alleging non-service of legal demand notice.
On the statutory interaction between the Contract Act and the Negotiable Instruments Act, the High Court observed that while the Supreme Court in Sasseriyil Joseph v. Devassia 2001 Crl.L.J. 24, dismissed an appeal concerning time-barred debts, it did not lay down substantive law on Section 25(3) of the Contract Act.
“Having considered all these materials on record and also the principles laid down in the judgments referred supra, it is very clear that once the cheque is issued, even if it is for the time barred debt also, there is a deemed provision under Section 25(3) of Contract Act”, the Bench said.
Accordingly, the Court dismissed the revision petition, confirming the concurrent judgments of conviction passed by the lower courts.
Cause Title: Ganesh v. K.R. Puttaswamy (CRL.RP No. 1471 of 2024)
Appearances:
Petitioner: Advocate Shridhara K.
Respondent: Advocate Yadunandan N., for Advocate Sagar V. Shastri.