The Rajasthan High Court, in a significant ruling, has held that a cheque issued for the payment of a time-barred debt constitutes a valid and enforceable contract under Section 25(3) of the Indian Contract Act, 1872. Consequently, the dishonour of such a cheque attracts criminal liability under Section 138 of the Negotiable Instruments Act, 1881.
Justice Pramil Kumar Mathur delivered the judgment while deciding a batch of five criminal revision petitions involving the same parties, Ratiram Yadav (complainant) and Gopal Sharma (accused). The court set aside three acquittal orders passed by a lower appellate court, restored the trial court’s conviction orders, and dismissed the accused’s petition challenging his conviction in one of the cases.
Case Background
The matter originated from four separate complaints filed by Ratiram Yadav against Gopal Sharma under Section 138 of the Negotiable Instruments (N.I.) Act. The complainant alleged that four cheques, each for ₹1,25,000, issued by the accused in 2013 were dishonoured upon presentation due to “insufficient funds.” These cheques were related to a loan advanced by Yadav to Sharma in 2009.
The trial court, a Special Metropolitan Magistrate for N.I. Act Cases in Jaipur, convicted the accused, Gopal Sharma, in all four cases. However, on appeal, the Additional Sessions Judge acquitted Sharma in three cases and, while upholding the conviction in one case, reduced the sentence.
This led to five revision petitions before the High Court: three filed by the complainant Ratiram Yadav challenging the acquittals, one by Yadav against the reduction of sentence, and one by the accused Gopal Sharma challenging his conviction. Since all petitions involved the same parties and a common question of law, they were disposed of by a single judgment.
Arguments of the Parties
Counsel for the complainant, Ratiram Yadav, argued that the appellate court had erred in law by acquitting the accused on the sole ground that the debt was time-barred. It was contended that the appellate court failed to consider the legal position under Section 25(3) of the Indian Contract Act, 1872, which makes a written promise to pay a time-barred debt a valid contract. A cheque, being a written promise signed by the debtor, falls within this provision, making the debt legally enforceable. Furthermore, since the accused admitted to signing and delivering the cheques, the statutory presumption under Section 139 of the N.I. Act applied, and the accused had failed to rebut it.
Conversely, counsel for the accused, Gopal Sharma, argued that the loan from 2009 had already been fully repaid. He claimed the cheques were issued undated in 2009 merely as security and were misused by the complainant in 2013. He asserted that in the absence of a written acknowledgment within the limitation period, the debt had become time-barred and was not a “legally enforceable debt” as required under Section 138 of the N.I. Act.
Court’s Analysis and Findings
Justice Mathur, after considering the rival contentions, centered the analysis on the interplay between a time-barred debt and Section 138 of the N.I. Act. The court noted the admitted facts: the loan was from 2009, and the accused had delivered signed but undated cheques, which were presented in 2013 and subsequently dishonoured.
The court reiterated the settled legal principle that once the execution of a cheque is admitted, a statutory presumption arises under Sections 118 and 139 of the N.I. Act that the cheque was issued in discharge of a debt. The burden to rebut this presumption lies on the accused.
The judgment’s core finding addressed the issue of the time-barred debt. The court observed: “it is significant to note that under Section 25(3) of the Indian Contract Act, even a time-barred debt can form valid consideration if there is a written promise signed by the debtor. A cheque constitutes such a promise. Therefore, when a cheque is issued towards a time-barred debt and is dishonoured, the liability under Section 138 of the ‘N.I. Act’ squarely arises. The contention that the debt was not legally enforceable is thus without merit.”
The court also dismissed the accused’s defence that the cheques were issued only as security. Citing the Supreme Court’s decision in Sripati Singh Versus The State of Jharkhand & Anr., Justice Mathur stated, “A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance… if the loan amount is not repaid… the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow.”
The High Court concluded that the accused had failed to produce any evidence to substantiate the repayment of the loan or to prove his claim that the cheques were merely for security. Therefore, the presumption under Section 139 of the N.I. Act remained unrebutted.
Final Decision
Based on this analysis, the High Court held that the appellate court had “erred in setting aside the conviction by ignoring the legal effect of Section 25(3) of the Contract Act and the presumptions under ‘the N.I. Act’.”
The court allowed the revision petitions filed by the complainant, Ratiram Yadav, and dismissed the petition filed by the accused, Gopal Sharma. The judgment of acquittal dated 06.04.2018 in three cases was set aside, and the trial court’s conviction and sentence orders dated 13.11.2017 were restored. In the fourth case, the conviction was affirmed, and the original sentence awarded by the trial court was maintained.
