SUPREME COURT HOLDS THAT ISSUING A CHEQUE CONSTITUTES A BINDING PROMISE TO PAY, EVEN IF DEBT IS TIME-BARRED

A Two Judge Bench of the Supreme Court comprising of Justice  A.S. Bopanna and Justice Prashant Kumar Mishra passed a Judgment dated 06-09-2023 in the matter of K. Hymavathi vs. The State of Andhra Pradesh & Anr. Criminal Appeal No. 2743 / 2023 and observed that a cheque, even though issued for a time-barred debt, still constitutes a promise to pay and the question, whether liability in respect of dishonour of such cheque arises or not, can be determined based on evidence and the High Court ought to have interfered in the proceedings under Section 482 of the Code of Criminal Procedure 1973, to decide such question.

FACTS:

(1) That the aforesaid Appeal filed before the Supreme Court by one, K. Hymavathi (Appellant) against The State of Andhra Pradesh and Padala Veera Venkata Satynarayana Reddy (Respondents), challenged the decision of the Hon’ble High Court of Andhra Pradesh (High Court) that while allowing the petitions, quashed the criminal proceedings against Respondent No. 2, being C. No.681 of 2017 on the file of II Additional Chief Metropolitan Magistrate at Visakhapatnam.

(2) That the Appellant and the Respondent no.2 were acquainted with each other.The Respondent no.2 approached the Appellant to borrow a sum of Rs 20,00,000, stating that he needed the money for his son’s medical education and domestic expenses. Further to ensure repayment, the Respondent no.2 executed a Promissory Note on 25.07.2012, agreeing to repay the amount along with 2% interest per month by December 2016.

(3) However, the Respondent No.2 failed to meet the conditions of the Promissory Note. Therefore, on 28.04.2017, he issued a Cheque for Rs. 10,00,000 to the Appellant drawn from Vijaya Bank, J.P. Marg, Visakhapatnam, as a partial payment of the Debt. The Bank returned the Cheque on 15.05.2017 due to insufficient funds. Subsequently, the Appellant sent a Legal Notice dated 24.05.2017, to which the Respondent No.2 replied on 01.06.2017. The Appellant sent a Rejoinder dated 03.06.2017, and the Respondent No.2 replied to the said Rejoinder on 07.06.2017.

(4) Therefore, following these exchanges, the Appellant filed Complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) (Dishonour of Cheque for Insufficiency, etc., of funds in the accounts) on 11.07.2017 against the Respondent No.2 before the Ld. Special Magistrate, Vishakhapatnam in CC No. 681 of 2017. The Ld. Special Magistrate, Vishakhapatnam, took cognizance of the Complaint vide Order dated 14.09.2018 and thereby issued summons.

(5) Aggrieved, the Respondent No.2 subsequently filed a Petition bearing P No.12675 of 2018 before the High Court under Section 482 of the Code of Criminal Procedure 1973, (Cr. P.C) (Saving of Inherent Power of High Court) seeking quashing of the proceedings. The High Court allowed the said Petition vide Order dated 12.02.2019.

HIGH COURT FINDINGS

In this case, the Hon’ble High Court observed that the limitation period for enforcing the Promissory Note had expired well before the issuance of the Cheque. As a result, the High Court concluded that the Complaint filed by the Appellant seeking prosecution was not related to a legally recoverable debt. Therefore, the said observation formed the basis for the High Court’s decision to allow the Petition filed by the Respondent No.2 and quash the proceedings initiated under Section 138 of the NI Act.

SUPREME COURT OBSERVATION:

Aggrieved by the Order dated 12.02.2019 of the High Court, the Appellant filed Special Leave Petition SLP(C) No. 7455 / 2019 which was registered on 19-08-2019 as Criminal Appeal 2743 of 2023, thereby challenging the High Court Order that quashed the criminal proceedings against the Respondent No. 2 in C.C. No. 681 of 2017.

(i) The Apex Court, in its observations, made it clear that it considered the nature of proceedings under NI Act and emphasized that a cheque, even if issued for a time-barred debt, still constitutes a promise to pay. The Supreme Court referred to Section 25(3) of the Indian Contract Act 1872 (Contract Act) (it is 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). and explained that in cases where the question whether a debt or liability is time-barred needs to be determined, it should be decided based on the evidence presented by the parties since the same involves both legal and factual aspects. The Apex Court stressed that only in cases where an amount is completely unrecoverable, and a criminal action is initiated for its recovery, should the question of jurisdiction arise. In such cases, the High Court, under Section 482 of CrPC, can interfere and determine the question of liability in case of dishonour of cheque issued for a time barred debt.

(ii) Further, the Supreme Court also referred to a 2021 decision related to Expeditious Trial of Cases Under Section 138 of NI Act, (2021) SCC OnLine SC 325, thereby highlighting that in cases where a trial court is informed that it lacks jurisdiction to issue process for complaints under Section 138, the proceedings must be stayed. This implies that the trial court still has the power to determine its jurisdiction, and in such cases, the High Court’s exercise of power under Section 482 of CrPC would be justified.

(iii) The Apex Court further observed that Section 25(3) of the Contract Act should be examined in light of the Explanation to Section 138 of the NI Act, which specifies that the debt or liability must be legally enforceable. If a cheque is issued for a debt that is not legally recoverable, the presumption under Section 139 of NI Act (Presumption in favour of Holder) would not apply.

(iv) The Supreme Court further held that the High Court had misdirected itself in the case at hand by considering the Promissory Note from 2012 and the Cheque from 2017 as time-barred. The Apex Court clarified that (i) the cause of action for recovery of the amount, in the present case, arose in December 2016 when the Respondent No. 2 failed to pay the debt under the Promissory Note and (ii) the Cheque dated 28.04.2017 got dishonoured in 2017. As per Article 34 of the Limitation Act 1963, the limitation period of three years would expire in December 2019-2020. But the Complaint was filed in July 2017, i.e. well within the limitation period.

CONCLUSION

Thus, based on aforesaid observations, the Apex Court’s judgment in this case provided that even if a debt is past its legal time limit, a cheque is still a promise to pay. The Supreme Court found that the Complaint in question was not time-barred and directed the Trial Court to proceed with the case. This case highlights the importance of determining the legal enforceability of a debt based on specific evidence and facts presented.

Therefore, the Apex Court allowed the Appeal and thereby, set aside the High Court Order dated 12.02.2019 and directed the Trial Court to proceed with the case expeditiously.

 

Sakshi Raghuvanshi

Legal Associate

The Indian Lawyer