Cheque Issued For Time-Barred Debt Amounts To Promise, S.138 NI Act Can Be Invoked When It Is Dishonoured: Rajasthan High Court

The Rajasthan High Court has held that a cheque issued towards a time-barred debt gets dishonoured, the liability under Section 138 NI Act can be invoked in view of Section 25(3) of the Indian Contracts Act, as per which even a time-barred debt forms a valid consideration if there was a written promise signed by the debtor.The bench of Justice Pramil Kumar Mathur held that a cheque constituted such a promise as contemplated under Section 25 of the Indian Contracts Act. “The contention that the debt was time-barred by 2012 does not ipso facto exonerate the accused, the very issuance of cheques constitute a promise within the meaning of Section 25(3) of the Indian Contract Act, 1872 reviving the enforceability of the debt. Accordingly, the requirement of “legally enforceable debt” under Section 138 of the “N.I. Act” is satisfied.”The Court was hearing a revision petition against the appellate court's order in 4 cheque bounce cases, wherein the trial court's order was overturned and the respondent was acquitted in 3 cases, and the sentence was reduced in one case. As argued, the appellate court's order was solely on the ground that the alleged loan was time-barred and there was no acknowledgement to pay the time-barred debt, holding that there was no legally enforceable debt.However, the appellate court failed to consider the legal position under Section 25(3) of the Indian Contract Act which provides that a promise, made in writing and signed by the debtor, to pay a time-barred debt constitutes a valid and enforceable contract. A cheque issued towards repayment of a time-barred debt falls within this scope, and hence acquittal is not sustainable in law.The petitioner had advanced money in 2009, and the accused had given signed but undated cheques. The petitioner inserted date in these in 2013, and presented them, which got dishonoured. It was argued by the respondent that although the loan transaction was not disputed, the cheques were issued in 2009 but were presented only in 2013. In the absence of any written acknowledgement within the statutory period of limitation, the claim was time-barred. And presentation in 2013 did not convert a time-barred obligation into a legally enforceable debt for section 138, NI Act. After hearing the contentions, the Court stated that it was settled that for Section 138, NI Act, a cheque must be issued towards a legally enforceable debt or liability, and a time-barred debt was not enforceable. However, at the same time, under Section 25(3) of the Indian Contract Act, even a time-barred debt could form a valid consideration if there was a written promise signed by the debtor. In this light, it was held, “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…meaningful reading of Sections 20, 118 and 139 of the “N.I. Act” makes it clear that a person who signs a cheque and delivers it to the payee remains liable unless he successfully rebuts the statutory presumptions…It is immaterial that the cheque was filled by any other person if the cheque is duly signed by the drawer and the cheque is otherwise valid, the penal provisions of Section 138 would be applicable.”In this background, the Court highlighted that the execution and delivery of the cheques were admitted by the respondent. Thus, in the absence of any rebuttal evidence, the presumption under the NI Act continued to operate. The Court held that the contention of the debt being time-barred by 2012 did not exonerate the respondent in light of Section 25, Indian Contracts Act, and that the requirement of a legally enforceable debt under the NI Act was satisfied. Accordingly, the appellate court's order was set aside, upholding the conviction of the respondent. Title: Ratiram Yadav v Gopal Sharma and other connected petitionsCitation: 2025 LiveLaw (Raj) 352Click Here To Read/Download Order

Cheque Issued For Time-Barred Debt Amounts To Promise, S.138 NI Act Can Be Invoked When It Is Dishonoured: Rajasthan High Court

Nupur Agrawal

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