Safiya Malik

The High Court of Rajasthan, Single Bench of Justice Pramil Kumar Mathur held that when a cheque issued towards a time-barred debt is dishonoured, liability under Section 138 of the Negotiable Instruments Act may still arise in view of Section 25(3) of the Indian Contract Act, 1872. The Court observed that a cheque amounts to a written and signed promise by the debtor, thereby rendering even a time-barred debt legally enforceable. The Bench set aside the appellate court’s acquittal and restored the trial court’s conviction, emphasizing that such cheques attract statutory consequences under the Negotiable Instruments Act.

The matter arose from multiple complaints filed under Section 138 of the Negotiable Instruments Act, 1881, involving financial transactions between the complainant and the accused. The complainant had advanced a monetary sum to the accused in 2009. In connection with this transaction, the accused issued four signed but undated cheques drawn on a bank in Jaipur, each valued at ₹1,25,000. These cheques were later dated and presented for encashment in 2013, but were returned unpaid with the endorsement “insufficient funds.” Despite receiving statutory demand notices, the accused did not make payment within the prescribed period.

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During trial proceedings, the complainant relied on the dishonoured cheques, the bank memos, and the legal notices as primary evidence to establish that the cheques were issued in discharge of a financial liability. The accused admitted issuing and signing the cheques but contended that they had been given as security and that the loan amount had already been repaid. It was also asserted that the debt had become time-barred and that there was no legally enforceable liability on the date of presentation. The defence did not produce independent evidence to substantiate repayment or any written acknowledgment extending limitation.

The complainant argued that once issuance and signature were admitted, statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act operated in favour of the payee, unless rebutted by cogent evidence. It was further submitted that under Section 25(3) of the Indian Contract Act, 1872, a written promise to pay a time-barred debt constitutes valid consideration, and a cheque fulfils that requirement.

The dispute thus centered on whether the dishonoured cheques, issued after the alleged limitation period, could give rise to liability under Section 138 of the Negotiable Instruments Act and whether such issuance amounted to a renewed enforceable promise under Section 25(3) of the Indian Contract Act.

The Court noted that once the signature and execution of a cheque are admitted, statutory presumptions under Sections 118 and 139 of the NI Act arise that the cheque was issued in discharge of a debt or liability. The burden then shifts to the accused to rebut the presumption with credible evidence. The Court observed: “This presumption is rebuttable but the burden lies on the accused to adduce cogent evidence.”

It stated: “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 NI Act squarely arises.” The Court concluded that the appellate court had wrongly held that the debt was not legally enforceable.

The judgment cited authoritative precedents, including A.V. Murthy v. B.S. Nagabasavanna (2002) 2 SCC 642, S. Natarajan v. Sama Dharman (2021) 6 SCC 413, and K. Hymavathi v. State of A.P. (2023 SCC OnLine SC 1128), to reinforce that issuance of a cheque towards a time-barred debt constitutes a valid acknowledgment under Section 25(3) of the Contract Act. The Court quoted the Supreme Court in A.V. Murthy: “Under Section 118 of the Act, there is a presumption that until the contrary is proved, every negotiable instrument was drawn for consideration. Even under Section 139, it is specifically stated that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque for discharge, in whole or in part, of any debt or other liability.”

The Court further recorded: “For the purpose of Section 138 of the NI Act, a cheque must be issued towards a legally enforceable debt or liability. A time-barred debt is not enforceable. However, 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.”

Rejecting the argument that the cheques were given merely as security, the Court relied on Bir Singh v. Mukesh Kumar (2019) 4 SCC 197 and Sripati Singh v. State of Jharkhand (2022) 18 SCC 614, and 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 in any other form before the due date, the cheque which is issued as security would mature for presentation, and on such dishonour, consequences under Section 138 would flow.”

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Justice Mathur stated: “Accordingly, the revision petitions filed by the complainant against acquittal are allowed and the revision petition filed by the accused against conviction is dismissed.” The judgment of acquittal dated 6 April 2018 passed by the Additional Sessions Judge No.12, Jaipur Metropolitan, in Case Nos. 1584/2017, 1585/2017, and 1586/2017 was set aside.

“The judgment of conviction and sentence dated 13.11.2017 passed by the learned Special Metropolitan Magistrate (NI Act) Cases No.7, Jaipur Metropolitan, Jaipur in case Nos. 1329/2015, 1344/2015, and 1348/2015 is restored.” The High Court also affirmed the appellate court’s conviction in Case No. 1583/2017, maintaining the sentence awarded by the trial court. “Consequently, all the revision petitions are disposed of accordingly.”

Advocates Representing the Parties:
For the Petitioners: Mr. Mithlesh, Mr. Vivek Choudhary
For the Respondents: Mr. Vivek Choudhary, Mr. Mithlesh Kumar

Case Title: Ratiram Yadav v. Gopal Sharma
Neutral Citation: 2025: RJ-JP:37822
Case Number: S.B. Criminal Revision Petition Nos. 1305/2018, 626/2018, 696/2018, 1183/2018, and 1258/2018
Bench: Justice Pramil Kumar Mathur