2009 (10) TMI 965 - HC - Indian Laws

Cheques for time-barred debt quashed under NI Act & IPC

The court quashed the complaint under Sections 138/142 of the NI Act and Section 420 IPC as the cheques issued for a time-barred debt from an agreement ... Dishonor of Cheque - complaint filed u/s 138/142 of NI Act - cheques issued for the discharge of a liability of a debt arising out of the agreement - whether the petitioner issued the cheque in question towards the discharge of legally enforceable liability or debt which is an essential ingredient for invoking section 138 of the Negotiable Instrument Act, 1881? - time barred debt or not - HELD THAT:- The facts as detailed in the complaint show that the agreement between the parties was dated 14.6.2000. Pursuant to this agreement, the complainant had paid ₹ 30 lakhs to the accused which the accused had agreed to repay as the agreement had terminated. On 26.1.2005 i.e. four and half years after the termination of this agreement, the accused and his brother acknowledged to pay the balance amount in a short time. In this case this acknowledgment to pay the balance amount was in terms of the settlement dated 26.1.2005 i.e. much after the statutory period of three years; it also does not speak of the acknowledgement being in writing. It was thus not a valid acknowledgment. Cheques issued on 25.3.2005 and 30.4.2005 were clearly outside the period of limitation. In Vijay Polymers Pvt. Ltd. & Anr.[2009 (4) TMI 1035 - DELHI HIGH COURT], relying upon the judgment of Hon’ble Supreme Court in Sasseriyil Joseph [2000 (9) TMI 1081 - KERALA HIGH COURT] a coordinate bench of this court had held that cheques issued on a time barred debt would not fall within the definition of ‘legally enforceable debt’ which is the essential requirement for a complaint u/s 138 of NI Act; the extended meaning of debt or liability has been explained in the Explanation to the Section which means a legally enforceable debt or liability. The existence of a legally recoverable debt is also not a matter of presumption as has been held by the Supreme Court in Krishna Janardhan Bhat [2008 (1) TMI 827 - SUPREME COURT]. The two cheques which are the subject matter of this complaint were for the discharge of a liability of a debt arising out of the agreement dated 14.6.2000 which debt had become time barred. This debt was not a legally enforceable debt within the meaning of Section 138 Explanation of the NI Act. Complaint and all proceedings emanating therefrom are accordingly quashed. Issues:Quashing of complaint under Sections 138/142 of NI Act read with Section 420 IPC based on cheques issued for time-barred debt.Analysis:1. The petitioner sought quashing of a complaint under Sections 138/142 of the NI Act and Section 420 IPC against the accused, contending that the cheques issued for &8377; 5 lakhs each on 25.3.2005 and 30.4.2005 did not pertain to a legally enforceable debt as the liability from an agreement dated 14.6.2000 had become time-barred. The petitioner relied on the Vijay Polymers Pvt. Ltd. judgment to support this argument.2. The complaint detailed the agreement between the parties, the termination of the agreement on 26.01.2005, and the issuance of two post-dated cheques for &8377; 5 lakhs each as part of the settlement. The respondent argued that the acknowledgment to pay the balance amount constituted a fresh period of limitation, and the existence of a legally recoverable debt should be proven during trial, citing legal precedents like A.V. Murthy and MMTC Ltd. judgments.3. The court analyzed the provisions of Section 138 of the NI Act and Section 18 of the Limitation Act. It noted that the acknowledgment to pay the balance amount was made after the statutory period of three years, rendering it invalid under Section 18. The court emphasized that cheques issued outside the period of limitation for a time-barred debt do not constitute a legally enforceable debt as required by Section 138 Explanation of the NI Act, as established in the Vijay Polymers Pvt. Ltd. judgment.4. The court distinguished the judgments cited by the defense counsel, emphasizing that the absence of documentary evidence of acknowledgment within the prescribed period differentiated this case from the A.V. Murthy case. It concluded that the cheques issued for the time-barred debt did not meet the legal criteria for a legally enforceable debt, leading to the quashing of the complaint and related proceedings.5. In summary, the court quashed the complaint under Sections 138/142 of the NI Act and Section 420 IPC as the cheques issued for a debt from an agreement dated 14.6.2000, which had become time-barred, did not constitute a legally enforceable debt. The court's decision aligned with the legal principles outlined in the Vijay Polymers Pvt. Ltd. judgment regarding the definition of a legally enforceable debt under Section 138 Explanation of the NI Act.