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Issues: (i) whether a cheque issued towards a time-barred liability is within the sweep of Section 138 of the Negotiable Instruments Act, 1881; (ii) whether the presumption under Sections 118 and 139 of the Negotiable Instruments Act, 1881 can be drawn in respect of a cheque issued in discharge of liability under a promissory note; and (iii) whether the presumption under Section 139 of the Negotiable Instruments Act, 1881 is available to the payee.
Issue (i): whether a cheque issued towards a time-barred liability is within the sweep of Section 138 of the Negotiable Instruments Act, 1881.
Analysis: A cheque, when written, signed and delivered, amounts to a promise to pay. Even if the underlying liability has become time-barred, such a promise is valid under Section 25(3) of the Indian Contract Act, 1872. A cheque issued in discharge of that promise therefore represents a legally enforceable liability for the purposes of Section 138 of the Negotiable Instruments Act, 1881.
Conclusion: The objection that Section 138 could not apply to a cheque issued for a time-barred debt was rejected.
Issue (ii): whether the presumption under Sections 118 and 139 of the Negotiable Instruments Act, 1881 can be drawn in respect of a cheque issued in discharge of liability under a promissory note.
Analysis: The existence of a promissory note does not exclude the statutory presumptions attached to a later cheque issued towards discharge of the same liability. The cheque is a distinct negotiable instrument, and once its execution is admitted, the presumptions under Sections 118 and 139 operate according to their terms.
Conclusion: The contention that no further presumption could arise in respect of the cheque was rejected.
Issue (iii): whether the presumption under Section 139 of the Negotiable Instruments Act, 1881 is available to the payee.
Analysis: Section 139 speaks of the holder of the cheque, but the scheme of the Act shows that the payee is included within the concept of holder where the cheque is made payable to him. The definitions of payee, holder and holder in due course, together with Sections 138 and 142, do not support a distinction excluding the payee from the benefit of Section 139. The presumption is intended to assist prosecution under Section 138 by presuming that the cheque was issued for discharge of a legally enforceable debt or liability.
Conclusion: The presumption under Section 139 was held to be available to the payee.
Final Conclusion: The conviction under Section 138 was sustained, but the sentence was modified by reducing the substantive imprisonment while maintaining compensation and adding a default sentence for non-payment.
Ratio Decidendi: A cheque issued and delivered as a promise to pay, even in relation to a time-barred liability, can support prosecution under Section 138 if the promise is enforceable under Section 25(3) of the Contract Act, and the statutory presumption under Section 139 extends to the payee as a holder of the cheque.
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