2025 (9) TMI 807 - HC - Indian Laws

Petition dismissed; no jurisdictional error in magistrate's process or revisional order; Section 25(3) validates written promise, cheque creates fresh obligation

The HC dismissed the writ petition challenging criminal proceedings for dishonour of a cheque, finding no jurisdictional error in the magistrate's ... Dishonour of Cheque - legally enforceable debt or not - no privity of contract between the petitioners and respondent No. 1 - applicability of time limitation - issuance of cheque against enforceable debt against the transaction of the year 2002 - HELD THAT:- Here the petitioner’s claim is that they issued cheque against enforceable debt against the transaction of the year 2002 is unsustainable. The Limitation Act, 1963 typically bar a recovery of debt after a certain period, Section 25(3) of the Indian Contract Act provides a crucial exception. This section validates a written and signed promise to pay a time barred debt. The issuance of a cheque signed by the drawer or their authorized agents, fulfils its requirement. It is important to note that past consideration is a good consideration under the Indian Contract Act. The original transaction, even if time barred, serves as valid past consideration for the new promise to pay represented by the cheque. This principle has been affirmed in numerous Judicial decisions therefore, the cheque creates a new, legally enforceable obligations independent of the original transactions limitation period. As far as the present matter is concerned, that the underlying transaction occurred before 2002. As per this agreement, the complainant has agreed to pay an amount of Rs. 70,00,000/- to Navalkishore Kothari Sons on or before 31.12.2021. In consideration thereof it is agreed that the complainant shall be entitled to receive, recover and retain the amount from the accused No. 1, it was specifically contended in the complaint that the complainant was informed that in view of that acknowledgement given by the petitioner No. 1, the debt is within limitation. After the aforesaid agreement, the complainant initiated the action by contacting the petitioner No. 1 for recovery of the amount. During negotiations, the petitioner No. 1 acknowledged the amount due and thereafter agreed to pay the cheque of Rs. 75,00,000/- to the complainant towards full and final settlement and accordingly, the cheque was issued which was dishonoured. After receipt of the notice also the cheque amount was not paid and therefore, the complaint was filed. As observed by the Hon’ble Apex Court in the case of K. Hymavathi v. State of Andhra Pradesh [2023 (9) TMI 349 - SUPREME COURT] that if the question as to whether the debt or liability being barred by limitation was an issue to be considered in such proceedings, the same is to be decided based on the evidence to be adduced by the parties since the question of limitation is a mixed question of law and fact. It is only in cases wherein an amount which is out and out non-recoverable, towards which a cheque is issued, dishonoured and for recovery of which a criminal action is initiated, the question of threshold jurisdiction will arise. In such cases, the Court exercising jurisdiction under Section 482 CrPC will be justified in interfering but not otherwise. Thus, at this stage, it would not be proper to give a finding as to whether the debt was time barred or not.\ The Magistrate in the present case issued process by examining the complainant i.e. verification of the complaint, documents. This was sufficient compliance of Section 202 of Cr.P.C. (Section 225 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023). The Revisional Court dealt with all aspects of the matter and arrived at a plausible and just conclusion. I do not find any perversity or error of jurisdiction in the impugned order and judgment. No case is made out to cause interference in the impugned order and judgment. The writ petition is devoid of merit, liable to be dismissed. Hence, writ petition is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether, in complaints under Section 138 of the Negotiable Instruments Act, the Magistrate is mandatorily required to postpone issuance of process and conduct an inquiry under Section 202 Cr.P.C. when the accused resides beyond the court's territorial jurisdiction, and whether failure to conduct such inquiry vitiates issuance of process. 2. Whether Section 202(2) Cr.P.C. (examination of witnesses on oath) is applicable to complaints under Section 138 of the Negotiable Instruments Act, and if so, whether the Magistrate must examine witnesses rather than rely on affidavits/documents. 3. Whether issuance of a cheque post-dating an underlying time-barred debt can create a new legally enforceable obligation under Section 25(3) of the Indian Contract Act, thereby sustaining criminal liability under Section 138 N.I. Act. 4. Whether absence of privity between the transferee of an actionable claim and the debtor, or the fact of prior transactions, defeats a prosecution under Section 138 when a registered transfer of debt and subsequent acknowledgement/cheque exist. 5. Whether the reasoned recording by the Magistrate for not examining witnesses on affidavit while exercising powers under Section 202 Cr.P.C. is mandatory and, if omitted, whether such omission invalidates the Magistrate's order issuing process. 6. Whether dishonour reason 'Account Closed' falls within the scope of Section 138 N.I. Act ('amount of money is insufficient') so as to sustain issuance of process. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Mandatoriness of Section 202 inquiry where accused resides outside territorial jurisdiction (Section 202 Cr.P.C.) Legal framework: Section 202 Cr.P.C. permits postponement of issue of process and empowers the Magistrate to inquire or direct investigation where the accused resides outside the Magistrate's jurisdiction; amendment (2005) introduced a mandatory obligation in such cases. Precedent treatment: Decisions reviewed include authorities holding the amendment makes inquiry mandatory (e.g., Abhijit Pawar; Vijay Dhanuka) and the Apex Court's Suo Motu pronouncement on expeditious trial in Section 138 cases which clarified the scope and procedure for inquiry under Section 202 in cheque dishonour matters. Interpretation and reasoning: The Court recognizes that the 2005 amendment imposed a mandatory duty on a Magistrate to conduct an inquiry or direct investigation where the accused resides beyond territorial jurisdiction. However, the Apex Court's guidance in the expeditious-trial direction qualifies the manner of inquiry permissible in Section 138 complaints: evidence of complainant's witnesses may be taken on affidavit and, in appropriate cases, the Magistrate may be satisfied by documentary examination alone. Ratio vs. Obiter: Ratio - the amendment makes inquiry mandatory in territorial-extraterritorial cases; qualified ratio - in Section 138 matters the inquiry need not always involve oral examination of witnesses and can be satisfied by affidavits/documents. Obiter - ancillary procedural recommendations in the expeditious-trial judgment. Conclusions: In cheque dishonour complaints, while Section 202 inquiry is mandatory when territorial conditions arise, the inquiry's mode is flexible; omission to conduct a formal inquiry based on affidavit/documentary material does not per se vitiate issuance of process if materials suffice to satisfy the Magistrate. Issue 2 - Applicability of Section 202(2) (examination of witnesses on oath) to Section 138 complaints Legal framework: Section 202(2) authorises taking evidence of witnesses on oath in such inquiry; Section 138 proceedings are summary in nature but attract special treatment under criminal procedure jurisprudence. Precedent treatment: The Court relies on the Apex Court's expeditious-trial decision, which held Section 202(2) is inapplicable to Section 138 complaints in respect of mandatory examination of witnesses on oath, permitting affidavit evidence and documentary inquiry. Interpretation and reasoning: A holistic reading of Sections 145 and 202 supports restricting compulsory oral examination; courts may examine documents and affidavits for satisfaction. The power to examine witnesses remains permissive, not obligatory, in suitable Section 138 cases. Ratio vs. Obiter: Ratio - in Section 138 complaints, the Magistrate is not required to compulsorily examine witnesses on oath under Section 202(2); affidavit evidence and document-only inquiries are permissible. Obiter - description of circumstances where oral testimony may nevertheless be appropriate. Conclusions: The Magistrate complied with Section 202 by examining complaint, verification and documents; absence of formal oral examination did not render issuance of process illegal where documentary material sufficed. Issue 3 - Effect of cheque issued in discharge of time-barred debt; applicability of Section 25(3) Indian Contract Act Legal framework: Section 25(3) Indian Contract Act validates a written and signed promise to pay a time-barred debt; such promise may convert a time-barred obligation into an enforceable one. Section 138 N.I. Act penalises dishonour of cheques issued for discharge of legally enforceable debt. Precedent treatment: The Court considers authorities affirming Section 25(3)'s operation to validate written promises (including cheques) in respect of time-barred debts, and the Apex Court's direction that questions of limitation are mixed questions of law and fact to be decided on evidence (e.g., K. Hymavathi; Dinesh B. Chokshi; Rajesh Jain guiding presumptions regarding issuance/endorsement of cheque). Interpretation and reasoning: A cheque signed by the drawer can constitute a signed written promise under Section 25(3), rendering the previously time-barred debt enforceable; past consideration suffices. Determination of whether the debt is 'out and out non-recoverable' (thus defeating jurisdiction) requires factual adjudication and cannot be decided at the initial stage in absence of a clear, unanswerable record establishing non-recoverability. Ratio vs. Obiter: Ratio - issuance of a cheque may operate as a written and signed promise under Section 25(3) and create a fresh enforceable obligation; mixed questions of limitation are to be decided on evidence, not at prima facie stage. Obiter - illustrative remarks on when Section 482 Cr.P.C. interference is justified. Conclusions: At the stage of issuance of process, it is not appropriate to hold the alleged debt time-barred; the cheque and related registered transfer and acknowledgements suffice to found prima facie enforceability under Section 25(3), barring clear proof otherwise. Issue 4 - Transfer of actionable claim, privity of contract and liability of company officers/directors Legal framework: Actionable claim (Transfer of Property Act) includes claims for debts; transfer by registered instrument vests the transferee with right to recover. Company officers responsible for conduct of business can be prosecuted under Section 138 where cheque is issued on company account. Precedent treatment: The Court applies established principles that privity between transferee and debtor is not a precondition for transfer of actionable claim to bind the debtor; courts have presumed cheques issued/endorsed in favour of transferees where material indicates transfer and acknowledgement. Interpretation and reasoning: A registered transfer of debt and subsequent negotiation/acknowledgement by the debtor leading to issuance of cheque create sufficient link between transferee and debtor for Section 138 prosecution. Directors/officials handling company affairs at the time of issuance are potentially liable. Ratio vs. Obiter: Ratio - transfer of actionable claim by registered instrument combined with debtor's subsequent acknowledgment and cheque issuance suffices to sustain prima facie case under Section 138; absence of direct contractual privity does not bar recovery by transferee. Obiter - observations on corporate responsibility and potential parties to prosecution. Conclusions: The recorded transfer and subsequent conduct (negotiations, cheque issuance) constitute adequate material to permit issuance of process; contention of no privity is not a ground for quashing at this stage. Issue 5 - Requirement to record reasons for not examining witnesses on affidavit under Section 202; legal consequence of omission Legal framework: Section 202 empowers inquiry, including taking evidence on affidavit; the judicial practice question is whether the Magistrate must record reasons for not examining witnesses. Precedent treatment: The Court follows the Constitution Bench observations in the referred decision (Bansilal S. Kabra) that there is no strict mandate for recording reasons for restricting to documentary/affidavit evidence; absence of reasons might be procedural lapse but does not automatically invalidate the order. Interpretation and reasoning: Recording of reasons for procedural choices is desirable and reflect application of mind; however, omission does not ipso facto vitiate the order where the Magistrate has examined material and arrived at a plausible conclusion and where appellate/revisional jurisdiction has considered the matter. Ratio vs. Obiter: Ratio - non-recording of reasons for not examining witnesses on affidavit is not per se fatal; courts should look for perversity or non-application of mind. Obiter - guidance encouraging recording of reasons to avoid procedural criticism. Conclusions: Absence of explicit reasons did not amount to illegality in the present record; the Magistrate's examination of complaint, verification and documents constituted sufficient compliance and no jurisdictional error was shown. Issue 6 - Dishonour reason 'Account Closed' within scope of Section 138 N.I. Act Legal framework: Section 138 penalises dishonour of cheque for insufficient funds or other reasons amounting to failure to honour cheque; statutory language embraces a broad category of insufficiency. Precedent treatment: Authorities and the Court treat reasons such as 'Account Closed' as falling within the ambit of cheque dishonour actionable under Section 138 where cheque represents discharge of legally enforceable debt. Interpretation and reasoning: 'Account Closed' indicates inability to honour the cheque and is encompassed within the broad statutory concept of insufficient funds/ failure to pay; coupled with prior acknowledgements and transfer, it supports prima facie issuance of process. Ratio vs. Obiter: Ratio - dishonour for reason 'Account Closed' can sustain proceedings under Section 138 if cheque was issued for a legally enforceable debt. Obiter - none. Conclusions: The dishonour entry 'Account Closed' justified initiation of Section 138 complaint at prima facie stage; no error in issuing process on that ground. Overall Disposition The Magistrate and Revisional Court applied relevant legal principles, relying on permitted modes of inquiry under Section 202 for Section 138 complaints, recognized operation of Section 25(3) Contract Act to validate a cheque as a written promise in respect of time-barred debt, and correctly treated transfer of actionable claim and dishonour reason as sufficient material for issuance of process. No perversity, jurisdictional error or legal infirmity is established to warrant quashing of the proceedings.