While recording our answer to the first Question, we have already held that a cheque issued for discharge of a debt which is barred by law of limitation is itself a promise within the meaning of Sub-section (3) of Section 25 of the Contract Act. A promise is an agreement and such promise which is covered by Section 25(3) of the Contract Act becomes enforceable contract provided that the same is not otherwise void under the Contract Act.
21. Therefore, while answering second Question, we are specifically dealing with a case of promise created by a cheque issued for discharge of a time barred debt or liability. Once it is held that a cheque drawn for discharge of a time barred debt creates a promise which becomes enforceable contract, it cannot be said that the cheque is drawn in discharge of debt or liability which is not legally enforceable. The promise in the form of a cheque drawn in discharge of a time barred debt or liability becomes enforceable by virtue of Sub- section (3) of Section 25 of the Contract Act. Thus, such cheque becomes a cheque drawn in discharge of a legally enforceable debt as contemplated by the explanation to Section 138 of the said Act of 1881. Therefore, even the second question will have to be answered in the affirmative.
Bombay High Court
Mr. Dinesh B. Chokshi vs Rahul Vasudeo Bhatt on 19 October, 2012
Bench: A.S. Oka, S.S. Jadhav
1. On the basis of Judgment and Order dated 23 rd December, 2008 passed by learned Single Judge, the Hon'ble the Chief Justice passed an order on the Administrative Side directing that these matters should be placed before a Division Bench. Accordingly, these Applications have been placed before this Court.
2. The reference to Division Bench is for deciding the two questions formulated by the learned Single Judge under his Judgment and Order dated 23rd December, 2008. The said two questions are :- "(i) Does the issuance of a cheque in repayment of a time barred debt amounts to a written
promise to pay the said debt within the meaning of Section 25(3) of the Indian Contract Act, 1872 ?
ash 5 crappln-2933.07-grp (ii) If it amounts to such a promise, does such a promise, by itself, create any legally enforceable debt or other liability as contemplated by Section 138 of the Negotiable Instruments Act, 1881 ?
3. We have heard Shri A.P. Mundargi, learned Senior Counsel who was appointed as Amicus Curiae to assist the Court, Shri Prakash Naik, Shri S.S. Kulkarni, Shri M.D. Mali, Shri Nitin V. Gangal and Shri S.V. Marwadi, the learned counsel representing the various parties. SUBMISSIONS:
4. Shri Mundargi, learned Senior Counsel appointed as Amicus Curiae has assisted the Court. He pointed out the decision of the Apex Court in the case of National Insurance Company Limited Vs. Seema Malhotra and Others [(2001)3 SCC 151]. His submission is that in view of what is held by the Apex Court, a cheque issued towards the discharge of time barred debt will be a promise within the meaning of Section 25(3) of the Indian Contract Act, 1872 ( hereinafter referred to as "the Contract Act"). He submitted that the answer to the question whether a cheque is issued in discharge of any legally enforceable debt or liability or not depends on factual matrix of every case and no hard and fast rule can be laid down. Learned counsel appearing for the ash 6 crappln-2933.07-grp original Complainants in the Complaints alleging offences under Section 138 of the Negotiable Instruments Act, 1881 ( hereinafter referred to as "the said Act of 1881") have relied upon various decisions of the learned Single Judges of this Court holding that a cheque issued amounts to promise within the meaning of Section 25(3) of the Contract Act and submitted that a complaint under the provisions of Section 138 of the said Act of 1881 on account of dishonour of such a cheque will be maintainable inasmuch as by virtue of promise contained in the cheque, the time barred debt or liability ceases to be time barred. The submission of the learned counsel appearing for the Accused is that a cheuque issued in discharge of liability of payment of a time barred debt or liability cannot be said to be a cheque issued in discharge of a legally enforceable debt or other liability. The submission is that on the date on which the cheque is issued, there does not exist any legally recovered debt or liability inasmuch as the same is already barred by law of limitation. It is urged that a time barred debt cannot be said to be a legally recoverable debt, and therefore, even assuming that the first question will have to be answered in the affirmative, the second question will have to be answered in the negative. It is urged that even assuming that a cheque issued towards time barred debt becomes a promise within the meaning of Section 25(3) of the Contract Act, the fact remains that on the date of the cheque, it is issued towards the discharge of a debt or liability which is not legally recoverable. Learned ash 7 crappln-2933.07-grp counsel appearing for the parties have relied upon various decisions in support of their submissions.
CONSIDERATION OF THE FIRST QUESTION
5. It will be necessary to make a reference to the relevant provisions of the Contract Act. It will be necessary to make a reference to Section 2 of the Contract Act which is the interpretation clause. It reads thus:-
"2. Interpretation clause.--In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:-- (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;
(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;
(c) The person making the proposal is called the "promisor", and the person accepting the proposal is called the "promisee";
(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or to abstain from doing, something, such act or
abstinence or promise is called a consideration for the promise;
(e) Every promise and every set of promises, forming the consideration for each other, is an agreement; ash 8 crappln-2933.07-grp (f) Promises which form the consideration or part of the consideration for each other, are called reciprocal promises;
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract; (i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;
(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable."
6. Clauses (a) and (b) of Section 2 of the Contract Act, if read together, show that when a proposal is accepted, it becomes a promise. In view of clause (e) of Section 2 of the Contract Act , a promise is an agreement. By virtue of Clauses (g) and (h) of Section 2 of the Contract Act, an agreement which is not enforceable by law is said to be void and an agreement which is enforceable by law is a contract. Clause (j) provides that a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.
7. If there is a promise to pay an amount and if a breach thereof is committed, a suit for recovery is required to be filed within stipulated period of limitation provided under the law of Limitation. After the time provided for filing a suit for recovery expires, the ash 9 crappln-2933.07-grp promise ceases to be enforceable. Section 10 of the Contract Act provides that all agreements are contracts if they are made by free consent of the parties competent to contract for a lawful consideration and with a lawful object and which are not expressly declared to be void under the Contract Act. Section 20 of the Contract Act incorporates a category of void agreements. Sections 19 and 19A provide for categories of agreements which are voidable. Section 23 provides that if the consideration or the object of an agreement is forbidden by law or is immoral or is opposed to public policy, the consideration or object of the agreement is unlawful and the agreement is void. Sections 26 to 30 of the Contract Act also provide for different categories of agreements which are void. Therefore, apart from the agreements which cease to be enforceable by reason of bar of limitation, there are other categories of agreements which are void and, therefore, obviously not enforceable by law.
8. Section 25 of the Contract Act reads thus:- "25. Agreement without consideration void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.--An agreement made without consideration is void, unless-- (1) it is expressed in writing and registered under the law for the time being in force for registration of [documents], and is made on account of natural love and affection between parties standing in a near relation to each other; or unless
ash 10 crappln-2933.07-grp (2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was legally compellable to do; or unless
(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract."
9. Thus, Sub-section (3) of Section 25 of the Contract Act is an exception to the general rule that an agreement made without consideration is void. Sub-section (3) of Section 25 of the Contract Act applies to a case where there is a promise made in writing and signed by a person to be charged therewith to pay wholly or in part a debt which is barred by law of limitation. A promise covered by Sub-section (3) becomes enforceable agreement notwithstanding the fact that it is a promise to pay a debt which is already barred by limitation. Thus, Sub-section (3) of Section 25 of the Contract Act applies to a promise made in writing which is signed by a person to pay a debt which cannot be recovered by reason of expiry of period of limitation for filing a suit for recovery. Therefore, if a debtor after expiry of the period of limitation provided for recovery of debt makes a promise in writing signed by him to pay the debt wholly or in part, the said promise being governed by Sub-section (3) of Section 25 of the Contract Act becomes ash 11 crappln-2933.07-grp an agreement which is enforceable in law. By virtue of the promise governed by Sub-section (3) of Section 25 of the Contract Act, the time barred debt becomes enforceable. The Sub-section (3) of Section 25 of the Contract Act does not apply to promise to pay all categories of debts which are not enforceable in law. It applies only to a debt which is not recoverable in law only on the ground of bar created by the law of limitation. Thus, the promise under Sub-section (3) of Section 25 of the Contract Act will not validate a debt which is not enforceable on a ground other than the ground of bar of limitation. For example, if there is a promise to pay an amount advanced for immoral purposes which is hit by Section 23 of the Contract Act, it will not attract Sub- section (3) of Section 25 of the Contract Act and the said provision will be attracted only when a promise is made in writing and signed by the promisor to pay a debt which is barred by limitation.
10. At this stage, it will be necessary to make a reference to the decision of the Apex Court in the case of A.V Murthy v. B.S. .
Nagabasavanna [(2002)ALL MR (Cri) 709 (S.C.)]. It will be necessary to make a reference to Paragraphs 5 and 6 of the decision of the Apex Court. The relevant portions of Paragraph 5 and Paragraph 6 read thus:-
"5. ..... 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 of the Act, it is specifically ash 12 crappln-2933.07-grp stated that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in Section 138 for discharge, in whole or in part, of any debt or other liability. It is also pertinent to note that under sub-section (3) of Section 25 of the Indian Contract Act, 1872, a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits, is valid contract. ....."
(emphasis added)
11. A negotiable instrument is defined under Section 13 of the said Act of 1881. A negotiable instrument includes a cheque. A cheque is defined by Section 6 which reads thus:- "6. "Cheque".--A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
Explanation I.--For the purposes of this section, the expressions--
(a) "a cheque in the electronic form" means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety
standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;
(b) "a truncated cheque" means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank
whether paying or receiving payment, ash 13 crappln-2933.07-grp immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.
Explanation II.--For the purposes of this section, the expression "clearing house" means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India."
12. The decision of the Apex Court in the case of A.V. Murthy v. B.S. Nagabasavanna (supra) holds that a promise to pay a time barred debt is a valid contract. Now, the question is when a cheque is drawn in discharge of a debt or monetary liability which is already barred by law of limitation, whether it will amount to a promise within the meaning of Sub-section (3) of Section 25 of the Contract Act? We find that the issue is no more res integra. The issue has been dealt with by the Apex Court in the case of National Insurance Company Limited v. Seema Malhotra and Others(supra). This was a case which arose out of a contract of insurance. The insured of the Appellant Company before the Apex Court entered into an insurance contract on 21 st December, 1993 for insuring a Maruti Car. On the same day, a cheque representing the premium was issued by the insured against which a Cover Note was issued by the Appellant Company. In an accident which occurred on 31st December, 1993, the insured died and the car was also damaged. While dealing with the contract of insurance, in Paragraph 17 of the decision, the Apex Court held thus:- ash 14 crappln-2933.07-grp "17. In a contract of insurance when the
insured gives a cheque towards payment
of premium or part of the premium, such
a contract consists of reciprocal promise. The drawer of the cheque
promises the insurer that the cheque, on
presentation, would yield the amount in
cash. It cannot be forgotten that a cheque
is a bill of exchange drawn on a
specified banker. A bill of exchange is an
instrument in writing containing an
unconditional order directing a certain
person to pay a certain sum of money to
a certain person. It involves a promise
that such money would be paid.
(emphasis added)
13. Thus, the Apex Court held that the drawer of a cheque promises to the person in whose favour the cheque is drawn or to whom a cheque is endorsed, that the cheque on presentation would yield the amount in cash. The Apex Court held that a bill of exchange is an instrument which involves a promise that the money payable under the instrument would be paid. Therefore, when a cheque issued towards the premium is returned dishonoured, the insured fails to perform his promise and, therefore, the insurer need not perform the reciprocal part of his promise.
14. The section 13 of the said Act of 1881 which defines negotiable instrument reads thus:
ash 15 crappln-2933.07-grp "13. "Negotiable instrument".-- 1[(1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.] Explanation (i).--A promissory note, bill of exchange or cheque is payable to the order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words, prohibiting transfer or indicating an intention that it shall not be transferable. Explanation (ii).--A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank.
Explanation (iii).--Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.
2[(2) A negotiable instrument may be payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees]."
15. On plain reading of Section 13 of the said Act of 1881, a negotiable instrument does contain a promise to pay the amount mentioned therein. The promise is given by the drawer . Under Section 6 of the said Act of 1881, a cheque is a bill of exchange drawn on a specified banker. The drawer of a cheque promises to the person in whose name the cheque is drawn or to whom the cheque is endorsed, that the cheque on its presentation, would yield the amount specified therein. Hence, it will have to be held that a cheque is a promise within the meaning of Sub-section (3) of Section 25 of the Contract Act. ash 16 crappln-2933.07-grp What follows is that when a cheque is drawn to pay wholly or in part, a debt which is not enforceable only by reason of bar of limitation, the cheque amounts to a promise governed by the Sub-section (3) of Section 25 of the Contract Act. Such promise which is an agreement becomes exception to the general rule that an agreement without consideration is void. Though on the date of making such promise by issuing a cheque, the debt which is promised to be paid may be already time barred, in view of Sub-section(3) of Section 25 of the Contract Act, the promise/agreement is valid and, therefore, the same is enforceable. The promise to pay time barred debt becomes a valid contract as held by the Apex Court in the case of A.V.Moorthy (supra). Therefore, the first question will have to be answered in the affirmative. CONSIDERATION OF THE SECOND QUESTION
16. Section 138 of the said Act of 1881 reads thus:- "138. Dishonour of cheque for insufficiency, etc., of funds in the account.-- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be ash 17 crappln-2933.07-grp punished with imprisonment for a term which may extend to [two year], or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless--
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity,
whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the
payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within [thirty] days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.
Explanation.--For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability.
17. Sections 118 and 139 of the said Act of 1881 read thus:- "118. Presumptions as to negotiable instruments.-- Until the contrary is proved, the following
presumptions shall be made:
(a) of consideration: that every negotiable instrument was made or drawn for consideration, and that every such instrument when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;
ash 18 crappln-2933.07-grp (b) as to date: that every negotiable instrument bearing a date was made or drawn on such date; (c) as to time of acceptance: that every accepted bill of exchange was accepted within a
reasonable time after its date and before its maturity;
(d) as to time of transfer: that every transfer of negotiable instrument was made before its
maturity;
(e) as to order of indorsement: that the indorsements appearing upon a negotiable
instrument were made in the order in which they appear thereon;
(f) as to stamp: that a lost promissory note, bill of exchange or cheque was duly stamped;
(g) that holder is a holder in due course: that the holder of a negotiable instrument is a holder in due course:
Provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him."
"139. Presumption in favour of holder.--It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque, of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability."
'
18. Under Section 118, there is a rebuttable presumption that every negotiable instrument was made or drawn for consideration. Section 139 creates a rebuttable presumption in favour of a holder of a ash 19 crappln-2933.07-grp cheque. The presumption is that the holder of a cheque received the cheque of the nature referred to in Section 138 for discharge, in whole or in part of any debt or liability. Thus, under the aforesaid two Sections, there are rebuttable presumptions which extend to the existence of consideration and to the fact that the cheque was for the discharge of any debt or liability.
19. Under the Explanation to Section 138, the debt or other liability referred to in the main Section has to be a legally enforceable debt or liability. Merely because a cheque is drawn for discharge, in whole or in part of the debt or other liability, Section 138 of the said Act of 1881 will not be attracted. The provision will apply provided the debt or other liability is legally enforceable. Thus, Section 138 will not apply to a cheque drawn in discharge of a debt or liability which is not legally enforceable. There may be several categories of debts or other liabilities which are not legally enforceable. A debt or liability is legally enforceable if the same can be lawfully recovered by adopting due process of law. The emphasis is on the fact that the debt or other liability must be a legally enforceable liability. A debt or liability ceases to be legally enforceable after expiry of the period of limitation provided in the law of limitation for filing a suit for recovery of the amount. Thus, a time barred debt by no stretch of imagination can be said to be a legally enforceable debt within the meaning of the ash 20 crappln-2933.07-grp explanation to Section 138.
20. While recording our answer to the first Question, we have already held that a cheque issued for discharge of a debt which is barred by law of limitation is itself a promise within the meaning of Sub-section (3) of Section 25 of the Contract Act. A promise is an agreement and such promise which is covered by Section 25(3) of the Contract Act becomes enforceable contract provided that the same is not otherwise void under the Contract Act.
21. Therefore, while answering second Question, we are specifically dealing with a case of promise created by a cheque issued for discharge of a time barred debt or liability. Once it is held that a cheque drawn for discharge of a time barred debt creates a promise which becomes enforceable contract, it cannot be said that the cheque is drawn in discharge of debt or liability which is not legally enforceable. The promise in the form of a cheque drawn in discharge of a time barred debt or liability becomes enforceable by virtue of Sub- section (3) of Section 25 of the Contract Act. Thus, such cheque becomes a cheque drawn in discharge of a legally enforceable debt as contemplated by the explanation to Section 138 of the said Act of 1881. Therefore, even the second question will have to be answered in the affirmative.
ash 21 crappln-2933.07-grp
22. Therefore, we answer both the questions in the affirmative. We direct that these Applications/Petitions shall be placed before the appropriate Court for disposal in accordance with law. ( SMT. SADHANA S.JADHAV, J ) ( A.S. OKA, J )
No comments:
Post a Comment