Cheque Issued Against a Time-Barred Debt: Kerala High Court Reaffirms Section 138 Liability
Introduction
The Court held that issuance of a cheque towards repayment of a time-barred debt is not legally prohibited, and that its dishonour can attract prosecution under Section 138 of the NI Act where the cheque has revived the limitation period.
Facts of the case
The complainant alleged that the accused had borrowed ₹9,30,230 through multiple transactions during 2011 and 2012. The accused later issued a cheque dated 6 July 2015 for the same amount towards repayment. The cheque was returned unpaid with the endorsement “funds insufficient”, and payment was not made despite a statutory demand notice.
The Magistrate acquitted the accused solely on the reasoning that the cheque related to a time-barred debt and therefore did not represent a legally enforceable debt for Section 138. The complainant challenged that acquittal before the Kerala High Court.
Kerala High Court’s holding
Justice A. Badharudeen held that the time-barred character of the underlying debt, by itself, does not make a Section 138 prosecution impermissible. The Court observed:
“When a cheque is issued towards a time-barred debt by reviving the period of limitation, merely for the reason that the cheque was issued towards a time-barred debt does not make a prosecution under Section 138 of the NI Act impermissible.”
The Court set aside the acquittal, convicted the accused, and imposed one day’s simple imprisonment together with a fine of ₹14 lakh. Of that amount, ₹13.5 lakh was directed to be paid as compensation to the complainant and ₹50,000 as costs to the State; default was made punishable with six months’ imprisonment.
Reconciling limitation with Section 138
The decision is best understood by separating three distinct concepts:
This approach reconciles Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay, Punjab National Bank v. Surendra Prasad Sinha, and B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates. Those decisions recognise that limitation ordinarily bars the remedy but does not necessarily extinguish the debt or prohibit voluntary payment.
However, Section 138 requires a “legally enforceable debt or other liability.” Therefore, the mere fact that the original debt remains unpaid does not by itself satisfy Section 138. The critical link is whether the cheque, issued after limitation, amounts to a written and signed promise to pay the identified debt.
Role of Section 25(3), Contract Act
Section 25(3) of the Contract Act validates a written and signed promise to pay wholly or partly a debt which the creditor could not enforce because of limitation. A cheque, being a written and signed instrument, may constitute such a promise where it is issued voluntarily towards repayment of the identified debt. The Supreme Court in K. Hymavathi v. State of Andhra Pradesh also recognised that a cheque can amount to a promise governed by Section 25(3).
In G. Sanil Kumar, the cheque was issued for the exact amount alleged to be due, namely ₹9,30,230, and was stated to have been issued towards repayment of the borrowings. That factual foundation was central to the Court’s conclusion that the time-barred nature of the original debt did not defeat the Section 138 prosecution.
What must be proved
A complainant relying on a cheque issued towards a time-barred debt should ordinarily establish:
the original transaction and the amount advanced or due;
the date on which the debt became due or repayment became enforceable;
expiry of limitation, if that is the complainant’s own position;
that the cheque was issued voluntarily by the drawer or authorised agent;
that the cheque was issued towards repayment, wholly or partly, of the identified debt;
that the cheque amount corresponds to the liability existing on the date of presentation;
presentation of the cheque within its validity period;
dishonour and the statutory notice;
non-payment within fifteen days of receipt of notice; and
timely filing of the complaint.
The presumptions under Sections 118(a) and 139 of the NI Act assist the complainant once execution of the cheque is established. The accused may rebut them by showing that the cheque was not issued towards the alleged debt, was unauthorised, or did not represent the actual liability at presentation.
Limits of the ruling
The Kerala High Court’s ruling does not mean that every cheque issued after expiry of limitation automatically attracts Section 138. The decision proceeds on the footing that the cheque was issued towards repayment of the alleged debt and thereby revived the limitation period.
The defence remains available where the accused establishes that:
the cheque was not issued towards the alleged debt;
it was issued only as accommodation;
the alleged transaction was illegal or void;
the cheque was forged, materially altered or unauthorised;
the amount claimed does not correspond to the liability due on presentation; or
part-payment or adjustment had reduced the liability before presentation.
In Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel, the Supreme Court held that the cheque must represent the legally enforceable liability existing on the date of presentation. Where part-payment had reduced the liability before presentation, an unendorsed cheque for the original amount could not sustain Section 138 liability.
Practical significance
G. Sanil Kumar is significant because it rejects a mechanical acquittal based only on the plea that the original debt was time-barred. The correct judicial enquiry is whether the cheque itself, or the surrounding documents, establishes a fresh written promise to pay the identified debt under Section 25(3) of the Contract Act.
For complainants, the decision underscores the importance of obtaining or preserving written acknowledgments, settlement letters, balance confirmations, emails or messages identifying the cheque as repayment of the outstanding debt. For accused persons, the decision confirms that a bare assertion of limitation may not suffice, the precise purpose of issuance and the liability existing at presentation must be examined.
Conclusion
The Kerala High Court has correctly reconciled limitation law with cheque-dishonour liability. A time-barred debt may not be recoverable through an ordinary civil suit, but a voluntary written and signed promise to pay it, including an appropriately issued cheque, can create an enforceable obligation under Section 25(3) of the Contract Act. If that cheque is dishonoured and all statutory requirements of Section 138 are satisfied, prosecution is maintainable.
The governing principle may therefore be stated as follows:
A cheque issued towards a time-barred debt does not automatically escape Section 138 merely because the original debt had become barred by limitation. If the cheque amounts to a written and signed promise to pay the identified debt, thereby reviving enforceability under Section 25(3) of the Contract Act, its dishonour may attract Section 138 of the NI Act.
Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.
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References;
1. G. Sanil Kumar v. Sujith, Crl. A. No. 2002 of 2024. Livelawbiz
2. Dashrathbhai Trikambhai Patel Vs. Hitesh Mahendrabhai Patel & Anr. (Criminal Appeal No. 1497 of 2022)
“It has already been concluded above that the offence under Section 138 arises only when a cheque that represents a part or whole of the legally enforceable debt at the time of encashment is returned by the bank unpaid. Since the cheque did not represent the legally enforceable debt at the time of encashment, the offence under Section 138 is not made out.”
3. K. Hymavathi v. State of Andhra Pradesh, [Criminal Appeal No. 2743 OF 2023 @ SLP (Crl) No. 7455 of 2019]
“ # 10. From a perusal of the legal position enunciated, itis crystal clear that this Court keeping in perspective the nature of the proceedings arising under the NI Act and also keeping in view that the cheque itself is a promise to pay even if the debt is barred by time has in that circumstance kept in view the provision contained in Section 25(3) of the Contract Act and has indicated 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. In that light, this Court was of the view that entertaining a petition under Section 482 CrPC to quash the proceedings at the stage earlier to the evidence would not be justified.”
4. B.K. Educational Services Private Limited Vs. Parag Gupta Associates (Civil Appeal No.23988 of 2017).
“ . . . .In the case of Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay [AIR 1958 SC 328] it has been held that when the debt becomes time-barred the amount is not recoverable lawfully through the process of the court, but it will not mean that the amount has become not lawfully payable. Law does not bar a debtor to pay nor a creditor to accept a barred debt. “
5. Punjab National Bank And Ors vs Surendra Prasad Sinha (Criminal Appeal No. 254 of 1992).
"The rules of limitation are not meant to destroy the rights of the parties. Section 3 of the Limitation Act only bars the remedy, but does not destroy the right which the remedy relates to. The right to the debt continues to exist notwithstanding the remedy is barred by the limitation. Only exception in which the remedy also becomes barred by limitation is the right is destroyed. Though the right to enforce the debt by judicial process is barred, the right to debt remains. The time barred debt does not cease to exist by reason of s.3. That right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to enforce the liability is destroyed. What s.3. refers only to the remedy but not to the right of the creditors. Such debt continues to subsists so long as it is not paid. It is not obligatory to file a suit to recover the debt."
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