K.R. Sudhir vs K.S. Suresh Raju
2021 Latest Caselaw 5613 Kant

                                                     R
 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

    DATED THIS THE 7 T H DAY OF DECEMBER, 2021

                         BEFORE

THE HON'BLE MR. JUSTICE SREENIVAS HARISH KUMAR

       CRIMINAL PETITION N O.243 OF 2021

BETWEEN:

K.R.Sudhir,
S/o K.N.Ramaswamy
Aged about 42 years,
No.230, 6 t h Cross,
Talakaveri Layout,
Amruthahalli,
Beng aluru-560092.
                                           ...Petitioner

(By Sri Dhyan Chinnapp a, Senior Counsel, for
    Sri M.S.Raghavend ra Prasad, Advocate)

AND:

K.S.Suresh Raju
S/o K.Sund ara Raju,
Aged about 50 years,
No.2562/9B, 2 n d Cross,
V.V.Mohalla, Mysuru-570002.

Also at Flat No.65,
New No.31, K N Serenity
Ground Floor, 12 t h Main,
3 r d Block, Jayanagar East,
Beng aluru-560011.
                                         ...Respondent
(By Sri K.A.Kamath, Senior Counsel for
    Sri Anand Muttalli, Advocate)
                            :: 2 ::


      This Criminal Petition is filed under Section 482
of Cr.P.C. p raying to quash the criminal proceedings
initiated und er Section 200 of the Cr.P.C. with Section
138 of the Negotiable instruments Act registered as
C.C.No.2669/2017 presently p ending adjudication on
the file of the Learned VIII Additional I Civil Judge
and JMFC, Mysuru ag ainst the p etitioner.

      This Criminal Petition having b een heard and
reserved     on    16.11.2021,    coming   on    for
pronouncement this d ay, the court pronounced the
following:

                           ORDER

The petitioner being an accused in

C.C.2669/2017 on the file of VIII Additional I Civil

Judge and JMFC, Mysuru, has sought to quash the

proceedings initiated under section 138 of the

Negotiable Instruments Act. The legal point

involved in this petition is,

Whether the dishonour of two cheques issued by the petitioner to the respondent in relation to paying balance of sale consideration which the latter cannot recover on account of expiry of limitation period gives rise to a cause of action for initiating criminal action under :: 3 ::

      section      138           of         the      Negotiable
      Instruments Act?


      2.    The    necessary               facts     are       that        the

petitioner bought a commercial property bearing

No.1/5, 1/5B, 1/5C and 1/5D measuring 1 acre 20

guntas situated in Paduvarahalli Extension,

Devaraja Mohalla, Mysuru, under a sale deed

dated 15.12.2011 from the respondent, his wife

and two minor children Kumari Lakshmi S @

Shreya and Kumari Bindiya @ Spursha. The total

sale consideration was Rs.4,57,38,000/-. On the

date of execution of sale deed, he made payment

of Rs.40,00,000/- and issued four cheques for the

balance. The respondent did not present the

cheques before the bank for encashment on the

request of the petitioner as the latter could not

arrange for funds. It is stated that on

20.12.2016, the petitioner executed a

Memorandum of Understanding acknowledging the

execution of the sale deed and payment of :: 4 ::

Rs.40,00,000/- and then issued two cheques to the

respondent for the balance that he was due under

the sale deed. Those two cheques, on

presentation to the bank, were dishonoured for

insufficiency of funds in the bank account of the

petitioner. Consequent to dishonour, the

respondent got issued a legal notice to the

petitioner. The petitioner received it on

28.2.2017. It is stated that since there were some

typographical errors in the legal notice, the

respondent issued a corrigendum notice on

14.3.2017. The petitioner having failed to reply

and comply with the demand, the respondent

initiated a proceeding against the petitioner by

filing a complaint which was registered as PCR

1812/2017 and later on converted into

C.C.2669/2017. This is the proceeding which the

petitioner seeks to quash.

:: 5 ::

3. Sri. Dhyan Chinnappa, learned Senior

counsel for the petitioner has raised a legal issue

for quashing the proceedings. His argument is

that the cheques in question are said to have been

issued in connection with a sale transaction that

took place in the year 2011. In the complaint, it is

clearly stated that the sale deed was executed on

15.12.2011. The petitioner being the purchaser

paid only Rs.40,00,000/- out of Rs.4,57,38,000/-.

For the balance, he issued four cheques which

were not presented. The respondent says that

there came into existence an MoU on 20.12.2016,

pursuant to which the petitioner issued two

cheques dated 30.01.2017. Therefore, Sri. Dhyan

Chinnappa argued that by the time MoU was

executed, the limitation period for recovering the

balance sale consideration had expired and the

respondent could not have instituted a suit.

Before expiry of three years from 15.12.2011, the

petitioner did not acknowledge his debt according :: 6 ::

to Section 18 of the Limitation Act. The

respondent might have presented these cheques

for encashment and that they might have been

dishonoured for want of sufficient funds in the

bank account of the petitioner, yet the respondent

cannot take action against the petitioner for the

offence under Section 138 of N.I.Act. He argues

that a time barred debt does not fall within the

ambit of legally enforceable debt. In support of

his argument, he has placed reliance on the

judgment of the Kerala High Court in the case of

Sasseriyil Joseph Vs. Devassia - (2001

Crl.L.J.24), Andhra Pradesh High Court in the

case of Girdhari Lal Rathi Vs.

P.T.V.Ramanujachari and Another [1997(2)

Crimes 658] and Co-ordinate Bench of this Court

in the case of Bidar Urban Co-operative Bank

Ltd., Vs. Girish (Crl.A.No.200057/2016).

Therefore it is his argument that the proceeding :: 7 ::

against the petitioner under Section 138 of N.I.Act

deserves to be quashed.

4. Sri. K. Aravind Kamath, learned Senior

counsel appearing for the respondent argued that

the MoU dated 20.12.2016 is an independent

contract. It was executed by the petitioner

agreeing to pay the unpaid sale consideration of

Rs.4,17,38,000/-. The MoU constitutes an

enforceable contract within the meaning of Section

25 (3) of the Contract Act. The said section

provides for paying a time barred debt. The

cheques in question were issued on the basis of

the promise made by the petitioner under the

MoU, and thus the respondent is entitled to initiate

action against the petitioner for the dishonour of

those cheques. He also argued that issuance of a

cheque is also a promise within the meaning of

Section 25(3) of the Contract Act. Referring to the

judgment of the Kerala High Court in the case of :: 8 ::

Sasseriyil Joseph, he argued that the facts

therein disclose that there was no agreement

promising to pay the time barred debt in terms of

Section 25(3) of the Contract Act. He further

submitted that in fact the Supreme Court had

expressed an opinion that the plea of time barred

debt requires an in depth examination. It is not

the case of the petitioner that the MoU dated

20.12.2016 is not enforceable and therefore he

cannot question the enforceability of the cheques

issued by him. The respondent has also filed a

suit for recovery of the money due to him. Sri.

Aravind Kamath, therefore submitted that there is

no scope for interfering under section 482 Cr.P.C.

for quashing the proceedings.

5. Before answering the question, reference

may be made to the rulings cited by Sri Dhyan

Chinnappa.

:: 9 ::

In Sasseriyil Joseph, the Kerala High Court

has taken the view that the time barred debt does

not fall within the ambit of legally enforceable

debt as found in explanation part of Section 138 of

N.I.Act and therefore no action can be taken for

the offence punishable under Section 138 of

N.I.Act. The facts of this case show that the loan

was advanced to the accused in January, 1988 and

the cheque was issued in February 1991.

6. The Andhra Pradesh High Court has also

held in the case of Girdhari Lal Rathi that if a

cheque is issued in relation to a time barred debt,

no action under Section 138 of N.I.Act is permitted

if the cheque is dishonoured. The facts disclose

that loan was advanced in the year 1985 and the

cheque was issued in the year 1990, and before

expiry of three years from the date of

advancement of loan, there was no :: 10 ::

acknowledgment of debt by the borrower who

issued the cheque.

7. The co-ordinate Bench of this Court, in the

case of Bidar Urban Co-operative Bank Ltd.,

has no doubt held that a cheque given in discharge

of a time barred debt will not constitute a promise

in writing in order to attract a criminal liability

under Section 138 of N.I.Act, but the facts of the

case for arriving at such a conclusion are very

important and I will refer to it later.

8. In all the above decisions, the emphasis is

on the expression 'Time barred debt'. The further

question is whether time barred debt can be

brought within the realm of the expression legally

enforceable debt or liability which finds a place in

the explanation part of Section 138 of N.I.Act.

'Time barred debt' means a debt which cannot be

recovered by instituting a suit in a Court of law

due to expiry of the prescribed time for filing a :: 11 ::

suit. That means legal remedy is not available,

but a person entitled to recover money never loses

his right. This is a well established principle of

law. Even to file a suit to recover a sum of

money, the transaction giving rise to a liability

must be legal, else the suit, even if filed, can be

dismissed. Therefore to obtain the true meaning

of the expression "legally enforceable debt", it is

necessary to refer to some of the provisions of

Indian Contract Act.

9. Section 2(g) states that an agreement not

enforceable by law is void. According to Section

2(h), a contract is one which is enforceable by

law. If first part of Section 10 is seen, all

agreements are contracts if they are made with

free consent of parties competent to contract for a

lawful consideration and with a lawful object, and

which are not expressly declared to be void.

Besides, the person must be competent to contract :: 12 ::

(Section 11); one should not be of unsound mind

(Section 12); there must be privity of contract

(Section 13); and the consent should be free of

coercion, undue influence, fraud,

misrepresentation, and mistake (Section 14).

Above all, Section 23 of the Contract Act very

clearly states that if the consideration or object of

an agreement is illegal or unlawful, such an

agreement is void. In the illustrations given to

Section 23, (a) to (d) describe instances of lawful

contracts, and (e) to (k) throw light on the types

of agreements that are unlawful.

10. Now it is pertinent to refer to section 25

of the Contract Act and section 29(1) of the

Limitation Act. Section 25 of the Contract Act

states that a contract without consideration is

void, but there are three exceptions found in

clauses 1 to 3 of the said section. Section 25 (3)

is relevant here for discussion. Its requirement is :: 13 ::

that there must be a promise made in writing and

signed by the person to be charged therewith

(promissor) or his agent generally or specifically

authorized on his behalf to pay wholly or in part a

debt of which the creditor might have enforced

payment, but for the law of limitation of suits.

That means, section 25(3) applies to a situation

where there was a past valid contract and if the

debt payable under that contract cannot be

recovered on account of expiry of limitation period

to file a suit, if the debtor or his duly authorized

agent makes a promise in writing, it constitutes a

lawful contract which can be enforced. Section

29(1) of the Limitation Act clearly states that

nothing in this Act (Limitation Act) shall affect

section 25 of the Indian Contract Act. Thus by

virtue of a new contract coming into force under

section 25, it becomes enforceable and it has

nothing to do with the past contract which has

become unenforceable due to lapse of time. This is :: 14 ::

the legal position that can be deduced from this

analysis. In this context two judgments may be

referred here. The High Court of Madras in the

case of Sri.Kapaleeswarar Temple Vs.

T.Tirunavukarasu [AIR 1957 Madras 164] has

held as below:

"6. It is thus clear that there are a catena of decisions and plethora of authority for holding that though a debt might have become time-barred on the date a debtor entered into a fresh obligation with the creditor to pay the liability, the said obligation, if it satisfies the conditions laid down in Section 25(3) of the Indian Contract Act, will amount to a fresh contract in the eye of law and can certainly be made the basis of an action for recovering the amount promised and acknowledged therein by the debtor. While Section 18 of the Limitation Act (Section 19 of the old Act) deals with an acknowledgment made by a debtor within the period of limitation, the contractual obligation which a debtor enters into :: 15 ::

under the terms of Section 25(3) has no reference whatsoever to the acknowledged debt being within time or not. In that sense, the provision contained in Section 25(3) is far wider in scope than the acknowledgment contemplated in Section 18 of the Limitation Act. The contract entered into under Section 25(3) is an independent and enforceable contract and has no reference to the debt acknowledged under the contract being a live one in the sense that it had not become barred under the law of limitation. This aspect of the matter has been totally lost sight of by the lower Courts. As already stated, the respondent has categorically stated under Ex. P-1 that he was indebted to the plaintiff in a sum of Rs. 312/- till 31-10-1968 and consequently his undertaking under the terms of Ex. P-1 to discharge this amount at the rate of Rs. 10/- per mensem is an independent contract and is clearly enforceable by the plaintiff. Both the lower Courts were, therefore, clearly in error in holding that the plaintiff was :: 16 ::

entitled to maintain his action only in respect of a portion of the claim.

Consequently the orders of both the lower Courts are set aside and the revision petition will stand allowed. The plaintiff will be entitled to sustain his action for the total amount claimed by him in the plaint on the basis of Ex. P-1. There will be no order as to costs."

11. In the case of Dinesh B. Chokshi

Vs.Rahul Vasudeo Bhatt and Another [2013

(2) Mh.L.J. 130], it is held that even issuance of

cheque in respect of a time barred debt amounts

to entering into a fresh contract in accordance

with section 25(3) of the Indian Contract Act; and

elaborating on the section 25(3) of the Contract

Act, the following observations are made:

"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 :: 17 ::

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 an 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 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 :: 18 ::

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."

12. Therefore it is now clear that the meaning

that can be ascribed to the expression legally

enforceable debt or liability found in explanation :: 19 ::

to section 138 of N.I.Act is a debt or liability

arising out of legally enforceable contract. Even if

in respect of a time barred debt, an agreement

comes into existence subsequently according to

section 25(3) of the Contract Act, it becomes a

new contract which is enforceable. Sections 18

and 19 of the Limitation Act only extend the period

of limitation if there is acknowledgment of debt

before the limitation period expires. Even if there

is no acknowledgment of debt or liability in terms

of section 18 or 19 of the Limitation Act, if a new

agreement comes into existence according to

section 25(3), it is a valid contract and thus a

cheque issued in this connection, if dishonoured,

attracts penal action under section 138 of N.I.Act.

13. In the judgment of the Kerala High Court

in Sessariyil Joseph, section 25(3) of the

Contract Act is referred to, but as the facts in that

case disclose, a new contract in terms of section :: 20 ::

25(3) did not come into existence. Even in the

case of Giridhar Lal Rathi decided by Andhra

Pradesh High Court, no agreement under section

25(3) came into existence between the parties. It

is true that the co-ordinate bench of this court in

Bidar Urban Co-operative Society (supra) has

taken the view that a cheque given in discharge of

a time barred debt does not constitute a promise

in writing to attract a criminal liability under

section 138 of N.I.Act. It is very important to

note here that view was taken in the background

of the facts therein. The father of the accused

obtained loan from Bidar Urban Co-operative Bank.

The father died without repaying the loan to the

bank. When the bank issued notice, the accused

issued a cheque for discharging the liability of his

father. By that time the debt had become time

barred. When the bank initiated proceeding under

section 138 of N.I.Act against the accused for the

dishonour of cheque issued by him, he took up :: 21 ::

contentions that the debt had become time barred

and that there was no legally enforceable debt

between him and the bank. There is a clear

observation in para 27 of the judgment that loan

was neither borrowed by the accused as contended

in the complaint and the legal notice, nor the

accused gave any express undertaking to pay any

time barred debt of his father. Therefore the facts

make it very clear that as between the bank and

the accused there was no privity of contract even

though he issued cheque. But the facts in the

case on hand are different and hence the said

judgment is distinguishable.

14. It was argued by Sri. Dhyan Chinnappa

that the judgment of the Kerala High Court in

Sessariyil Joseph was confirmed by the Hon'ble

Supreme Court in Spl. Leave petition (Criminal)

No.1785/2001, and therefore the law is now

settled. The observations made by the Hon'ble :: 22 ::

Supreme Court in Spl. Leave Petition

No.1785/2001 are extracted in the judgment of

the co-ordinate Bench of this Court in the Bidar

Urban Co-operative Bank. Perusal of the same

shows that Sessariyil Joseph has been affirmed

by the Supreme Court, but I fail to see any law

being laid down. The order in the Special Leave

petition only shows the confirmation of the order

of the Kerala High Court on the facts of that

particular case. As has been observed already, in

Sessariyil Joseph, there was no fresh contract in

accordance with Section 25 (3) of the Contract

Act.

15. In the case on hand, the petitioner bought

the property from respondent and others under a

registered sale deed dated 15.12.2011. He made

advance payment of Rs.40,00,000/- in the initial

stage, and for the balance he issued four cheques

which were not presented to the bank by the :: 23 ::

respondent because of a request made by the

petitioner. On 20.12.2016, the petitioner

executed a memorandum of understanding (MoU)

acknowledging the past transaction of sale and

issued two cheques for the consideration he was

due to pay. The MoU dated 20.12.2016 is a new

contract in writing that came into existence

according to section 25(3) of the Indian Contract

Act. It was in this connection that the cheques in

question were issued and when they were

dishonoured, the respondent had to initiate action

under section 138 of N.I.Act. Therefore the

cheques were issued in connection with legally

enforceable debt, and it was not a time barred

debt. Argument of Sri. Dhyan Chinnappa, for

these reasons cannot be accepted and therefore

this petition fails and it is dismissed.

Sd/-

JUDGE sd