Dismissed

K.R. Sudhir v. K.S. Suresh Raju

Karnataka HC7 Dec 2021CRL.P/243/2021

Case brief

AI extract

What is this about?

Petitioner sought to quash criminal proceedings under Section 138 of NI Act for dishonoured cheques representing a time-barred sale consideration debt. Court held that a fresh written agreement under Section 25(3) of Contract Act renders the debt legally enforceable, sustaining criminal liability.

What did the court decide?

Criminal petition to quash proceedings under Section 138 of Negotiable Instruments Act dismissed as the subsequent MoU rendered the debt legally enforceable.

K.R. Sudhir Vs K.S. Suresh Raju — Contract and Commercial Disputes | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 7^TH DAY OF DECEMBER, 2021

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BEFORE

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THE HON’BLE MR. JUSTICE SREENIVAS HARISH KUMAR

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CRIMINAL PETITION NO.243 OF 2021

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BETWEEN:

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K.R.Sudhir, S/o K.N.Ramaswamy Aged about 42 years, No.230, 6^th Cross, Talakaveri Layout, Amruthahalli, Bengaluru-560092.

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…Petitioner

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(By Sri Dhyan Chinnappa, Senior Counsel, for Sri M.S.Raghavendra Prasad, Advocate)

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AND:

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K.S.Suresh Raju S/o K.Sundara Raju, Aged about 50 years, No.2562/9B, 2^nd Cross, V.V.Mohalla, Mysuru-570002.

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Also at Flat No.65, New No.31, K N Serenity Ground Floor, 12^th Main, 3^rd Block, Jayanagar East, Bengaluru-560011.

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…Respondent

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(By Sri K.A.Kamath, Senior Counsel for Sri Anand Muttalli, Advocate)

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This Criminal Petition is filed under Section 482 of Cr.P.C. praying to quash the criminal proceedings initiated under Section 200 of the Cr.P.C. with Section 138 of the Negotiable instruments Act registered as C.C.No.2669/2017 presently pending adjudication on the file of the Learned VIII Additional I Civil Judge and JMFC, Mysuru against the petitioner.

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This Criminal Petition having been heard and reserved on 16.11.2021, coming on for pronouncement this day, the court pronounced the following:

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ORDER

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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,

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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

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section 138 of the Negotiable Instruments Act?

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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

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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.

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Sri. Dhyan Chinnappa, learned Senior

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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

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to Section 18 of the Limitation Act. The

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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)

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Crimes 658] and Co-ordinate Bench of this Court

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in the case of Bidar Urban Co-operative Bank Ltd., Vs. Girish (Crl.A.No.200057/2016) .

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Therefore it is his argument that the proceeding

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against the petitioner under Section 138 of N.I.Act deserves to be quashed.

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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

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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.

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Before answering the question, reference may be made to the rulings cited by Sri Dhyan Chinnappa.

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In Sasseriyil Joseph, the Kerala High Court

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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.

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The Andhra Pradesh High Court has also

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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

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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

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acknowledgment of debt by the borrower who issued the cheque.

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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.

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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

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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.

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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

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(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.

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Now it is pertinent to refer to section 25

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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

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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

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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:

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“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

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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

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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.”

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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:

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“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. Subsection (3) of Section 25 of the Contract

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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

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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.”

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Therefore it is now clear that the meaning

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that can be ascribed to the expression legally enforceable debt or liability found in explanation

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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.

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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

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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

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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

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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

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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.

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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

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Supreme Court in Spl. Leave Petition

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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.

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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

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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.

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Sd/JUDGE

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K.R. Sudhir v. K.S. Suresh Raju

Case brief

What is this about?

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K.R. Sudhir v. K.S. Suresh Raju

Case brief

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