Cheque Issued even time bared debt is valid

Case Overview

Case  K. Hymavathi vs. The State of Andhra Pradesh & Anr.
Court: Supreme Court of India
Bench: Justices A.S. Bopanna and Prashant Kumar Mishra
Date: 6 September 2023
Citation: 2023 INSC 811

A cheque given within the loan’s due period is valid and the debt is legally enforceable.

Background of the Case

• Parties:
  • Appellant (Complainant): K. Hymavathi
  • Respondent No. 2 (Accused): An acquaintance of the appellant
• Facts:
  • Respondent No. 2 borrowed ₹ 20 lakh from the appellant in 2012 to fund his son’s medical education and family expenses.
  • A promissory note dated 25 July 2012 was executed, promising repayment with 2% monthly interest, and full repayment by December 2016.
  • The respondent failed to repay, but later issued a cheque of ₹ 10 lakh on 28 April 2017 toward part repayment.
  • The cheque bounced on 15 May 2017 for insufficient funds.
  • The appellant sent a legal notice on 24 May 2017 and, after receiving replies, filed a complaint under Section 138 of the Negotiable Instruments Act (NI Act) on 11 July 2017 before the Visakhapatnam court.
  • The Magistrate took cognizance and issued summons on 14 September 2018.

Proceedings Before the High Court

• The accused (respondent No. 2) filed petitions under Section 482 CrPC (inherent powers of the High Court) seeking to quash the criminal cases.
• The Andhra Pradesh High Courtallowed the petitions and quashed the cases, reasoning that:
  • The promissory note (2012) became time-barred before the cheque (2017) was issued.
  • Since the underlying debt was not legally enforceable, Section 138 NI Act did not apply.

 Supreme Court’s Decision

The appellant challenged the High Court’s order in the Supreme Court.

Arguments

• Appellant’s Counsel:
  • Even if the debt was time-barred, the issuance of the cheque constitutes a fresh promise under Section 25(3) of the Indian Contract Act, 1872, which makes such a promise legally enforceable.
  • Relied on earlier SC cases:
    • S. Natarajan v. Sama Dharman (2021) 6 SCC 413
    • A.V. Murthy v. B.S. Nagabasavanna (2002) 2 SCC 642
• Amicus Curiae (for Respondent No. 2):
  • A time-barred debt cannot be enforced under criminal law.
  • Only a written, signed promise specifically acknowledging the debt can attract Section 25(3) Contract Act.

Supreme Court’s Reasoning

1. Limitation Period Starts from December 2016:
   • The promissory note itself stated repayment was due by December 2016, so the cause of action arose then, not in 2012.
   • Under Article 34 of the Limitation Act, 1963, limitation for a promissory note payable at a fixed time runs from the date that time expires, i.e. December 2016 + 3 years = December 2019.
2. Cheque (April 2017) Was Within Limitation:
   • Since the cheque was issued within that 3-year period, the debt was legally recoverable.
3. High Court’s Error:
   • The High Court misinterpreted the limitation and wrongly quashed the case.
   • Determining whether a debt is time-barred is a mixed question of law and fact, not to be decided summarily under Section 482 CrPC.

 Final Judgment

• The Supreme Court set aside the High Court’s order dated 12 February 2019.
• The criminal complaints (CC Nos. 681, 644, 250 & 254 of 2018) were restored to the Chief Metropolitan Magistrate, Visakhapatnam.
• The trial court was directed to dispose of the cases within six months.
• Appeals allowed; no order as to costs.

 Key Legal Principles

1. Section 138 NI Act applies if the cheque is issued for a legally enforceable debt or liability.
2. Section 25(3) Contract Act validates a written promise to pay a time-barred debt.
3. Limitation under Article 34 Limitation Act begins when the fixed time for payment expires, not when the promissory note is executed.
4. High Courts should not quash Section 138 complaints under Section 482 CrPC without clear evidence that the debt was legally unenforceable.