Dinesh B. Chokshi vs. Rahul Vasudeo Bhatt and the State of Maharashtra, 2012 Vol. 114(6) Bom. L.R. 3766
The reference to Division Bench was for deciding the two questions which were:-
(i) Does the issuance of a cheque in repayment of a time barred debt amount to a written promise to pay the said debt within the meaning of section 25(3) of the Indian Contract Act, 1872?
(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?
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 the stipulated period of limitation provided under the law of Limitation. After the time provided for filing a suit for recovery expires, the 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.
On a plain reading of section 13 of the Negotiable Instruments Act, 1881, a negotiable instrument does contain a promise to pay the amount mentioned therein. The promise is given by the drawer. U/s. 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 s/s. (3) of section 25 of the Contract Act. 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 s/s. (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 s/s. (3) of section 25 of the Contract Act, the promise/agreement is valid and, therefore, the same is enforceable. The promise to pay a time barred debt becomes a valid contract. Therefore, the first question was answered in the affirmative.
The Court further observed that u/s. 118 of the said Act of 1881, 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 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 debt or liability.
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. 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 Explanation to section 138.
While considering the second question, the court specifically dealt 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 an enforceable contract, it cannot be said that the cheque was drawn in discharge of debt or liability which was 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 s/s. (3) of section 25 of the Contract Act. Thus, such a 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, the second question was also answered in the affirmative.
