The Kerala High Court has delivered a significant ruling clarifying that a cheque issued to repay a time-barred debt is not legally prohibited, and its dishonour can still attract prosecution under Section 138 of the Negotiable Instruments Act, 1881. The decision, delivered by Justice A. Badharudeen, overturns a magistrate’s acquittal and reaffirms that the mere fact that the underlying debt is beyond the limitation period does not render the cheque unenforceable for criminal liability.

The case arose from a complaint filed by G. Sanil Kumar, who alleged that the accused had borrowed a total of ₹9,30,230 through multiple transactions in 2011 and 2012. Subsequently, the accused issued a cheque dated July 6, 2015, for the same amount as repayment. When the cheque was presented, it was returned unpaid with the endorsement “funds insufficient.” Following the dishonour, the complainant issued a legal notice demanding repayment, but the accused failed to pay the amount, leading to the filing of a criminal complaint under Section 138.

Cheque for Time-Barred Debt Not Prohibited: Court

The Judicial First Class Magistrate Court, Varkala, had acquitted the accused on the ground that the cheque related to a time-barred debt and therefore did not represent a “legally enforceable debt” for the purposes of Section 138. The complainant challenged this acquittal before the High Court, arguing that issuing a cheque for a time-barred debt is not prohibited under law. The State Brief, representing the accused, contended that a debt that is time-barred is not legally enforceable, and thus the cheque could not attract prosecution.

Rejecting the magistrate’s approach, Justice Badharudeen observed that the issuance of a cheque for a time-barred debt effectively revives the period of limitation. The court held:

“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 emphasised that there is no legal bar against issuing a cheque towards repayment of a time-barred debt. Such a cheque creates a fresh promise to pay and is therefore a valid consideration. The dishonour of that cheque, if the drawer fails to make payment within the statutory period after notice, squarely falls within the ambit of Section 138.

Acquittal Set Aside, Conviction and Fine Imposed

Relying on earlier precedents, the High Court held that the magistrate had erred in acquitting the accused solely on the ground that the underlying debt was time-barred. The court set aside the acquittal and convicted the accused under Section 138. The sentencing order imposed one day’s simple imprisonment along with a fine of ₹14 lakh. Out of this amount, ₹13.5 lakh was directed to be paid as compensation to the complainant, and ₹50,000 as costs to the State. In default of payment of the fine, the accused will have to undergo six months’ imprisonment.

The court’s ruling provides clarity on a frequently contested point in cheque bounce cases—whether a cheque issued for a time-barred debt can sustain a criminal complaint. By affirming that such a cheque is not void and can revive the debt for limitation purposes, the High Court has expanded the protective scope of Section 138 for creditors. The decision underscores that drawers cannot escape liability merely by pointing to the age of the underlying debt.

The case was argued by Advocates R Rahul and Abhina L for the appellant, while Senior Public Prosecutor Sajeev P.K and Advocate Prasanth M.P appeared for the respondents.

With the conviction now upheld, the accused faces the immediate consequence of paying the fine or serving the default sentence. The judgment serves as a warning to those who issue cheques against stale debts, expecting that the time-barred nature of the obligation will shield them from prosecution.