Harbour View Residency (P) Ltd. vs Sree Gokulam Chit and Finance Co. (P) Ltd.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE** **&** **THE HONOURABLE MRS. JUSTICE SHOBA ANNAMMA EAPEN** **FRIDAY, THE 28[TH] DAY OF OCTOBER 2022 / 6TH KARTHIKA, 1944 RFA NO. 459 OF 2019** **AGAINST THE DECREE AND JUDGMENT IN O.S.NO.29/2018 OF II** **ADDITIONAL SUB COURT, ERNAKULAM** ## **APPELLANTS/DEFENDANTS:** - 1 **HARBOUR VIEW RESIDENCY (P) LTD., M.G ROAD, ERNAKULAM REPRSENTED BY ITS MANAGING DIRECTOR, BABU C. GEORGE.** - 2 **BABU C. GEORGE, AGED 73 YEARS S/O.GEORGE, CHANDRATHIL HOUSE, BCG BUNGLOW ANNEX, VILLA A.H NO.33/2030/D, AMBEDKAR ROAD, VENNALA P.O, PIN-682 028.** - 3 **MARIYAMMA BABU, AGED 70 YEARS, W/O.BABU C. GEORGE, CHANDRATHIL HOUSE, BCG BUNGLOW ANNEX, VILLA A.H NO. 33/2030/D, AMBEDKAR ROAD, VENNALA P.O, PIN-682028.** - 4 **RENU C. BABU, AGED 37 YEARS, D/O. BABU C. GEORGE, CHANDRATHIL HOUSE, BCG BUNGLOW ANNEX, VILLA A.H NO. 33/2030/D., AMBEDKAR ROAD, VENNALA P.O., PIN-682 028.** - 5 **REKHA C. BABU, AGED 43 YEARS, D/O.BABU C. GEORGE, CHANDRATHIL HOUSE, BCG BUNGLOW ANNEX, VILLA A.H NO.33/2030/D, AMBEDKAR ROAD, VENNALA P.O., PIN-682 028.** **BY ADVS. JOHNSON ABRAHAM SRI.NELSON ABRAHAM** ## **RESPONDENT/PLAINTIFF:** **SREE GOKULAM CHIT AND FINANCE CO. (P) LTD., HAVING ITS REGISTERED AND CORPORATE OFFICE AT NO.66, ARCOT ROAD, KODAMBAKKAM, CHENNAI-600 024, REPRESENTED BY ITS POWER OF ATTORNEY HOLDER** RFA No.459/2019 2 **LOHITHAKSHAN K.M, AGED 48 YEARS, S/O. K.M KRISHNAN, DIVISIONAL BUSINESS MANAGER, SREE GOKULAM CHIT AND FINANCE CO.(P) LTD, ERNAKULAM DIVISION, AT 3RD FLOOR SHERIN BUILDING, JOSE JUNCTION, M.G ROAD, ERNAKULAM, PIN-682 016.** **BY ADVS. SRI.K.S.BABU SMT.N.SUDHA SRI.BABU SHANKAR SRI.T.N.JAYADEVAN SMT.MINU SIBY ROY SMT.VARSHA SAHAJAN SMT.REVATHI A.K.** **THIS REGULAR FIRST APPEAL HAVING BEEN FINALLY HEARD ON 10.10.2022, THE COURT ON 28.10.2022 DELIVERED THE FOLLOWING:** RFA No.459/2019 3 A.MUHAMED MUSTAQUE & SHOBA ANNAMMA EAPEN, JJ. -----------------------------------------------R.F.A.No.459 of 2019 -----------------------------------------------Dated this the 28[th] day of October, 2022 ## **JUDGMENT** ## A.Muhamed Mustaque, J. The question involved in the suit and this appeal is whether the defendants had issued dishonoured cheques to discharge a time-barred debt. The suit was decreed to realise Rs.1,53,68,581/- together with interest, holding that defendants 2 and 3 had issued cheques to discharge the debt owed by the first defendant to the plaintiff. 2. The plaintiff is a Private Limited Company engaged in the chit-fund business. The first respondent is another Private Limited Company subscribed to the chit of the plaintiff company. According to the plaintiff, the first defendant is having liability in respect of five chits subscribed to on 12.12.2008. The first defendant RFA No.459/2019 4 had bid five chits on 12.12.2008. Admittedly, these chits were terminated on 12.07.2010. The plaintiff's case is that towards discharging the liability, the third and fourth defendants issued a cheque for Rs.70 lakhs each on 02.11.2015. These cheques were dishonoured on presentation. Defendants 2 to 5, were the guarantors of the chit amount obtained by the first defendant. 3. It appears that an equitable mortgage of the properties belonging to the second defendant was obtained as security. The plaintiff initially filed a suit before the Sub Court, North Paravoor as the mortgage properties are located within the jurisdiction of the above court. The plaint was presented on 20.09.2016. Thereafter, the plaint was returned, noting that the suit was only a suit for the realisation of the money. The suit was, thereafter, tried by the Sub Court, Ernakulam. 4. This was a simple suit based on dishonoured cheques. The cheques were dated RFA No.459/2019 5 02.11.2015. The cheques were issued, according to the plaintiff, towards the liability of the chits terminated on 12.07.2010. The period of limitation to recover the liability for the chits admittedly got over on 11.07.2013, as per the Limitation Act. 5. We note the defendants specifically raised a contention in the written statement that those cheques were issued as security for other chits subscribed during the period 2005-2006 and the entire liability of the chits subscribed for the above transaction has been discharged by them. It is pertinent to refer to paragraph-4 of the written statement: “ _The alleged two blank cheques were obtained by the plaintiff at the time of bidding other chitties Nos. J2J/118/JMM/5,6,7,8 and J2G/119/JMM/4,5,6,7 AND J2J/120/JMM/8,9 and at the time of receiving the amount as a security from the defendants No.3 & 4 in the year 2005-06 periods. After clearing aforesaid chitties, said two blank cheques were not returned. The_ RFA No.459/2019 6 _said two blank cheques were misused to file this suit to over come the limitation of chitty transaction. Even the dishonour of the cheques were also outside the jurisdiction of the court. Besides these cheques were also out side the jurisdiction of the court. Besides these alleged two cheques would prove that the same were not MICR cheques. This itself proves the period of issuance of cheques. The MICR cheques were issued by Banks only in the year 2013 as per the RBI regulations.”_ 6 _._ There are issues raised based on Section 64 of the Chit Funds Act, 1982. Section 64 of the said Act confers jurisdiction on the Registrar to adjudicate the disputes in connection with chitties. Sub Section 3 of Section 64 of the said Act states that no Civil Court shall have jurisdiction to entertain any suit or other proceeding in respect of dispute touching the management of a chit business, a claim by or against a foreman for any debt or demand etc. This is not a case based on a chitty transaction. The RFA No.459/2019 7 cheques, according to the plaintiff, were issued by defendants 3 and 4 to discharge the liability of the first defendant. The suit was a suit based on the dishonoured cheques and nothing else. 7. The court below failed to frame the issues in the proper perspective to decide the matter. The issue ought to have been addressed with reference to Section 25(3) of the Indian Contract Act, 1872 (for short, the 'Contract Act'). The plaintiff's case was that the cheques were issued in the year 2015. The defendants' case was that the cheques were issued during 2005-2006. If the cheques were really issued in the year 2015, no doubt, the recovery of the amount covered by the cheques is possible under law. 8. Section 25(3) of the Contract Act states as follows: “ _It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or_ RFA No.459/2019 8 _in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. In any of these cases, such an agreement is a contract.”_ 9. Negotiable instrument is a type of contract that involves promise and acceptance for consideration. If the cheque is issued, it is a promise in writing. Acceptance is validated by another person who becomes the possessor of the cheque. The law presumes the consideration, as referable under Section 118(a) of the Negotiable Instruments Act. 10. A Division Bench of Bombay High Court in **Mr.Dinesh B. Chokshi Vs. Rahul Vasudeo Bhatt &** **Another[2012 All MR (Cri) 3656]** and the learned single judge of Bombay High Court in **M.Shantilal &** **Co. v. Abbaji Maruti Jadhav And Another [(2020) AIR** **Bom R (Crl.) 130]** had taken the view that a cheque can be equated with the promise as referred under Section 25(3) of the Contract Act and any cheque RFA No.459/2019 9 issued to discharge a debt barred by limitation can be enforced. However, a contra view was taken by Karnataka High Court in **Bidar Urban Co-operative Bank Ltd. v. Girish** [ **ILR 2021 Kar. 2437** ]. 11. The drawer of the cheque is a promisor. The cheque is a promise made in writing. If the cheque is signed by the drawer and the drawee accepted the cheque, it would satisfy the conditions prescribed under Section 25(3) of the Contract Act. Every agreement, it involves a contract. In a matter like this, even a postdated cheque issued which would eventually honour a timebarred debt, no doubt, is enforceable under law. The court will have to give effect to the conscious act of the parties, as referable under Section 25(3) of the Contract Act, even to recover a time-barred debt. The cheques issued to honour the time-barred debt also would come within the ambit of section 25(3) of the Contract Act. What is required to be satisfied under Section 25(3) of the RFA No.459/2019 10 Contract Act is as to the consensus of the parties to honour a commitment to a debt, the recovery of which is not possible by application of provision of the Limitation Act. In **Kotak Mahindra Bank** ## **Limited v. Kew Precision Parts Private Limited and** **Others [2022 SCC 978],** the Hon'ble Supreme Court laid down the conditions that must be satisfied to invoke Section 25(3) of the Contract Act. 12. Section 118 of the Negotiable Instruments Act gives rise to the presumption as to the consideration and date of negotiable instruments. The court will have to presume that the cheque was made on the date bearing in the instrument unless and until the contrary is proved. The court also will have to presume that the negotiable instrument is supported by consideration. These presumptions are rebuttable. 13. As seen from the pleadings and evidence, the defendants have raised a contention of misuse of the cheques. If the cheques were issued in the RFA No.459/2019 11 year 2005-2006 as blank cheques, as claimed by the defendants, in the absence of the case of the plaintiff that those cheques were issued as a security with the authority to present on a future date, definitely the suit must fail if defendants are able to prove their case. 14. The court below ought to have framed the issue whether defendants 3 and 4 had issued cheques on 02.11.2015 to discharge the time-barred debt or not. On the other hand, the issue framed by the court was that whether the suit was barred by limitation or not. 15. We are of the view that since both parties have not raised pleadings and evidence on the core issue that is involved in this case of recovery of time-barred debt based on Negotiable Instruments Act, the appeal can be decided after resettling the issues. The issue that has to be considered by us is whether the defendants 2 and 3 issued cheques on 02.11.2015 to discharge a time-barred debt or not. RFA No.459/2019 12 The second issue is whether dishonoured cheques were supported by consideration or not. We shall consider these issues together as noted above under Section 118(a) and (b) of the Negotiable Instruments Act, as the presumption supports the case of the plaintiff. 16. The plaintiff company examined their Divisional Manager. He spoke in tune with the pleadings. The plaintiff also produced Exts.A12 to A16, the computerised statement relating to the chit transactions. There was not much challenge regarding this statement. The Divisional Manager who was examined as DW1 deposed that the third defendant as well as the fourth defendant issued the cheque on 02.11.2015. It is to be noted that Ext.A27 was issued by the second defendant to the plaintiff on 04.11.2015, seeking six months' time to settle the liability. It is in this background, the relevance of issuing cheques dated 02.11.2015 will have to be considered. The defendants never RFA No.459/2019 13 disowned their obligations to pay the time-barred debt. Consequent to the dishonour of cheques, the lawyer notices were issued. Defendants 3 and 4 admitted the receipt of the lawyer's notices. However, no replies were sent. This was the first opportunity for defendants 3 and 4 to raise the case of misuse of cheques. The silence speaks in volumes. There was also no serious challenge in the cross-examination of DW1 as to the alleged misuse of cheques, except for suggesting to him that the cheques were misused. The defendants could have proved with scientific evidence, the insertion of dates in the year 2015, to get over the limitation. That would have been the best evidence in this case. It is the admitted case that the title deeds were deposited with the plaintiff by the defendants. The defendants never took steps to get back the alleged blank cheques or title deeds. There is nothing on record to discredit the claim of the plaintiff that the cheques were issued RFA No.459/2019 14 on 02.11.2015. On the other hand, Ext.A27 issued on 04.11.2015 fortifies the case of the plaintiff. The defendants tried to build a case of misuse referring to the nature of the cheques. According to the defendants, these cheques are MICR cheques and the banks were no longer transacting in MICR cheques. According to the defendants, from 2010 onwards, as per the RBI Regulation, banks can only transact cheques in CTS format. In this case, the Bank Manager was examined as DW2. Both Managers deposed that the accounts of defendants 2 and 4 are active and there is no embargo for the account holder in transacting MICR cheques issued earlier. Absolutely, no other evidence was issued to prove blank cheques were misused by inserting dates to get over the limitation. The burden is on the defendants to prove the case of misuse. 17. Coming back to the case of the defendants that the cheques were unsupported by consideration. It is to be noted that the plaintiff produced the RFA No.459/2019 15 computer printout of the chitty transaction. These printouts were not questioned. The burden is on the defendants to prove that the cheques were unsupported by consideration. 18. The learned counsel for the defendants/appellants argued that the plaintiff being a company, the books of accounts and the audited balance, shall be maintained and approved through a double entry system of accounting certification. The defendants relied on their own audit report with balance sheet and profit. As already noted, the presumption supports the case of the plaintiff, who is the holder of the cheques. The burden is on the defendants to rebut the presumption. DW1 was cross-examined. She had not even denied the suggestion that they have the liability as claimed. She was suggested whether the defendants have liability of Rs.1,53,68,581/-. She answered she has no knowledge. However, she admitted the signature on the cheques. Merely RFA No.459/2019 16 because the plaintiff had not produced the accounted statement with the certification of the double entry system format, the presumption cannot be taken away. The court cannot rely on the defendants' audited account to rebut the presumption available, based on the cheque in favour of the plaintiff. In the light of the discussions as above, the appeal fails and is dismissed. Both parties are directed to suffer their respective costs. Sd/- **A.MUHAMED MUSTAQUE JUDGE** ## **Sd/-** ## **SHOBA ANNAMMA EAPEN** **JUDGE** ln