Case Background: A Decade-Long Business Relationship Turns Sour
The complainant, V. Ramalingam, a farmer from Thandalam Village, had been availing milling services at Sri Gajaraj Modern Rice Mill for nearly 10 years. In 2015, this professional relationship turned commercial when the accused requested the complainant to sell him his annual paddy harvest.
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In 2015, the complainant sold 313 bags of paddy worth Rs. 4,35,600.
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In 2016, additional paddy worth Rs. 3,82,000 was delivered, bringing the total alleged liability to Rs. 8,17,600.
Despite repeated demands, the amount remained unpaid. In 2018, the accused allegedly acknowledged the debt in writing and issued four undated cheques as security, two of which (totaling Rs. 4,35,000) were later presented and dishonoured for “Funds Insufficient”.
Legal Issues and Defence Raised by Accused
The defence raised several common but legally complex objections:
1. Time-Barred Debt
The accused claimed the underlying debt was incurred in 2015–2016 and thus barred by limitation at the time of cheque presentation in 2018. However, the court invoked Section 25(3) of the Indian Contract Act, which makes a written promise to pay a time-barred debt legally enforceable. The accused’s signed acknowledgment dated 11.05.2018 (Ex.P5) revived the liability, making the complaint timely and legally sustainable.
2. Security Cheques
The accused alleged the cheques were issued merely as security for a personal loan of Rs. 1,00,000, not in discharge of any commercial transaction. The court firmly rejected this, relying on Supreme Court rulings:
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In Bir Singh v. Mukesh Kumar (2019), the Court held that even a blank but signed cheque issued voluntarily creates a presumption of liability under Section 139 NI Act.
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In Sripati Singh v. State of Jharkhand (2021), it was ruled that cheques issued as security may become legally actionable if the underlying obligation remains unpaid.
Here, the cheques were acknowledged by the accused in a signed document that mentioned the cheque numbers and linked them to the paddy sale, leaving little room for doubt.
3. Denial of Proprietorship
The accused claimed he was not the proprietor of the rice mill. However, he did not deny signing the cheques nor produce any evidence to prove that the business was operated by someone else. The court held that mere verbal denials are insufficient to rebut statutory presumptions.
Court’s Observations and Reasoning
The court observed that:
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The accused did not send a reply to the statutory legal notice.
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No documents were produced to support the defence that the cheques were for a different debt or were misused.
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The accused did not examine any witness, including the two who signed the acknowledgment deed (Ex.P5), to disprove its authenticity.
The court emphasized that presumptions under Sections 118 and 139 NI Act stand unless rebutted with cogent evidence. In this case, the defence merely offered suggestive arguments without proof, which could not shake the complainant’s consistent and corroborated evidence.
Judgment and Sentence
The accused was held guilty under Section 138 of the Negotiable Instruments Act and sentenced as follows:
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Simple imprisonment for six months
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Payment of compensation of Rs. 4,35,000 with 6% interest from the date of complaint till judgment
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In default of payment, he shall undergo one month of additional simple imprisonment
Implications: Key Legal Takeaways
This judgment reaffirms several critical points in cheque dishonour jurisprudence:
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Acknowledgment of time-barred debt revives enforceability, allowing prosecution under Section 138.
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Security cheques are not immune from legal action if issued pursuant to a genuine financial obligation.
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Failure to rebut statutory presumption can result in conviction, even in the absence of direct documentary proof of transactions.
Conclusion
The Chengalpattu court’s ruling sends a clear message: cheques—whether blank, post-dated, or issued as security—carry legal weight when tied to a genuine financial obligation. Borrowers, business owners, and individuals must be cautious about issuing cheques without clarity or documentation, as mere denials will not suffice in court.
As cheque bounce litigation becomes increasingly common, this case stands as a valuable precedent on how courts analyze limitation, time-barred debts, and the nature of security cheques through the lens of the Negotiable Instruments Act and Indian Contract Law.
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