Dishonoured cheque as Acknowledgment for the purpose of limitation

Comment : In this case the question that arose for consideration was “Whether a cheque subsequently dishonored is payment within the meaning of S.19/20 Limitation Act, for the purpose of renewing the period of limitation ?” The Court held yes – not following so would lead to absurd results – as a person may be lulled into a feeling of security that he has a payment in his hand in the form of a cheque and he may not pursue the liability through a court, if that cheque subsequently gets dishonoured – say some months down the line, he would be deprived of valuable time – and his period of limitation may run out – to prevent such frauds – when cheque given it is acknowledgment as payment within the meaning of S.19 – and when cheque is given a new period of limitation starts running from there – and subsequent dishonour is inconsequential .

Though not expressly said so in this judgment (but in Vijaye Ganesh v. Indranil Jayraj 2006 Bom HC) the court held that a cheque being in writing and signed in any case is an acnowledgment within the meaning of S.18 of the Limitation Act. 

Delhi High Court
Rajesh Kumari vs Prem Chand Jain on 22 April, 1997
Equivalent citations: 1997 IIIAD Delhi 609, AIR 1998 Delhi 80
Author: R Lahoti
Bench: R Lahoti


R.C. Lahoti, J.

(1) Plaintiff has come up in revision feeling aggrieved by the impugned order of the learned Senior Sub Judge holding her suit under order 37 Civil Procedure Code to be barred by time.

(2) The relevant facts are jejune. The plaintiff had advanced a loan of Rs. 3000.00 to the respondent by issuing a cheque on 27.8.81. Interest was agreed to be paid by the defendant at the rate of 18% p.a. Interest as agreed was paid upto 27.2.82. The defendant issued a cheque for Rs. 270 drawn on 16.4.84 on account of interest for the period 28.2.82 to 28.3.83. The cheque when presented by the plaintiff to the bank was dishonoured for want of funds. The suit was filed on 4.4.87.

(3) In this case answer to the question whether the suit is barred by time or is within limitation is to be found in Section 19 of the Limitation Act, 1963. The learned Senior Sub Judge has held that a dishonoured cheque cannot be treated to be payment on account of debt within the meaning of S. 19 of the Limitation Act and hence the cheque dated 16.4.84 would not extend or renew the period of limitation.

(4) The relevant part of S. 19 of the Limitation Act 1963 reads as under :

“WHERE payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made”

5. On the language of Section 19 above said, it is clear that the payment may be made either against the principal or on account of interest. In either case, the payment will be on account of the debt which is all that the provision requires. It is also settled that this provision is to be interpreted liberally so as to save the suits from being barred by limitation so long as its benefit can reasonably be extended to assist a claim, otherwise legal and sustainable.

(6) A payment by cheque satisfies the requirement of Section 19 inasmuch as the acknowledgement of payment appears in the handwriting of or in a writing signed by the person making the payment in the form of a cheque.

(7) A direct authority available on the point is Gori Lal v. Ramjee Lal, , wherein on a review of the available case law on the point, a learned single Judge of the High Court of Madhya Pradesh has held :

“IF one bears in mind that the word “payment” has been used in two different senses, it would be clear that the moment the negotiable instrument is handed over and accepted by the creditor and is in the debtor’s handwriting, there has been a payment for the purposes of Section 20, Limitation Act and a fresh period of limitation has already started.

IF the negotiable instrument is dishonoured subsequently the creditor, no doubt, can fall back on his original claim. But the new term of limitation of the subsequent happening. To link S. 20 with the subsequent honouring of the negotiable instrument would indeed lead to absurd results. The debtor has intended and at all events represented to the creditor that the negotiable instrument is good, and thereby the creditor has for his part, been given a feeling of security with a fresh term of limitation.

IF it turns out that the debtor’s negotiable instrument is dishonoured (or as for that matter the currency notes that he has given turn out to be counterfeit) this fresh term of limitation cannot be blocked. Again, if one looks to the equity side of it, a payment which the debtor means as a sheer pretence, but the creditor accepts as genuine, cannot certainly deprive the latter of what S. 20 has already given him.

Thusi would hold that the passing of the cheque is payment for the purpose of S. 20 and if the other conditions were fulfillled, a fresh term of limitation started from that date, whether or not it is subsequently honoured. That way the suit of the plaintiff was not time-barred.”

(8) The above said single Bench view has been approved by a Division Bench of High Court of Mp in BalChand Bhandari v. India Pictures and Ors. .

(9) So is the view taken by the Hc of Calcutta in Mauris Mayahas v. W. Morley and Ors holding :

“IF a cheque is given in part payment of a debt, the fresh period of limitation under S. 20 should be computed from the actual giving of the cheque and not from the time when the Bank pays cash for it.

(10) I am in respectful agreement with the view taken by the High Courts of Madhya Pradesh and Calcutta. Several observations made by their Lordships of the Supreme Court in Jiwan Lal Acharya v. Rameshwar Lal Aggarwala, lend support to the said view. It was a case of a postdated cheque issued in payment of a debt and relied on as payment for the purpose of extending limitation under Section 20 of the Limitation Act, 1908. The question arising for decision was whether the effective date for extending the period of limitation would be the date of the cheque or the date of delivery thereof. Dealing with the question their Lordships have observed (vide para 8) :

“Where therefore the payment is by cheque and is conditional, the mere delivery of the cheque on a particular date does not mean that the payment was made on that date unless the cheque was accepted as unconditional payment. Where the cheque is not accepted as an unconditional payment, it can only be treated as a conditional payment. In such a case the payment for purposes of S. 20 would be the date on which the cheque would be actually payable at the earliest assuming that it will be honoured”

“THE fact that the presented it later and was then paid is immaterial for it is the earliest date on which the payment could be made that would be the date where the conditional acceptance of a post-dated cheque becomes actual payment when honoured.

IT is not in dispute that he proviso to S. 20 is complied with in this case, for the cheque itself is an acknowledgement of the payment in the hand-writing of the person giving the cheque.”

IT is clear from the above said observations that unconditional acceptance of cheque is payment; conditional acceptance of cheque is payment subject to realisation thereof.

(11) In K. Saraswathy vs Pss Soma Sundram , their Lordships have observed that payment by cheque is an ordinary incident of present day life; whether commercial or private, and unless it is specifically mentioned that the payment must be in cash there is no reason why payment by cheque should not be taken to be due payment. Of course the payment would be a valid discharge of liability if the cheque is subsequently encashed in the ordinary course.

(12) In Damdilal vs Parash Ram , arrears of rent were tendered by cheque. Question arose whether the rent could be said to have been tendered on the date of the cheque though encashed thereafter. Their Lordships held:

“IT is well established that a cheque sent in payment of a debt on the request of the creditor, unless dishonoured operates as valid discharge of the debt and if the cheque was sent by post and was met on presentation, the date of payment is the date when the cheque was posted,.”

THE above said decision of the Sc clearly recognises payment by cheque a valid mode of payment and lawful tender unless such mode is excluded by agreement of the parties. In Damdi Lal’s case their Lordships have gone on to hold that in the contemporary society it was reasonable to suppose such agreement (as to tender of payment by cheque) as implied unless the circumstances of a case indicated otherwise.

(13) I may illustrate. The loan is dated 1.3.81, the limitation for suit for recovery expires on 1.3.84. On 28.2.84 the debtor delivers a cheque in part payment of principal or in payment of interest duly signed by him. The plaintiff files a suit on 7.3.84. Seeking extension to limitation relying on payment dated 28-2-1984. The suit will be within limitation though the cheque may bounce during the pendency of the suit. The bouncing of the cheque will not undo the advantage of extension in the period of limitation earned by the plaintiff and his validly instituting the suit on 7.3.84. Thus, dishonouring of the cheque results in not extinguishing the liability of the debtor to the extent of the amount of the cheque; nevertheless the cheque remains an effective payment for the purpose of section 19 of the Limitation Act 1963.

(14) In the case at hand, the cheque was accepted as a payment by the plaintiff. He had no reason to believe or apprehend that the cheque will be dishonoured when presented for payment. The payment by cheque having been accepted and the plaintiff having earned the advantage of extension in period of limitation, that advantage cannot be wiped out or undone by the tortuous act of the defendant withholding the payment of the cheque.

(15) The suit filed by the plaintiff cannot be said to be barred by limitation.

(16) The revision is allowed. The impugned order is set aside. The case is sent back to the trial court for hearing and decision afresh in accordance with law. No order as to the costs.

(17) The plaintiff/petitioner is directed through her counsel to appear before the trial court on 12.5.97. The defendant respondent has not made appearance before the court through served. The trial court would do well to notice the defendant for appearance on a date to be appointed by it.

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