Introduction

Can a person be prosecuted under Section 138 of the Negotiable Instruments Act, 1881, when the cheque was issued towards repayment of a debt that had already become barred by limitation?

This question has frequently arisen in cheque dishonour litigation. The general principle is that Section 138 applies to a cheque issued towards the discharge, wholly or partly, of a legally enforceable debt or other liability. However, the position becomes more complex when the underlying transaction is old and the limitation period for recovery of the original debt has expired.

In an important judgment dated 8 October 2026, the Kerala High Court, in G. Sanil Kumar v. Sujith, Crl.A. No. 2002 of 2024, considered this issue and held that issuance of a cheque towards repayment of a time-barred debt can operate as an acknowledgment and revival of the liability. Consequently, merely because the original debt had become time-barred, prosecution under Section 138 of the NI Act could not be held impermissible.

The High Court set aside the order of acquittal passed by the Judicial First Class Magistrate Court, Varkala, convicted the accused under Section 138 of the NI Act and imposed a fine of ₹14 lakh.

The judgment is significant for cheque dishonour cases involving old financial transactions, subsequent acknowledgment of liability and issuance of cheques towards repayment of time-barred debts.

Case Details

1.Facts of the Case

The complainant’s case was that the accused had borrowed a sum of ₹9,30,230/- through various transactions on different dates. The amounts were transferred to the accused through bank transactions.

According to the complainant, the accused subsequently issued a cheque dated 6 July 2015 for ₹9,30,230/- towards repayment of the said liability.

When the cheque was presented for collection, it was returned unpaid with the endorsement “Funds Insufficient”.

Thereafter, the complainant issued a statutory demand notice requiring the accused to pay the cheque amount. Since the accused failed to make payment within the prescribed period, a complaint was instituted alleging commission of the offence under Section 138 of the NI Act.

During the trial:

• The complainant was examined as PW1.
• The power-of-attorney holder of the complainant was examined as PW2.
• Exts. P1 to P12 were marked on the complainant’s side.
• DW1 and DW2 were examined on the defence side.
• Exts. D1 to D5 were marked on behalf of the defence.

The complainant’s evidence, supported by the documentary records, established the transactions and execution of the cheque. The Magistrate also accepted most of the complainant’s case.

However, the accused produced his statement of account, marked as Ext. D5, through the defence evidence. The statement indicated that the amounts had been transferred during the period 2011 to 2012.

The complainant did not dispute that the original transactions had taken place during that period.

2.Decision of the Trial Court: Cheque Issued for a Time-Barred Debt The Judicial First Class Magistrate Court found that the original financial transactions had taken place during 2011 and 2012, whereas the cheque was issued in July 2015.

On the basis of the evidence of DW2 and Ext. D5, the Magistrate concluded that the debt had become barred by limitation.

The Magistrate accordingly held that the cheque had been issued towards a time-barred debt and that the amount did not constitute a legally enforceable debt for the purpose of Section 138 of the NI Act.

On this sole ground, the accused was acquitted.

Aggrieved by the acquittal, the complainant preferred a criminal appeal before the Kerala High Court.

3.Principal Issue Before the Kerala High Court

The principal question considered by the High Court was:

Whether the Magistrate was justified in acquitting the accused merely on the ground that the cheque had been issued towards repayment of a time-barred debt?

The complainant contended that issuance of a cheque towards repayment of a time-barred debt was not prohibited by law. It was further argued that the cheque represented an acknowledgment of the liability and that dishonour of such a cheque, followed by failure to pay within the statutory period after receipt of the demand notice, would attract Section 138 of the NI Act.

The State Brief, appearing for the accused, supported the order of acquittal and contended that a time-barred debt was not legally enforceable.

The High Court therefore examined the legal position laid down in the earlier decisions concerning cheques issued towards time-barred debts.

4.Legal Position: Cheque Issued Towards a Time-Barred Debt

The High Court relied on the established legal position that issuance of a cheque towards repayment of a time-barred debt is not prohibited.

The Court considered the effect of issuing a cheque in acknowledgment of an existing liability, even where the original limitation period for recovery of the debt has expired.

A.Ramakrishnan v. Parthasaradhy – Division Bench of Kerala High Court

The complainant relied on the Division Bench decision of the Kerala High Court in:

Ramakrishnan v. Parthasaradhy, 2003 KHC 462 : 2003 (2) KLT 613 : 2003 (2) KLJ 513 : ILR 2003 (2) Ker. 586.

The Division Bench held that when a person issues a cheque, the act amounts to an acknowledgment of liability to pay.

The Court further held that where the cheque is dishonoured due to insufficiency of funds, the drawer cannot simply rely on the fact that the original debt had become barred by limitation to avoid liability under the NI Act.

The Division Bench answered the question before it in the negative and held that the view taken earlier in Joseph’s case could not be sustained as the correct principle of law.

This decision formed an important foundation for the High Court’s consideration of the present appeal.

B.Mamman S.A. v. C.P. Gopalan Achari and Another

The High Court also noticed the decision in:

Mamman S.A. v. C.P. Gopalan Achari and Another, 2011 (3) KHC 806.

This was cited by the complainant in support of the proposition that issuance of a cheque towards a time-barred debt would not, by itself, render a prosecution under Section 138 legally unsustainable.

C.Kesavan E.K. v. Thomas

The Court also referred to:

Kesavan E.K. v. Thomas, 2025 (1) KHC 627.

This decision was relied upon in support of the legal position concerning cheques issued towards time-barred debts.

 D.Sasseryil Joseph v. Devassia

The judgment also noticed the Supreme Court decision in:

Sasseryil Joseph v. Devassia, MANU/SCOR/00031/2001.

The complainant relied on this decision in the context of the earlier Kerala High Court ruling in Joseph v. Devassia, 2000 (3) KLT 533.

The High Court considered these authorities along with the subsequent Supreme Court decisions while examining the question before it.

E.Supreme Court Clarification: Hymavathi K. v. State of Andhra Pradesh

An important aspect of the judgment is its consideration of the Supreme Court decision in:Hymavathi K. v. State of Andhra Pradesh, 2023 (6) KHC 117.

In that case, the Supreme Court considered a challenge to the quashing of a complaint under Section 138 of the NI Act on the ground that the underlying debt was time-barred.

The Supreme Court explained that the legal position must be considered in the context of the nature of proceedings under the NI Act and the effect of Section 25(3) of the Indian Contract Act, 1872.

The relevant principle noticed by the Kerala High Court was that a cheque itself can constitute a promise to pay, even where the original debt is barred by limitation.

The Supreme Court further observed that where the question whether the debt or liability is barred by limitation arises in proceedings under the NI Act, the issue has to be decided on the basis of evidence adduced by the parties, since limitation involves a mixed question of law and fact.

The Supreme Court also distinguished cases involving an amount that is entirely non-recoverable, where a question of threshold jurisdiction may arise. In such circumstances, interference under Section 482 CrPC may be justified.

However, the mere assertion that the underlying debt is time-barred would not justify quashing the proceedings at a stage before evidence is considered.

The Kerala High Court relied on this principle in examining the trial court’s approach.

F.Reliance on A.V. Murthy v. B.S. Nagabasavanna

The High Court also referred to the Supreme Court decision in:

A.V. Murthy v. B.S. Nagabasavanna, 2002 KHC 1154.

This decision was noticed along with Hymavathi K. in relation to the treatment of limitation issues in proceedings under Section 138 of the NI Act.

The significance of these Supreme Court decisions is that the question of limitation cannot invariably be treated as a ground for terminating cheque dishonour proceedings at the threshold. The nature of the transaction, the subsequent issuance of the cheque and the evidence available are relevant to the determination.

7.Kerala High Court’s Analysis and Findings

After examining the evidence and the legal position, the High Court found that the complainant had established the transaction and execution of the cheque.

PW1 had given evidence supporting the financial transactions and the issuance of Ext. P1 cheque. PW2, the power-of-attorney holder, also gave evidence regarding the transaction and execution of the cheque, claiming personal knowledge of the relevant events.

The complainant had produced Exts. P1 to P12 in support of the case.

The High Court observed that the trial court itself had accepted the evidence establishing the transaction and execution of the cheque.

The statement of account produced by the defence showed that the original transfers took place during 2011 and 2012. This fact was not disputed by the complainant.

However, the High Court disagreed with the conclusion that the cheque was therefore incapable of attracting Section 138.

5.Issuance of cheque as revival of liability

In paragraph 13, the High Court reiterated the legal position that issuance of a cheque towards a time-barred debt is akin to revival of the debt and liability through acknowledgment.

The Court held that issuance of a cheque towards discharge or repayment of a time-barred debt is not legally prohibited.

Where a cheque is issued towards a time-barred debt, thereby reviving the period of limitation, the mere fact that the original debt was time-barred does not make prosecution under Section 138 impermissible.

Accordingly, the Magistrate had committed an error in acquitting the accused solely on the ground that the cheque had been issued towards a time-barred debt.

The High Court therefore held that the order of acquittal required interference.

6.Final Order: Acquittal Set Aside and Conviction Under Section 138

The Kerala High Court allowed the criminal appeal and set aside the judgment of acquittal passed by the Judicial First Class Magistrate Court, Varkala.

The accused was convicted for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881.

The Court imposed the following sentence:

The compensation of ₹13,50,000 was directed to be paid to the complainant under Section 357(1)(b) of the Code of Criminal Procedure, 1973, and the remaining ₹50,000 was directed to be credited to the State Exchequer as cost.

The accused was directed to appear before the Judicial First Class Magistrate Court, Varkala, at 11.00 a.m. on 31 October 2026 to undergo the sentence imposed by the High Court.

7.Practical Implications for Cheque Dishonour Litigation

The judgment is relevant to both complainants and accused persons involved in proceedings under Section 138 of the NI Act.

A.A time-barred original transaction does not automatically defeat a Section 138 complaint

A drawer cannot necessarily escape prosecution merely by showing that the original financial transaction took place beyond the ordinary limitation period.

Where a cheque is subsequently issued towards repayment of that liability, the legal effect of the cheque must be considered.

 B.Subsequent acknowledgment and revival of liability are relevant

The issuance of a cheque may amount to an acknowledgment or promise to pay the liability, attracting the principles discussed in the judgment in the context of Section 25(3) of the Contract Act.

The cheque and surrounding circumstances must be examined to determine the legal effect of the subsequent promise.

 C.Limitation is not always a threshold issue

The decision, read with Hymavathi K., demonstrates that the question whether the underlying liability is barred by limitation may involve both factual and legal considerations.

Where the issue requires examination of evidence, it should not ordinarily be used as an automatic ground to terminate proceedings at the threshold.

D.Evidence regarding the original transaction and subsequent cheque is important

In cases involving old transactions, the complainant should be prepared to establish:

• The original financial transaction;
• The amount due from the accused;
• The circumstances in which the subsequent cheque was issued;
• The execution and delivery of the cheque;
• Presentation and dishonour of the cheque; and
• Compliance with the statutory demand-notice requirements.

The present judgment demonstrates the importance of evidence concerning both the original transaction and the subsequent issuance of the cheque.

E.Defence based solely on expiry of limitation may not succeed

An accused who relies only on the fact that the original transaction is old may not succeed if the subsequent cheque constitutes a legally relevant acknowledgment or promise to pay.

The defence must therefore be examined in the context of the entire transaction and the applicable statutory provisions.

8.Conclusion

The decision in G. Sanil Kumar v. Sujith reinforces the principle that a cheque issued towards repayment of a time-barred debt is not automatically excluded from the operation of Section 138 of the Negotiable Instruments Act, 1881.

The Kerala High Court, relying on the earlier Division Bench decision in Ramakrishnan v. Parthasaradhy and the Supreme Court decisions in Hymavathi K. v. State of Andhra Pradesh and A.V. Murthy v. B.S. Nagabasavanna, held that the subsequent issuance of a cheque can operate as an acknowledgment and revival of the liability.

The judgment is particularly relevant in cases where the original financial transactions took place several years before the issuance of the cheque. It makes clear that the limitation objection must be examined in the light of the subsequent cheque and the evidence available, rather than treating the age of the original transaction as conclusive.

For practitioners handling cheque dishonour litigation, the decision provides useful guidance on the relationship between limitation, acknowledgment of liability and the requirement of a legally enforceable debt under Section 138 of the NI Act.

Case Reference

Sanil Kumar v. Sujith & Anr., Crl.A. No. 2002 of 2024, judgment dated 8 October 2026, High Court of Kerala, 2026:KER:78185.

Coram: The Honourable Mr. Justice A. Badharudeen.

Relevant statutory provisions:

1. Section 138, Negotiable Instruments Act, 1881.
2. Section 25(3), Indian Contract Act, 1872.
3. Section 357(1)(b), Code of Criminal Procedure, 1973.

Important judicial precedents:

1. Ramakrishnan v. Parthasaradhy, 2003 (2) KLT 613.
2. Mamman S.A. v. C.P. Gopalan Achari and Another, 2011 (3) KHC 806.
3. Kesavan E.K. v. Thomas, 2025 (1) KHC 627.
4. Hymavathi K. v. State of Andhra Pradesh, 2023 (6) KHC 117.
5. A.V. Murthy v. B.S. Nagabasavanna, 2002 KHC 1154.

Disclaimer: This article is intended for general legal information and academic discussion. It is based on the judgment identified above and should not be treated as legal advice or as a substitute for examining the complete judgment and applicable law in a particular case.