In a recent judgement, the Delhi High Court held that for the purpose of Article 35 of the Limitation Act, 1963 the cause of action arises not on the date mentioned in the cheque but on the date of dishonour of the cheque.
The above ruling was delivered by the Delhi High Court in the matter of Ajanta Raj Proteins Pvt Ltd. Vs. Himanshu Foods Pvt. Ltd, RFA 2/2016, decided on 31st January, 2018. In the said case, one of the issues was of limitation in filing an Order XXXVII suit based upon a dishonoured cheque.
In the facts of the case, a cheque was issued for payment by the Defendant to the Plaintiff dated 21st November, 2010. In view of certain supplies which were made and payments which were outstanding, the Plaintiff deposited the said cheque through its Banker. The same was dishonoured and received back by the Plaintiff with a cheque return memo dated 10th May, 2011 with the remarks ‘Insufficient funds’. The suit has been instituted on 8th June, 2014
It was the defence of the Defendant that the suit was beyond limitation as the period of limitation under Article 35 of the Limitation Act, 1963 has to be construed from the date of the cheque and not from the date when the cheque is dishonoured.
It was held by the Delhi High Court that in the case of Order XXXVII of the CPC, a suit which is based on monetary instruments for recovery of amounts that are due and payable, the Court would have to see as to when the cause of action for filing of the suit arose. In a case where there were a series of transactions between the parties and some amount remained outstanding, the giving of the cheque, which was given as a security, would not by itself construe the cause of action. It is only when the payment is not made and the person in whose favour, the cheque has been issued, seeks to encash the cheque and it is thereafter dishonoured, that the right to sue itself arises. Until and unless the cheque is dishonoured, the Plaintiff cannot maintain a suit under Order XXXVII of the CPC in case of a cheque. There could be a situation where a cheque which has been issued as security for a future payment would be presented only when amounts become due and payable in future. Therefore, the cause of action was held to have arisen only when the cheque was dishonoured and hence the suit was held to be within limitation.