Section 25(3) Contract Act Inapplicable Without Proving Due Execution; Firm Cheque Signed Solely By Retired Partner Cannot Revive Time-Barred Debt: Kerala High Court

"Having found that the plaintiff has failed to prove the execution and issuance of Ext.A1 by the defendant, the question of applicability of Section 25(3) of the Contract Act does not arise. As a necessary corollary, the suit is bound to fail." Kerala High Court has ruled that a cheque cannot be treated as a valid agreement to revive a time-barred debt under Section 25(3) of the Indian Contract Act, 1872, where the plaintiff fails to establish its due execution and issuance.

A Division Bench comprising Justice Sathish Ninan and Justice P. Krishna Kumar held on Tuesday that when a suit is founded not upon an original loan transaction or a dishonoured instrument but strictly on the premise of a fresh promise to pay a barred liability, establishing the authentic execution of the document is a mandatory condition precedent.

The plaintiff instituted a money suit claiming that he had lent ₹55 lakhs to the defendant between 2010 and 2011, towards the repayment of which the defendant subsequently issued a cheque dated December 20, 2014, drawn on the account of a partnership firm. The defendant resisted the suit by contending that he had already retired from the firm in 2013 and that a pre-signed blank cheque leaf of the firm, which required two joint signatories to be operational, had been fabricated. Although the trial court decreed the suit, the defendant appealed before the High Court.

Whether the plaintiff succeeded in proving the due execution and issuance of the cheque by the defendant.

Whether an instrument requiring mandatory joint signatures but executed by only one signatory can be recognised as a valid cheque issued in discharge of liability.

Whether the cheque can be construed as an enforceable agreement under Section 25(3) of the Indian Contract Act to save the claim from limitation.

Whether the suit claim was hopelessly barred by limitation in the absence of a valid agreement under Section 25(3) of the Indian Contract Act.

The Bench observed that the alleged loan transaction was admittedly between 2010 and 2011, while the suit was filed only on March 28, 2015. Under normal circumstances of limitation law, the claim was indisputably barred by time unless saved by the purported cheque dated December 20, 2014.

The plaintiff bore an unfulfilled burden to explain how he accepted a firm's cheque from an individual who had already retired

The Court noted that the plaintiff, defendant, and others were partners in a textile business where the defendant and another partner served as joint Managing Partners authorised to jointly operate the firm's bank account. While scrutinising the instrument, the Court detected that the cheque was signed by the defendant alone without the second mandatory signatory, and the ink used for the defendant's signature materially differed from the ink used for writing the payee's name, date, and amount.

The Bench highlighted the critical admission made by the plaintiff during cross-examination, wherein he conceded that the defendant had retired from the partnership firm back in 2013 and was not a partner on the date borne on the cheque. The Court underscored that this admission negated the need to inspect the formal retirement deed.

Failure to identify the author of the handwriting on the cheque supported the plea of misuse of a pre-signed instrument

Evaluating the evidential infirmities, the Court observed that when the plaintiff was cross-examined on who filled up the contents of the cheque, he initially pleaded ignorance before speculating that it might be the defendant's handwriting. The Bench highlighted that the plaintiff offered no plausible explanation as to why he accepted a firm's cheque signed solely by a retired partner for an alleged personal liability.

The Bench observed that all circumstances indicated that a blank signed cheque of the firm, signed prior to the defendant's retirement, had been misused. Consequently, the High Court held that the plaintiff completely failed to prove the due execution and issuance of the cheque.

A suit not founded on a dishonoured negotiable instrument cannot invoke Section 25(3) if the foundational execution remains unproved

Addressing the statutory foundation under the Indian Contract Act, the Court observed that under Section 25(3), an agreement to pay a time-barred debt is valid and gives rise to a fresh cause of action. While the issuance of a cheque for a time-barred debt generally falls within the scope of Section 25(3), such an inference is legally impossible where execution itself is disproved.

The Bench observed that the suit was neither filed on the dishonoured cheque nor on the original cause of action, which was ex-facie time-barred. Since the foundational fact of execution and issuance by the defendant collapsed, the question of whether the instrument satisfied the ingredients of a promise under Section 25(3) did not survive for adjudication.

The High Court allowed the Regular First Appeal, set aside the judgment and decree passed by the Sub Court, Tirur, and dismissed the suit for recovery of money with costs.

Date of Decision: October 27, 2026