Indian Contract Act II Enforceable Liability Can Be Distributed After ‘Communication’ Regarding Termination Of Contract Is Done: Sikkim High Court

Sikkim High Court

SIKKIM: In the case of Prahlad Sharma versus Dipika Sharma and Another, the Sikkim High Court held that the Petitioner could not cover up the dishonor of cheques issued by it in favor of the Respondent, merely because the Respondent had issued a communication for termination of the contract. It was noted that on the date when the cheques were dishonored, the communication regarding termination was not received by the Petitioner by the Respondent.

The Bench headed by Justice Meenakshi Madan Rai passed the Order. In referring to S4 of the Indian Contract Act, the Court Observed –

Undoubtedly, the (Termination) Notice Exhibit 1 is dated 25-01-2018, Exhibit 11 stands testimony to the fact that it was booked in the post on 01- 02-2018 and received by the Petitioner only on 08-02-2018. It emerges that there was no termination of Contract when the cheques, Exhibits 1 and 2 were presented by the R1 on 30-01- 2018 before the Bank and came to be dishonored.

Sikkim High Court agrees with the Sessions Court and supports the conviction order of the Magistrate Court, that communication of revocation can be done only against the person who makes it, when it is put into a course of transmission, so as to be out of his power. Hence, the communication of termination, in this case, was not complete (qua the Petitioner) when the cheques bounced.

It will be seen that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made but a different rule is made about acceptance. Communication of an acceptance is complete in two ways – (1) against the proposer when it is put in the course of transmission so as to be out of the power of the acceptor; (2) as against the acceptor when it comes to the knowledge of the proposer.

The Petitioner furnished two cheques with the Respondent as consideration for the purchase of a flat and the Cheque was dishonored on account of “insufficient funds”. Later the Petitioner claimed that he had deliberately stopped the payment in light of the termination of the contract.

During the Proceedings, the Court observed that the communication regarding the termination of the contract was received by the Petitioner on February 8, 2018, whereas the cheques were dishonored on January 30, 2018.

The Court further observed that the ground taken by the Petitioner that he had stopped payment is untenable as the Bank has clearly stated in its notes that the cheques were returned on account of insufficient funds in the Account.

If the negotiable instrument happens to be a cheque, Section 139 raises a further presumption that the holder of the cheque received the cheque in discharge in whole or in part of any debt or other liability,” Court noted.

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