A landmark ruling by the Madhya Pradesh High Court has clarified that payment by cheque, when deposited in court pursuant to a compromise decree, constitutes a valid legal tender unless the decree explicitly mandates cash payment. This decision reinforces the principle that modern banking instruments are legally recognized modes of discharge, and refusal by a decree holder to accept such payment cannot be used to revive execution proceedings.
Background & Facts
The Dispute
The dispute arose from a compromise decree dated 20.07.2021, entered into between Parth Credit and Capital Market Pvt. Ltd. (petitioner/judgment debtor) and Ideal Electronics Pvt. Ltd. (respondent/decree holder). The parties settled two pending civil suits concerning a land sale agreement and money recovery, agreeing that the petitioner would pay Rs. 5,32,38,000/- within one year. The decree did not specify the mode of payment, nor did it provide for interest. Crucially, it stated that if the amount was not paid within one year, the respondent could seek execution of a sale deed for the unpaid proportion of land.
Procedural History
- 20.07.2021: Compromise decree passed by IV District Judge, Indore, in Civil Suit No. 69A/2016.
- 18.07.2022: Petitioner deposited two cheques of Rs. 5,32,38,000/- each - one in the name of the Court and one in the name of the respondent - within the stipulated one-year period.
- 25.07.2022: Court informed petitioner that respondent refused to accept the cheques within 90 days.
- 04.10.2023: Respondent, in response to petitioner’s application, admitted receipt of the cheques but demanded interest at 12% per annum and insisted on payment via Demand Draft.
- 12.04.2025: Executing Court rejected petitioner’s application under Order XXI Rule 2 CPC, holding that cheque payment was not valid tender.
- 27.01.2026: Petitioner filed this writ petition under Article 227 of the Constitution.
Relief Sought
The petitioner sought quashing of the executing court’s order and a declaration that the cheque deposit constituted valid satisfaction of the compromise decree. Alternatively, the petitioner offered to re-deposit the amount via Demand Draft with interest from the date of cheque tender.
The Legal Issue
The central question was whether depositing a cheque in court, within the time stipulated by a compromise decree, constitutes a valid tender of payment under Order XXI Rule 1 of the Code of Civil Procedure, when the decree does not specify cash as the mandatory mode of payment.
Arguments Presented
For the Petitioner
Counsel relied on three landmark Supreme Court judgments: K. Saraswathy v. Somasundaram Chettiar (AIR 1989 SC 1553), Commissioner of Income Tax v. Ogale Glass Works (AIR 1954 SC 429), and Damadilal v. Parashram (AIR 1976 SC 2229). It was argued that:
- Payment by cheque is an ordinary commercial practice.
- Unless cash is expressly required, a cheque that is not dishonoured operates as payment from the date of its delivery.
- The compromise decree imposed no restriction on mode of payment.
- The respondent’s refusal to encash the cheque after receiving notice cannot invalidate a lawful tender.
- Order XXI Rule 1 CPC permits deposit of decretal amounts in court, and cheques are valid instruments for such deposit.
For the Respondent
Counsel contended that:
- The compromise decree contemplated payment in three installments over four-month intervals, implying direct payment to the decree holder.
- Payment by cheque was not intended, and the respondent’s refusal to accept it was justified.
- The petitioner’s earlier application under Order XXI Rule 2 CPC had been rejected in 2023, and this petition was barred by res judicata.
- The petitioner’s failure to pay in cash or Demand Draft amounted to non-compliance.
- Interest was implied due to delay, and the petitioner’s willingness to pay interest was an admission of default.
The Court's Analysis
The Court undertook a meticulous review of the compromise decree and binding precedents. It emphasized that the decree contained no express condition requiring cash payment, nor did it prescribe installments or interest. The only operative condition was timely payment of the total sum within one year.
"Payment by cheque is an ordinary incident of present-day life, whether commercial or private, and unless it is specifically mentioned that payment must be in cash there is no reason why payment by cheque should not be taken to be due payment if the cheque is subsequently encashed in the ordinary course."
The Court held that the Supreme Court’s rulings in K. Saraswathy, Ogale Glass Works, and Damadilal collectively establish that:
- A cheque is a conditional payment, but upon encashment, the payment relates back to the date of delivery.
- The creditor’s acceptance of the cheque, even passively, constitutes implied consent to its use as a mode of payment.
- Refusal to accept or encash a cheque after being duly notified does not nullify the tender; it is the creditor’s own fault.
The Court rejected the respondent’s reliance on Satyadhyan Ghosal and other cases, distinguishing them on factual grounds. It found no adjudication on the specific issue of cheque tender in the 20.02.2023 order, thereby dismissing the res judicata plea.
The executing court’s error lay in treating cheque payment as invalid without statutory or contractual basis, and in imposing conditions - interest and Demand Draft - unilaterally. Execution proceedings cannot introduce new terms not agreed upon in the decree.
The Verdict
The petitioner won. The Court held that payment by cheque constitutes a valid tender under Order XXI Rule 1 CPC when the compromise decree does not mandate cash payment, and the cheque is not dishonoured. The executing court’s order was quashed, and the petitioner was directed to re-deposit the decretal amount via new cheque with 12% simple interest from 18.07.2022 within 30 days.
What This Means For Similar Cases
Cheque Tender Is Presumptively Valid
- Practitioners may now rely on cheque deposits in court as conclusive proof of compliance with time-bound monetary obligations in compromise decrees.
- Where no mode is specified, courts must presume cheque payment as valid unless the decree explicitly requires cash.
- Refusal by a decree holder to encash a cheque after notice cannot be used to allege default.
Interest Cannot Be Implied in Absence of Agreement
- Demands for interest not stipulated in the decree are impermissible in execution.
- Any claim for interest must be raised and adjudicated in the original suit, not introduced during execution.
- Petitioners may now challenge execution orders that impose interest as an unauthorized condition.
Res Judicata Requires Final Adjudication on the Same Issue
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A prior order rejecting an unrelated application does not bar a subsequent application on a distinct legal issue.
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For res judicata to apply, the earlier order must have finally decided the precise question now raised.
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Practitioners must carefully examine the scope of prior orders before pleading res judicata.
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Actionable Takeaway: In compromise settlements, always specify the mode of payment. If not specified, assume cheque is valid.
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Actionable Takeaway: If a decree holder refuses a cheque, document the refusal and immediately deposit the amount again via Demand Draft to preserve rights.
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Actionable Takeaway: In execution proceedings, challenge any unilateral addition of terms (like interest) as beyond the scope of execution under Section 47 CPC.
