High Court
Legal Reasoning
921WP818-24 settlement of NI Act.odtIN THE HIGH COURT OF JUDICATURE OF BOMBAYBENCH AT AURANGABAD921 CRIMINAL WRIT PETITION NO. 818 OF 2024Ms. Varsha W/o Tukaram Joshi,Age: 53 years, Occupation: Household,R/o. Nageshwar Wadi, Ch. Sambhajinagar.Through her Power of Attorney,Mr. Tukaram S/o Devidasrao Joshi,Age: 62 years, Occu: Business,R/o. Nageshwar Wadi, Ch. Sambhajinagar ....PETITIONERVERSUS1.Mr. Sandeep S/o Jugalkishor Karwa,Age: 52 years, Occu; Business,R/o. Plot No.39, “Suraj”, Ahinsanagar,Ch. Sambhajinagar. 2.The State Of Maharashtra ….RESPONDENT….Mr. Shripad S. Kulkarni, Advocate for the PetitionerMr. Aditya N. Sikchi, Advocate for Respondent No.1Mr. S. M. Ganachari, APP for the Respondent No.2-State….CORAM: Y. G. KHOBRAGADE, J.DATE:13.02.2025ORAL JUDGMENT :- 1.Rule. Rule made returnable forthwith. With consent ofboth the parties, heard finally at the stage of admission. 2.By the present Petition, the Petitioners have challengedthe Judgment and order dated 20.12.2022 passed by the learned 1 of 14 (( 2 ))921WP818-24 settlement of NI ActAdditional Sessions Judge, Court No.8 Aurangabad in Criminal RevisionNo. 228 of 2022, thereby affirmed the order dated 21.07.2022 belowExh.76 in SCC No. 4979 of 2015 passed by the learned JMFC CourtNo.11, Aurangabad. 3.The Petitioner is the original accused and Respondent is theoriginal Complainant in SCC No. 4979 of 2015. For the sake of brevity, Iwould like to refer parties to the present Petition in their originalcapacity as “Complainant” and “Accused”. 4.The Complainant filed a Criminal complaint SCC No. 4979of 2015 for the offence punishable under Section 138 of the N.I. Actalleging that, on 06.06.2015, the Accused issued two cheques Nos.031165 and 031166 amount of Rs.1,00,000/- (One lakh) each in hisfavour drawn on Bank of Baroda, Aurangabad for discharging legalliabilities. Accordingly, he deposited both the cheques with his bankerHDFC Bank Padampura Station Road, Aurangabad, however, both thecheques returned unpaid with bank memo dated 16.06.2015 on groundof “Insufficient Fund”. Thereafter, on 25.06.2015, he issued mandatorynotice under Section 138 of the N.I. Act and called upon the accused tocomply said notice within 15 days but the accused did not claim saidnotice. Therefore, he prayed for awarding of punishment u/s 138 ofN.I. Act. Against the Accused. 2 of 14 (( 3 ))921WP818-24 settlement of NI Act5.On 03.08.2015, the learned JMFC passed an order in SCCNo.4979 Of 2015 and issued process against the accused for the offencepunishable under Section 138 of the N.I. Act. 6.Needless to say that, after service of summons, the accusedappeared before the learned JMFC Court No.11, Aurangabad. On03.01.2022, the Complainant and Accused have filed Joint Pursis andprayed for referring the matter before the Mediator for settlement. Onthe same day, the accused also filed Exh.69 an Application with prayerfor referring the matter to the Mediator. The Accused undertook that, heshall pay amount of Rs.4,00,000/-(Four Lakh) towards final settlementto the Complainant before 31.03.2022. The Complainant also agreed toaccept said amount towards final settlement. Therefore, the learnedJMFC passed an order below Exh. 69 observing that, considering natureof the complaint and offence, the matter shall be referred to theMediator as per the willingness of both parties. 7.On 31.03.2022, the accused and the Complainant filedExhibit-73 Joint Pursis and stated that, as per settlement, the accusedagreed to pay Rs.4,00,000/- (Four Lakhs) to the Complainant but onthat day, the accused has only paid Rs.1,00,000/- (One Lakh) throughPhone-Pay and agreed to pay remaining amount by the next date i.e.,20.04.2022. Again, on 20.04.2022, an amount of Rs.1,00,000/- (One 3 of 14 (( 4 ))921WP818-24 settlement of NI ActLakh) was paid to the Complainant through demand draft No. 000260drawn on HDFC Bank. The accused had sought time to pay remainingamount of Rs.2,00,000/-(Two Lakhs) till next date. Thereafter, on05.05.2022, the accused and Complainant filed joint pursis Exhibit-75stating that, he has handed over demand draft dated 04.05.2022 to theamount of Rs.1,58,000/- and D.D. dated 05.05.2022 for amount ofRs.17,000/- and remaining amount of Rs.25,000/- paid in cash, i.e.Total amount of Rs.4,00,000/- (Four Lakhs) paid by the accused to theComplainant. The Complainant put her endorsement about receipt ofcash of Rs.25,000/- at pursis Exhibit-75. Thereafter, the accused filedExhibit-76 an Application for disposal of the Complaint and acquittal onaccount of making payment of settlement of Rs.4,00,000/- (Four Lakhs)to the complainant towards full and final. The Complainant filed sayand resisted said application on ground that, there is delay while makingpayment as per terms of compromise and he has suffered lot and spenthuge time to attend the Court proceeding. 8.On 21.07.2022, the learned JMFC passed an orderconsidering the law laid down in case of Damodar S. Prabhu Vs. SayedBabalal, 2010 (4) AIR Bom R 58 and held that, the accused failed toobey the guidelines laid down in cited case and has not depositedcompounding charges. So also, in pursis nowhere mentioned that, the 4 of 14
Legal Reasoning
(( 5 ))921WP818-24 settlement of NI ActComplainant would withdraw the matter after receiving the amount. 9.Being aggrieved by the said order, the accused filed aCriminal Revision Application No.228 of 2022. On 20.12.2022, thelearned Revisional Court passed the impugned order and dismissed theRevision on the ground that, although the Accused and Complainantsettled the dispute, the accused did not adhere to the terms ofsettlement within time frame.10.The learned counsel for the Respondent/Complainantcanvassed in vehemence that, even after receipt of compensation withcheque amount, unless the Complainant agreed to compound theoffence and to withdraw the Complaint, the Court cannot compel therespondent/accused to compound the offence and to withdraw thecomplaint. 11.In support of these submissions, the learned counsel for theRespondent/Complainant relied on Raj Reddy Kallem Vs. The State ofHaryana and Others MANU/SC/0409/2024 = (2024) 8 SCC 588,wherein the Hon’ble Supreme Court considered the case of Damodar S.Prabhu cited (supra) as well as the case of K. M. Ibrahim Vs. K. P.Mohammed and Another, (2010) 1 SCC 798 and O.P. Dholakia Vs. Stateof Haryana and Another, (2000)1 SCC 762. and held thus: 5 of 14 (( 6 ))921WP818-24 settlement of NI Act“Though compounding requires consent of both parties, even in absence ofsuch consent, the court, in the interests of justice, on being satisfied that thecomplainant has been duly compensated, can in its discretion close the proceedingsand discharge the Accused.In our opinion, Kanchan Mehta (supra) nowhere contemplates that'compounding' can be done without the 'consent of the parties and even the aboveobservation of Kanchan Mehta (supra) giving discretion to the trial court to 'close theproceedings and discharge the Accused', by reading Section 258¹ of Code of CriminalProcedure, has been held to be 'not a good law' by this Court in the subsequent 5judges bench judgment in Expeditious Trial of Cases Under Section 138 of NI Act,1881, In re, MANU/SC/0284/2021: (2021) 16 SCC 1162.All the same, in this particular given case even though the complainant hasbeen duly compensated by the Accused yet the complainant does not agree for thecompounding of the offence, the courts cannot compel the complainant to give'consent' for compounding of the matter. It is also true that mere repayment of theamount cannot mean that the Appellant is absolved from the criminal liabilities UnderSection 138 of the NI Act. But this case has some peculiar facts as well. In the presentcase, the Appellant has already been in jail for more than 1 year before being releasedon bail and has also compensated the complainant. Further, in compliance of theorder dated 08.08.2023, the Appellant has deposited an additional amount of Rs. 10lacs. There is no purpose now to keep the proceedings pending in appeal before thelower appellate court. Here, we would like to point out that quashing of a case isdifferent from compounding. This Court in JIK Industries Ltd? (Supra) distinguishedthe quashing of case from compounding in the following words:Quashing of a case is different from compounding. In quashing the courtapplies it but in compounding it is primarily based on consent of the injured party.Therefore, the two cannot be equated.In our opinion, if we allow the continuance of criminal appeals pendingbefore Additional Sessions Judge against the Appellant's conviction then it woulddefeat all the efforts of this Court in the last year where this Court had monitored thismatter and ensured that the complainant gets her money back.”12.The learned counsel for the Respondent further relied oncase of A. S. Pharma Pvt. Ltd. Vs. Nayati Medical Pvt. Ltd. And Others 6 of 14 (( 7 ))921WP818-24 settlement of NI ActMANU/SC/0957/2024 = 2024 (3) Crimes 335(SC), wherein theHon’ble Apex Court observed in Paragraph No.18 as under:“18. In the context of the issues involved another aspect of the matter also requiresconsideration. The decision in Raj Reddy Kallem's case (supra), also stands on asimilar footing inasmuch as the complainant therein was duly compensated by theAccused but the complainant did not agree for compounding the offence. Afterobserving that, Courts could not compel the complainant to give consent forcompounding the offence Under Section 138, N.I. Act, this Court in Raj ReddyKallem's case (supra) took note of the peculiar factual situation obtained and invokedthe power Under Section 142 of the Constitution of India to quash the proceedingpending against the Appellant-Accused Under Section 138, N.I. Act. True that in RajReddy Kallem's case it was despite the non- consent of the complainant-Respondentthat the proceedings were quashed against the Appellant therein, interalia, takingnote of the fact that the Accused therein had compensated the complainant andfurthermore deposited the additional amount, as has been ordered by this Court. Wehave no doubt in holding that merely because taking into account such aspects andcircumstances this Court 'quashed' the proceedings by invocation of the power UnderArticle 142 of the Constitution of India, cannot be a reason for 'compounding' anoffence Under Section 138, N.I. Act, invoking the power Under Section 482, Code ofCriminal Procedure and the power Under Section 147, .. Act, in the absence ofΝΙconsent of the complainant concerned in view of the decision referred hereinbefore.In this context, this is to be noted that the fact that this Court quashed theproceedings Under Section 138, N.I. Act, Invoking the power Under Article 142 of theConstitution of India can be no reason at all for High Courts to pass an order quashingproceeding Under Section 138, N.I. Act, on the similar lines as the power UnderArticle 142 of the Constitution of India is available only to the Supreme Court ofIndia.”13.He further relied on case of Rajneesh Aggarwal Vs. Amit J.Bhalla MANU/SC/1462/2001 = AIR 2001 SC 518, wherein the Hon’bleSupreme Court considered the questions and held that:7. Having regard to the contentions raised by the counsel for the parties, twoquestions really arise for our consideration: 7 of 14 (( 8 ))921WP818-24 settlement of NI Act(1) Was the High Court justified in coming to the conclusion that the drawer hasnot been duly served with notice for payment?(2) Whether deposit of the entire amount covered by three cheques, while thematter is pending in this Court, would make any difference?8. So far as the first question is concerned, it is no doubt true that all the threerequirements under clauses (a), (b) and (c) must be complied with before the offenceunder Section 138 of the Negotiable Instruments Act, can be said to have beencommitted and Section 141 indicates as to who would be the persons, liable in theevent the offence is committed by a company. The High Court itself on facts, hasrecorded the findings that conditions (a) and (b) under Section 138 having been dulycomplied with and, therefore, the only question is whether the conclusion of the HighCourt that condition (c) has not been complied with, can be said to be in accordancewith law. Mere dishonour of a cheque would not raise to a cause of action unless thepayee makes a demand in writing to the drawer of the cheque for the payment andthe drawer fails to make the payment of the said amount of money to the payee. Thecheques had been issued by M/s Bhalla Techtran Industries Limited, through itsDirector Shri Amit Bhalla. The appellant had issued notice to said Shri Amit J. Bhalla,Director of M/s Bhalla Techtran Industries Limited. Notwithstanding the service of thenotice, the amount in question was not paid. The object of issuing notice indicatingthe factum of dishonour of the cheques is to give an opportunity to the drawer tomake payment within 15 days, so that it will not be necessary for the payee toproceed against in any criminal action, even though the bank dishonoured thecheques. It is Amit Bhalla, who had signed the cheques as the Director of M/s BhallaTechtran Industries Ltd. When the notice was issued to said Shri Amit Bhalla, Directorof M/s Bhalla Techtran Industries Ltd., It was incumbent upon Shri Bhalla to see thatthe payments are made within the stipulated period of 15 days. It is not disputed thatShri Bhalla has not signed the cheques, nor is it disputed that Shri Bhalla was not theDirector of the company. Bearing in mind the object of issuance of such notice, it mustbe held that the notices cannot be construed in a narrow technical way withoutexamining the substance of the matter. We really fail to understand as to why thejudgment of this court in Bilakchand Gyanchand Co., MANU/SC/0201/1999:1999CriLJ3498: will have no application. In that case also criminal proceedings hadbeen initiated against A Chinnaswami, who was the Managing Director of thecompany and the cheques in question had been signed by him. In the aforesaidpremises, we have no hesitation to come to the conclusion that the High Courtcommitted error in recording a finding that there was no notice to the drawer of the 8 of 14 (( 9 ))921WP818-24 settlement of NI Actcheque, as required under Section 138 of the Negotiable Instruments Act. In ouropinion, after the cheques were dishonoured by the bank the payee had served duenotice and yet there was failure on the part of the accused to pay the money, who hadsigned the cheques, as the Director of the company. The impugned order of the HighCourt, therefore, is liable to be quashed.9. So far as the question of deposit of the money during the pendency of theseappeals is concerned, we may state that in course of hearing the parties wanted tosettle the matter in Court and it is in that connection, to prove the bona fide, therespondent deposited the amount covered under all the three cheques in the Court,but the complainant's counsel insisted that if there is going to be a settlement, then allthe pending cases between the parties should be settled, which was, however notagreed to by the respondent and, therefore, the matter could not be settled. So far asthe criminal complaint is concerned, once the offence is committed, any paymentmade subsequent thereto will not absolve the accused of the liability of criminaloffence, though in the matter of awarding of sentence, it may have some effect on theCourt trying the offence. But by no stretch of imagination, a criminal proceedingcould be quashed on account of deposit of money in the Court or that an order ofquashing of criminal proceeding, which is otherwise unsustainable in law, could besustained because of the deposit of money in this Court. In this view of the matter, theso-called deposit of money by the respondent in this Court is of no consequence.”14.Needless to say that, in case of Damodar S. Prabhu cited(supra), the Hon’ble Supreme Court held that, the offence punishableunder Section 138 of N.I Act is compoundable at any stage of the mattereven before the Supreme Court, however, while compounding orcompromise of the offence under Section 138 following guidelines havebeen laid down which reads as follows:THE GUIDELINES(I) the circumstances, it is proposed as follows(a) That directions can be given that the Writ of Summons be suitably modifiedmaking it clear to (a) Thaised that he could make an application for compounding of 9 of 14 (( 10 ))921WP818-24 settlement of NI Actthe offences at the first of second hearing of the case and that if such an application ismade, compounding may be allowed by the court without imposing any costs on theaccused.(b) If the accused does not make an application for compounding as aforesaid, then ifan application for compounding is made before the Magistrate at a subsequent stage,compounding can be allowed subject to the condition that the accused will berequired to pay 10% of the cheque amount to be deposited as a condition forcompounding with the Legal Services Authority, or such authority as the Court deemsfit(c) Similarly, if the application for compounding is made before the Sessions Court ora High Court in revision or appeal, such compounding may be allowed on thecondition that the accused pays 15% of the cheque amount by way of costs(d) Finally, if the application for compounding is made before the Supreme Court, thefigure would increase to 20% of the cheque amountLet it also be clarified that any costs imposed in accordance with theseguidelines should be deposited with the Legal Services Authority operating at the levelof the Court before which compounding takes place For instance, in case ofcompounding during the pendency of proceedings before a Magistrate's Court or aCourt of Sessions, such costs should be deposited with the District Legal ServicesAuthority. Likewise, costs imposed in connection with composition before the HighCourt should be deposited with the State Legal Services Authority and those imposedin connection with composition before the Supreme Court should be deposited withthe National Legal Services Authority. In paragraph No.17, the Hon’ble Supreme Court held that, eventhough the imposition of costs by the Competent Court is a matter ofdiscretion, the scale of costs has been suggested in the interest ofuniformity. The Competent Court may, of course, reduce the costs inlight of the specific facts and circumstances of a case, while recordingreasons in writing for such variance. Bona-fide litigants should of coursecontest the proceedings to their logical end. 10 of 14 (( 11 ))921WP818-24 settlement of NI Act15.In M/s New Win Export & Anr. -Vs- A. Subramaniam,[2024] 7 S.C.R. 1225 : 2024 INSC 535, the Hon’ble Supreme Courtconsidered the issue, whether the conviction under Section 138 of theNegotiable Instruments Act, 1881 can be quashed because of the partieshave settled the dispute among themselves by entering into a settlementagreement. In this circumstance it is held that, the Appellants andRespondent-Complainant have entered into a settlement agreementdated 27.01.2024, therefore it is clear that, the parties have settled thedispute among themselves as per the agreement and the appellants havepaid Rs.5,25,000 to the Respondent-Complainant, who had agreed tosettle the dispute and paid the said amount. The complainant does nothave any objection if the conviction of the appellants is set aside. Thesettlement agreement can be treated to be compounding of the offence,when the accused and complainant have reached a settlementpermissible by law.16.In case-in-hand, it prima facie appears that, theComplainant filed a Criminal complaint SCC No. 4979 of 2015 underSection 138 of the N.I. Act on ground of dishonoured of two chequesNos. 031165 and 031166 amount of Rs.1,00,000/- (One lakh) eachdated 06.06.2015. After service of summons, the Petitioner/Accusedappeared before the learned Judicial Magistrate. It is not in dispute 11 of 14 (( 12 ))921WP818-24 settlement of NI Actthat, on 31.03.2022, the accused and Complainant filed Exhibit-73 JointPursis and agreed to settle the dispute. It is a matter of record that, asper the settlement, the Petitioner / accused agreed to pay Rs.4,00,000/-(Four Lakhs) to the Complainant and paid Rs.1,00,000/- (One Lakh)through Phone-Pay and agreed to pay remaining amount by the nextdate i.e., 20.04.2022. Accordingly, on 20.04.2022, the Petitioner/accused paid Rs.1,00,000/- (One Lakh) to the Respondent /Complainant through demand draft No. 000260 drawn on HDFC Bank.No doubt, the petitioner/accused had sought time to pay remainingamount of Rs.2,00,000/-(Two Lakhs) till next date and the Respondent/complainant had consented for extension of further period. Thereafter,on 05.05.2022, the accused and Complainant filed joint pursis Exhibit-75 stating therein about handed over demand draft dated 04.05.2022for Rs.1,58,000/- and D.D. dated 05.05.2022 for Rs.17,000/- andremaining amount of Rs.25,000/- paid in cash, i.e. Total amount ofRs.4,00,000/- (Four Lakhs). The Complainant put her endorsement atPursis Exhibit-75 and acknowledged receipt of cash of Rs.25,000/-.Thereafter, the accused filed Exhibit-76 an Application for disposal of theComplaint and acquittal on account of making payment of settlement ofRs.4,00,000/- (Four Lakhs) to the complainant towards full and final.The Respondent/complainant has not disputed about settlement amountof Rs.4,00,000/- (Four lakhs) in lieu of dishonoured of two cheques of 12 of 14 (( 13 ))921WP818-24 settlement of NI ActRs. 1 lac each as per Joint Pursis Exhibit-73. 17.No doubt, as per Pursis Exhibit-73, the accused failed to payRs.4,00,000/- on or before 31.03.2022 but said period was extendedtime to time with consent of the Respondent/Complainant. Ultimately,on 05.05.2022, the petitioner/accused paid entire amount to theRespondent/Complainant. Needless to say that, the petitioner has notfiled specific application for compounding of offence u/s 138 of NI Actas provided under Sec. 320 of Cr.P.C. read with Section 147 of N.I. Actbut as per the law laid down in M/s New Win Export & Anr., cited(supra), the settlement agreement can be treated to be compounding ofthe offence, when the accused and complainant have reached asettlement permissible by law. Since, the Petitioner/accused alreadypaid amount of Rs. 4,00,000/- (Four Lakhs) i.e., double to the chequeamount, therefore, continuation of the Criminal Proceeding as againstthe Petitioner/accused would certainly amounts to abuse of process oflaw and no cause of action survives. Since, the Petitioner Accusedcompounded the offence prior to framing of the charge, therefore, asguidelines laid down in case of Damodar S. Prabhu, cited supra, thePetitioner accused is permitted to deposit 10% of both the chequesamount i.e., Rs.20,000/- towards compounding charges with the DistrictLegal Services Authority, Aurangabad on or before 07.03.2025. 13 of 14 (( 14 ))921WP818-24 settlement of NI Act18.In view of the above discussion I am of the view that, theimpugned order dated 20.12.2022 passed by the learned RevisionalCourt arising out of order dated 21.07.2022 passed by the learned JMFCBelow Exhibit-76 in S.C.C. No.4979 of 2015 is hereby quashed and setaside. Resultantly, the complaint bearing S.C.C. No.4979 of 2015pending on the file of learned JMFC, Aurangabad is hereby quashed andset aside. Accordingly, Rule is made absolute in above terms. No order asto costs. [ Y. G. KHOBRAGADE, J. ] HRJadhav 14 of 14