Negotiable Instruments Act, 1881 – ss. 138, 139 – Parallel prosecutions arising from a single transaction u/s.138 – Impermissibility of – Dishonour of cheques – First set of complaints filed – Compromise – First complaint pending, cheques issued pursuant to the compromise deed also dishonoured – Second complaint filed – Both the complaints if can be pursued simultaneously – Held: No – A settlement agreement effaces the original complaint – Non-compliance of the terms of the settlement agreement or dishonour of cheques issued subsequent to it gives rise to a fresh cause of action – Allowing prosecution under both sets of complaints would be contrary to the purpose of the enactment – First complaint quashed – Further, Single Judge erred in quashing the criminal complaint on a priori reasoning that the second set of cheques issued in pursuance of the compromise deed were not in discharge of a liability – Mere fact that a suit was instituted challenging the compromise deed would not justify exercising jurisdiction u/s.482 – It would continue to be valid until a decree of the appropriate court setting it aside is passed – High Court failed to notice the import of the presumption u/s.139 which can only be displaced on the basis of evidence adduced at the trial – Judgment of the Single Judge quashing the second complaint is set aside – Code of Criminal Procedure, 1973 – s.482 – Penal Code, 1860 – ss. 409, 506(1).
Negotiable Instruments Act, 1881:
s.138 – Ingredients of – Discussed.
s.138 – Purpose of – Held: Primary purpose of s.138 is to ensure compensation to the complainant – The Act also allows for parties to enter into a compromise, both during the pendency of the complaint and even after the conviction of the accused. s.138 – Nature of offence under – Held: It is quasi-criminal, while it arises out of a civil wrong, the law however, imposes a criminal penalty in the form of imprisonment or fine.
s.139 – Presumption under – Burden of proof – Discussed. Partly allowing the appeals, the Court
HELD: 1.1 Parallel Prosecutions
The nature of the offence under Section 138 of the NI Act is quasi-criminal in that, while it arises out of a civil wrong, the law, however, imposes a criminal penalty in the form of imprisonment or fine. The purpose of the enactment is to provide security to creditors and instil confidence in the banking system of the country. Given that the primary purpose of Section 138 of the NI Act is to ensure compensation to the complainant, the NI Act also allows for parties to enter into a compromise, both during the pendency of the complaint and even after the conviction of the accused. [Paras 27, 28][450-D-E; 451-B]
1.2 Allowing prosecution under both sets of complaints would be contrary to the purpose of the enactment. It is the compensatory aspect of the remedy that should be given priority as opposed to the punitive aspect. The complainant in such cases is primarily concerned with the recovery of money, the conviction of the accused serves little purpose. In fact, the threat of jail acts as a stick to ensure payment of money. A complainant enters into a settlement with open eyes and undertakes the risk of the accused failing to honour the cheques issued pursuant to the settlement, based on certain benefits that the settlement agreement postulates. Once parties have voluntarily entered into such an agreement and agree to abide by the consequences of non-compliance of the settlement agreement, they cannot be allowed to reverse the effects of the agreement by pursuing both the original complaint and the subsequent complaint arising from such non-compliance. The settlement agreement subsumes the original complaint. Non-compliance of the terms of the settlement agreement or dishonour of cheques issued subsequent to it, would then give rise to a fresh cause of action attracting liability under Section 138 of the NI Act and other remedies under civil law and criminal law. A contrary interpretation, which allows for the complainant to pursue both the original complaint and the consequences arising out of the settlement agreement, would lead to contradictory results. First, it would allow for the accused to be prosecuted and undergo trial for two different complaints, which in its essence arise out of one underlying legal liability. Second, the accused would then face criminal liability for not just the violation of the original agreement of the transaction which had resulted in issuance of the first set of cheques, but also the cheques issued pursuant to the compromise deed. Third, instead of reducing litigation and ensuring faster recovery of money, it would increase the burden of the criminal justice system where judicial time is being spent on adjudicating an offence which is essentially in the nature of a civil wrong affecting private parties. Most importantly, allowing the complainant to pursue parallel proceedings, one resulting from the original complaint and the second emanating from the terms of the settlement would make the settlement and issuance of fresh cheques or any other partial payment made towards the original liability meaningless. Such an interpretation would discourage settlement of matters since they do not have any effect on the status quo, and in fact increase the protracted litigation before the court. Thus, a complainant cannot pursue two parallel prosecutions for the same underlying transaction. Once a settlement agreement has been entered into by the parties, the proceedings in the original complaint cannot be sustained and a fresh cause of action accrues to the complainant under the terms of the settlement deed. Once the compromise deed dated 12 March 2013 was agreed, the original complaint must be quashed and parties must proceed with the remedies available in law under the settlement agreement. [Paras 37-40, 45][456-H; 457-A, H; 458-A-H; 462-D-E]
Re: Expeditious Trial of Cases under Section 138 of the NI Act 1881 Decision of Supreme Court dtd.16th April 2021 in Suo Motu Writ Petition (Crl.) No. 2 of 2020 – followed.
Lalit Kumar Sharma v. State of Uttar Pradesh (2008) 5 SCC 638 : [2008] 7 SCR 797 – held inapplicable. Arun Kumar v. Anita Mishra (2020) 16 SCC 118 – referred to.
2.1 Liability arising from the settlement agreement Once a settlement agreement has been entered into between the parties, the parties are bound by the terms of the agreement and any violation of the same may result in consequential action in civil and criminal law. In the present case, the first set of cheques which were issued allegedly towards discharge of the liability under the HSSA were dishonoured. A deed of compromise was entered into thereafter on 12 March 2013. The deed of compromise was partially implemented by the payment of an amount of Rs. 3 crores by demand draft to the complainant. Upon the receipt of an amount of Rs. 3 crores, Gimpex Private Limited was to grant its no objection to the plea of bail of ‘MG’. ‘MG’ undertook to pay the balance of Rs. 7 crores within three months in instalments. The second set of cheques issued pursuant to the deed of compromise were also dishonoured. [Paras 46, 47][462-E-H]
2.2 Once the ingredients of Section 138 of the NI Act are fulfilled, the statute clearly stipulates that “such person shall be deemed to have committed an offence”. Thus, once the ingredients of Section 138 are fulfilled, a distinct offence arises in respect of the dishonour of the cheques in question. There was no basis for the Single Judge to conclude, particularly in the course of the hearing of a petition under Section 482 of the CrPC that the second set of cheques issued in pursuance of the deed of compromise cannot be construed as being towards the discharge of a liability. The question as to whether the liability exists or not is clearly a matter of trial. There was a serious error on the part of the Single Judge in allowing the petition under Section 482 to quash the prosecution on the basis that the deed of compromise would not constitute a legally enforceable liability. The mere fact that a suit is pending before the High Court challenging the validity of the compromise deed would furnish no cogent basis to quash the proceedings under Section 138. A settlement agreement effaces the original complaint and thus, it is not up to the parties, either complainant or accused, to simply reverse the effects of that agreement and relitigate the original complaint relating to the same underlying transaction under Section 138 of the NI Act. The breach of the deed of compromise has arisen due to the dishonour of the cheques which were issued by the accused towards discharge of the remaining balance of Rs. 7 crores. In this backdrop, it was farfetched for the High Court to have quashed the proceedings in exercise of its jurisdiction under Section 482. Section 139 of the NI Act raises the presumption, unless the contrary is proved that the holder of a cheque receives the cheque of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability. Section
139 raises the presumption “unless the contrary is proved”. Once the complainant discharges the burden of proving that the instrument was executed by the accused; the presumption under Section 139 shifts the burden on the accused. The expression “unless the contrary is proved” would demonstrate that it is only for the accused at the trial to adduce evidence of such facts or circumstances on the basis of which the burden would stand discharged. These are matters of evidence and trial. The determination of whether a cheque pursuant to a settlement agreement arises out of a legal liability would be dependent on various factors, such as the underlying settlement agreement, the nature of the original transaction and whether an adjudication on the finding of liability was arrived at in the original complaint, the defence raised by the accused, etc. The Single Judge was in error in proceeding to quash the criminal complaint on a priori reasoning that the second set of cheques issued in pursuance of the deed of compromise were not in discharge of a liability and on that basis proceeding to quash the proceedings under Section
482 CrPC. The mere fact that a suit has been instituted before the High Court challenging the deed of compromise would furnish no justification for exercising the jurisdiction under Section 482. The deed of compromise would continue to be valid until a decree of the appropriate court setting it aside is passed. The High Court failed to notice the true meaning and import of the presumption under Section 139 which can only be displaced on the basis of evidence adduced at the trial. The judgment of the Single Judge quashing the complaint CC No. 389/2017 is set aside. The complaint CC Nos.3326-3329 of 2012 and CC Nos.99-101 of 2013 is quashed. [Paras 48, 50, 51, 53 and 55][463-C-F; 464-B-C; 465-A-B; 466-D-H; 467-A, D-E]
K Bhaskaran v. Sankaran Vaidhyan Balan (1999) 7 SCC 510:[1999] 3 Suppl. SCR 271; P Mohanraj and Others v. Shah Brothers Ispat Private Limited (2021) 6 SCC 258; Meters and Instruments (P) Ltd. v. Kanchan Mehta (2018) 1 SCC 560 : [2017] 10 SCR 66; Damodar S Prabhu v. Sayed Babalal (2010) 5 SCC 663 : [2010] 5 SCR 678; R. Vijayan v. Baby (2012) 1 SCC 260 : [2011]
14 SCR 712; HMT Watches Ltd. v. M.A. Abida (2015)
11 SCC 776 : [2015] 3 SCR 719; Sampelly
Satyanarayana Rao v. Indian Renewable Energy
Development Agency Ltd. (2016) 10 SCC 458 : [2016]
6 SCR 531; Kumar Exports v. Sharma Carpets (2009)
2 SCC 513 : [2008] 17 SCR 572; Kishan Rao v.
Shankargouda (2018) 8 SCC 165 : [2018] 5 SCR 69 – relied on.
Prakash Gupta v. SEBI (2021) SCC Online SC 485 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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