1
Reportable
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
Criminal Appeal No. 1068 of 2021
(Arising out of SLP (Criminal) No. 6564 of 2019)
M/s Gimpex Private Limited ... Appellant
Versus
Manoj Goel ... Respondent
With
Criminal Appeal Nos. 1069-1075 of 2021
(Arising out of SLP (Criminal) Nos. 7632-7638 of 2019)
2
J U D G M E N T
Dr. Dhananjaya Y. Chandrachud, J
A Factual Background...........................................................................................3
B Submissions of parties....................................................................................12
C Analysis.............................................................................................................15
C.1 Parallel prosecutions.................................................................................15
C.2 Liability arising from the settlement agreement .....................................33
D Conclusion........................................................................................................40
PART A
3
A Factual Background
1 This batch of appeals has arisen from a judgment dated 10 April 2019 of a
Single Judge of the High Court of Judicature at Madras by which proceedings in a
complaint1 under Section 138 of the Negotiable Instruments Act 18812
, pending on
the file of the Seventh Metropolitan Magistrate’s Court at Chennai were quashed.
The jurisdiction of the Single Judge was invoked under Section 482 of the Code of
Criminal Procedure 19733
.
2 On 17 and 27 April 2012, the appellant entered into three High Seas Sale
Agreements4 with Aanchal Cement Limited5
. On the request of ACL, the appellant
paid an amount of Rs. 6.96 crores (Rs. 6,96,74,666/-) as customs duty and Rs. 8.04
crores (Rs. 8,04,12,495/-) as wharfage charges in order to clear the goods on behalf
of ACL which is alleged to have promised to repay the amount with interest. It has
been alleged that though the appellant supplied the goods, ACL failed to make
payments. On 6 August 2012, ACL issued 18 cheques dated 8 August 2012, each in
the amount of Rs. 50 lakhs, for a total value of Rs. 9 crores in favour of the appellant
in part payment of the outstanding liability. On 21 August 2012, the 18 cheques were
dishonoured upon presentation with an endorsement: “payments stopped by
drawer”/ “insufficient funds”. A complaint was lodged by the appellant on 10
September 2012, with the Commissioner of Police, Egmore, Chennai, against ACL
1 CC No. 389 of 2017 2 “NI Act” 3 “CrPC” 4 “HSSA” 5 “ACL”
PART A
4
and its directors for offences under Sections 409 and 506(1) of the Indian Penal
Code 18606
, which was registered as an FIR in Central Crime Branch on 1 February
2013 as Crime No. 21 of 2013. Between 22 September 2012 and 5 October 2012,
the appellant issued legal notices under Section 138 of the NI Act to ACL and its
directors - Sitaram Goel, Manoj Goel (the respondent) and Mukesh Goel in respect
of the dishonor of the 18 cheques.
3 On 22 October 2012 and 6 November 2012, the appellant filed criminal
complaints7 under Section 138 of the NI Act, in respect of the dishonour of the
cheques of the value of Rs. 9 crores. This is the first set of complaints filed by the
appellant.
4 In 2013, Sitaram Goel filed petitions8 under Section 482 of the CrPC for
quashing the complaints qua him. On 3 March 2013, Mukesh Goel, a director of ACL
was arrested by the Central Crime Branch. A bail application was filed by Mukesh
Goel on 5 March 2013.
5 During the pendency of the bail application, ACL approached the appellant to
settle the matter and arrive at a compromise. On 12 March 2013, the appellant and
ACL entered into a deed of compromise containing, inter alia, the following
stipulations:
“1. Based on the above agreement the “PARTY OF THE
FIRST PART” hand over DD No: 271351, dt: 11/03/2013
for Rs. 3,00,00,000/- (Rupees Three Crore Only) drawn
6 “IPC” 7 CC Nos.3326-3329 of 2012 and CC Nos.99-101 of 2013 8 Crl. OP Nos. 22873 to 22878 of 2016 and Crl. M.P. Nos.10687 to 10698 of 2016
PART A
5
on The Kapur Vysya Bank Limited, in favour of the
“PARTY OF THE SECOND PART”, to the PARTY OF
THE SECOND PART” on 11/03/2013
2. On receipt of Rs. 3 crore mentioned above, the “PARTY
OF THE SECOND PART” shall say no objection for the
bail application filed by the “PARTY OF THE FIRST
PART”
3. The “PARTY OF THE FIRST PART” agrees and
undertake to pay the balance amount of Rs. 7 crore within
3 months in 3 equal instalments of Rs. 2,33,33,333/-
(Rupees Two Crore Thirty Three Lakh Thirty Three
Thousand Three Hundred and Thirty Three Only) every
month to the “PARTY OF THE SECOND PART”. The
monthly instalment shall be paid on or before 11th day of
every month i.e. 11/04/2013, 11/05/2013 and 11/06/2013.
4. The “PARTY OF THE FIRST PART” agrees and
undertake to pay the monthly instalment of Rs.
2,33,33,333/- equally divided in three parts and Sri.
Sitram Goel, Sri. Manoj Goel and M/s Aanchal collection
Limited would issue cheques in faovour of the “PARTY
OF THE SECOND PART” towards the compliance of the
settlement.
5. The “PARTY OF THE FIRST PART” handed over
following cheques to the “PARTY OF THE SECOND
PART” as compliance of the assurance and undertaking
given by the “PARTY OF THE FIRST PART”
[…]
6. The “PARTY OF THE FIRST PART” after consultation
with the directions of M/s. Aanchal Cement Limited
(Formerly M/s Kalika Cement Private Limited) and M/s.
Aanchal Collection Limited, which is also family business
and sister concern of “PARTY OF THE FIRST PART” and
Sri. Sitaram Goel, has arrived at this settlement and
signing this compromise deed. Any default or non
commitment of the conditions set out in this compromise
deed would amount to cheating and fraud. The “PARTY
OF THE FIRST PART” has issued the cheque of M/s
Aanchal Collection Limited, towards clearance of legal
debt to the “Party of the Second Part”.
7. The “PARTY OF THE FIRST PART” agrees and
undertakes that if any of the conditions agreed in this
PART A
6
compromise deed is not honoured that would amount to
cheating, fraud, breach of trust, etc. and the bail granted
to Sri. Mukesh Goel shall be deemed to have cancelled
automatically and the “PARTY OF THHE SECOND
PART” is also entitled to cancel the bail and also entitle to
file a fresh criminal complaint besides NI Act, against the
drawer of cheques and also against other directors of the
“PARTY OF THE FIRST PART” and M/s Aanchal
Collection Limited”.
8. The “PARTY OF THE SECOND PART”, on receipt of Rs.
5,33,33,333/- which would be completed after honouring
all the cheques dt: 11/04/2013, shall withdraw the
Garnishee application filed in Arbitration proceedings filed
against the “PARTY OF THE FIRST PART” in A. No.
312/2013 and ANo. 313/2013 in O.A. No. 42/2013,
pending before the Hon’ble High Court of Madras.
9. After payment of the entire settlement amount of Rs. 10
crore by the “PARTY OF THE FIRST PART” to the
“PARTY OF THE SECOND PART”, the PARTY OF THE
SECOND PART” shall withdraw all the criminal
complaints, suits, arbitration proceedings, 138
proceedings filed in C.C. No. 3326-3329/2012 & CC No.
99-101/2013, pending before VIIth, MM, George Town,
Chennai against the “PARTY OF THE FIRST PART”. It is
also assured and agreed by the “PARTY OF THE FIRST
PART” shall withdraw the case filed, before the Kalkata
City Civil Court against the “PARTY OF THE SECOND
PART” in O.S. No. 1615/2012.
10. It is agreed that on payment of Rs. 10 crore by the
“PARTY OF THE FIRST PART” either party shall have no
claim against each other on the issue of purchase of
Clinker purchased under the HSS agreements dt:
17/04/2013, 27/04/2013 and 27/04/2013 and all the cases
filed against each other shall be withdrawn.”
6 On the basis of the above compromise, Mukesh Goel was granted bail.
Sitaram Goel and the respondent were granted anticipatory bail by the Metropolitan
Magistrate on 26 March 2013 and 3 April 2013 on the basis of the deed of
compromise.
PART A
7
7 On 8 April 2013, a suit9 was instituted by ACL and one of its directors before
the High Court of Judicature at Madras challenging the deed of compromise as
illegal, null and void, and for return of the cheques issued to the appellant pursuant
to it. Initially, an interim injunction was issued and the cheques were replaced. By an
order dated 2 December 2013, the interim application was rejected and the claim of
ACL that the deed of compromise was obtained by force, fraud and coercion was
not found to be worthy of acceptance. An appeal against the judgment of the Single
Judge was dismissed as withdrawn on 12 December 2014.
8 On 14 December 2015, this Court stayed further proceedings arising out of
the FIR Crime No. 21/2013 (which had been registered with the Central Crime
Branch) for offences punishable under Section 409 and 506(1) of the IPC.
9 On 15 November 2016, the Madras High Court dismissed the proceedings
initiated by Sitaram Goel for quashing of the first set of complaints under Section
138 of the NI Act against him.
10 The cheques issued in pursuance of the deed of compromise dated 12 March
2013 having been dishonoured, a second complaint10 was instituted on 16 February
2017 by the appellant under Section 138 of the NI Act before the Seventh
Metropolitan Magistrate (the complaint was initially filed before the CMM Kolkata in
2015 and was subsequently transferred to Chennai on 10 March 2015). This is the
second complaint filed by the appellant against ACL under Section 138 of the NI Act.
9 CS No. 234 of 2013 10 CC No. 389 of 2017
PART A
8
11 On 10 March 2017, ACL and its directors (Manoj Goel and Mukesh Goel)
instituted proceedings11 before the Madras High Court under Section 482 of the
CrPC to quash the proceedings pending against them under Section 138 of the NI
Act in the first set of complaints. On 19 August 2017, ACL and its directors instituted
another proceeding12 before the Madras High Court under Sections 482 CrPC to
quash the proceedings initiated under Section 138 of the NI Act in the second
complaint. The latter was disposed of by the High Court by quashing the
proceedings as against ACL, Manoj Goel, and Vijay Srivastav, with the complainant
agreeing to proceed with the trial as against the respondent who was the signatory
of the cheques in question.
12 The High Court also disposed of the proceedings which were instituted on 10
March 2017 and refused to quash the first set of complaints. The orders of the High
Court were challenged by ACL in special leave petitions13. By its order dated 18 May
2018, this Court granted liberty to ACL to approach the High Court in respect of the
specific plea that the compromise deed (and the 15 cheques issued pursuant to it)
was entered into under coercion. The order of this Court reads as follows:
“Delay condoned.
It is argued by Mr. K.V. Viswanathan, learned senior counsel
appearing for the petitioners, that the petitioners have sought
quashing of the proceedings on altogether different grounds.
He has referred to Ground 'D' of the petition (Pg. 67 of the
paper book) wherein it is stated that under coercion deed of
compromise was signed between the petitioners and the
11 Crl. O.P. No. 5494-5500 of 2017 and Crl. M.P. Nos. 5244 to 5250, 4094, 4096, 4098, 4100, 4102, 4104 and 4106
of 2017
12 Crl. O.P. No. 17255 of 2017 and Crl. M.P. Nos 10587 and 10588 of 2017 13 SLP (Criminal) Diary No.17687 and 17257 of 2018
PART A
9
respondent and pursuant to which the petitioners had issued
15 fresh cheques in full settlement of all claims of the
respondent. This aspect, he submits has not been looked into
by the High Court while passing the common order. The
petitioners are granted liberty to approach the High Court
again to take up this plea and we expect the High Court to
deal with the issue on its own merits.
We make it clear that this Court has not expressed any
opinion on the merits of the issue and it is for the High Court
to take its own view.
With the aforesaid observations the special leave petition is
disposed of.
Pending application(s), if any, stands disposed of
accordingly.”
13 On 14 June 2018, the second complaint was transferred to be tried along with
the earlier batch of 7 cases, the first set of complaints. Pursuant to the order of this
Court, on 19 July 2018, ACL instituted proceedings14 under Section 482 of the CrPC
for quashing the first complaint under Section 138 of the NI Act.
14 By an order dated 6 August 2018, in the special leave petition15 instituted
before this Court against the order of the High Court dated 24 November 2017,
liberty was granted to the respondent, Manoj Goel, in the following terms to raise the
issue of the simultaneous prosecution of two sets of cases:
“Delay condoned.
It is argued by Mr. R. Basant, learned senior counsel
appearing for the petitioner, that the crux of the contention
raised by the petitioner is that two sets of prosecutions under
the Negotiable Instruments Act cannot simultaneously lie.
Admittedly, the second set of cheques on which the present
prosecutions are initiated were issued on the basis of a Deed
14 Crl.O.P Nos 21731-21737 of 2018 against C.C. No. 3326-3329 of 2012 and C.C. No. 99-101 of 2013 15 SLP (Criminal) Diary No. 17257 of 2018
PART A
10
of Compromise for the discharge of the same liability for
which the earlier 18 cheques each of Rs. 50 lacs were issued.
The counsel points out that in respect of the prosecution
relating to earlier cheques, this Court had vide order dated
18.05.2018 granted leave to the petitioner to reagitate the
contention before the High Court that two separate
prosecutions under Section 138 of the Negotiable Instruments
Act in respect of two sets of cheques – both issued for the
discharge of the same liability cannot simultaneously stand.
The petitioner is granted liberty to approach the High Court
again to take up this plea and we expect the High Court to
deal with the issue on its own merits.
We make it clear that this Court has not expressed any
opinion on the merits of the issue and it is for the High Court
to take its own view.
With the aforesaid observations the Special Leave Petition is
disposed of.
Pending application(s), if any, stands disposed of
accordingly.”
15 On 18 September 2018, the respondent instituted proceedings16 before the
Madras High Court to quash the proceedings pending against him under Section
138 of the NI Act in the second complaint. By its judgment dated 10 April 2019, the
High Court disposed of the petitions filed under Section 482 of the CrPC in respect
of both the first and the second complaints. The High Court:
(i) Dismissed the proceedings instituted by ACL and its directors against the first
complaint and directed the Fast Track Court No. IV George Town, Chennai to
complete the trial in the first set of complaints within three months;
16 Crl O.P No. 25398 of 2018
PART A
11
(ii) Allowed the proceedings instituted by the respondent, Manoj Goel and
quashed the proceedings in the second complaint pending on the file of the
Seventh Metropolitan Magistrate.
16 On 3 June 2019, ACL filed an application17 seeking review together with the
clarification of the findings to the effect that they shall not influence the trial of the
criminal complaint. The High Court passed an order thereon on 8 July 2019.
17 The judgment of the High Court dated 10 April 2019 has given rise to the
special leave petitions before us. A special leave petition18 was instituted by the
appellant before this Court against the quashing the second criminal complaint by
the High Court. On the other hand, ACL filed a special leave petition19 against the
judgment of the High Court allowing the proceedings under the first complaint to
continue. Both the special leave petitions were tagged and heard together.
18 The Single Judge, while allowing the petition under Section 482 and quashing
the proceedings in the second complaint has provided the following reasons:
“19. […] without going into the validity of the deed of
compromise the cheques issued on the deed of compromise
culminated in C.C. No. 389 of 2017. Though part of
compromise deed executed by the parties, the complaint
initiated on the cheques issued on the deed of compromise
cannot be sustained. Since originally the petitioners issued
the first set of cheques on their liability of payment towards
the three HSS Agreements is still pending as per the
proceedings under the Negotiable Instruments Act. Therefore
the second set of cheques issued only on the basis of deed of
compromise and those are not issued for any liability. Also
17 Crl MP Nos. 8157, 8158, 8163, 8165, 8167, 8168 of 2019 in Crl OP No. 21731-37 of 2018 18 SLP (Criminal) No. 6564 of 2019 19 SLP (Criminal) Nos. 7632-7638 of 2019
PART B
12
when the very deed of compromise itself is challenged in the
suit, the cheques issued on the said deed of compromise
cannot be construed as those cheques were issued for
discharging their liability.”
19 In the above extract, the High Court has held that since the criminal
complaints in respect of the dishonor of the first set of cheques issued against the
liability under the HSSA are still pending, the second set of cheques issued on the
basis of the deed of compromise “are not issued for any liability”. The High Court
has also held that since the validity of the deed of compromise is challenged in the
suit pending before the High Court, the cheques issued on the basis of the deed of
compromise cannot be construed towards the discharge of liability. In this batch of
two appeals, the appeal by Gimpex Private Limited (appellant) assails the decision
of the High Court to quash the second complaint under Section 138 on the ground
that the cheques which were issued in pursuance of the deed of compromise could
not be construed to be in discharge of a liability. In the companion appeal, which has
been instituted by ACL and its directors (Manoj Goel and Mukesh Goel), the order of
the High Court allowing the first complaint in respect of the first set of cheques to
continue has been assailed.
B Submissions of parties
20 Mr V Giri, learned Senior Counsel appearing on behalf of the appellants
(Gimpex Private Limited) with Ms Liz Mathew has urged the following submissions:
(i) The offence under Section 138 of the NI Act, 1881 is complete once its
ingredients are fulfilled;
PART B
13
(ii) Once the offence is complete and a prosecution is launched, it must proceed
to trial and it was not open to the High court in the exercise of its jurisdiction
under Section 482 CrPC to quash the prosecution on the basis of the deed of
compromise which has not been implemented due to the default of the
accused;
(iii) Whether a liability exists and whether the cheques (as set up in the defence)
were issued as and by way of security are matters for trial;
(iv) In view of the presumption under Section 139 of the NI Act, at this stage the
Court has to proceed on the basis that the cheques were issued in discharge
of a legally enforceable debt;
(v) The mere pendency of a suit seeking to challenge the deed of compromise is
not a ground to quash the criminal complaint given the clear distinction in law
between an order of conviction and an order at an anterior stage seeking
quashing of a criminal complaint; and
(vi) There is no embargo under Section 138 of the NI Act on parallel proceedings
for distinct offences involving the dishonor of cheques. Both sets of criminal
complaints in respect of the first set of cheques and the second set of
cheques are being tried by the same court. It is not legitimately open to the
accused who committed a breach of the settlement to seek a quashing of the
criminal complaints. The Magistrate at the end of the trial would undoubtedly
determine the nature of the sentence that should be imposed.
PART B
14
21 On the other hand, Mr Jayant Bhushan, learned Senior Counsel has urged
the following submissions.
(i) The essential issue is whether a criminal trial can go on with both sets of
cheques;
(ii) The crucial ingredient of Section 138 is that a cheque must be for the
discharge, in whole or in part of any debt or other liability. There cannot be a
two prosecutions for the same liability;
(iii) The liability under the first set of cheques was replaced following the deed of
compromise by the second set of cheques;
(iv) As a consequence of the deed of compromise there was a novated
contracted between the parties;
(v) In terms of the provisions of Section 39 of the Indian Contract Act 1872 it is
open to the appellant as the promisee to elect whether to repudiate the
agreement or continue with its performance on breach of the agreement by
the other party (respondents);
(vi) The appellant has in fact repudiated the deed of compromise by failing to
withdraw the criminal complaint and the arbitral proceedings;
(vii) The appellant can in the circumstances only enforce the liability in respect of
the first set of cheques as a consequence of which the criminal prosecution in
respect of only the first set may proceed; and
PART C
15
(viii) In the cross appeal, Mr Jayant Bhushan, learned Senior Counsel submitted
that the principal contention of the accused is that the transaction was not as
a matter of fact a sale on high seas. However, learned Senior Counsel
submitted that this cannot be fairly agitated in proceedings under Section 482
CrPC and it will be appropriate if the issue is left open to be urged at the trial.
22 The rival submissions will now be considered.
C Analysis
23 The question before this Court is whether parallel prosecutions arising from a
single transaction under Section 138 of the NI Act can be sustained. In this case, a
set of cheques were dishonoured, leading to filing of the first complaint under
Section 138 of the NI Act. The parties thereafter entered into a deed of compromise
to settle the matter. While the first complaint was pending, the cheques issued
pursuant to the compromise deed were dishonoured leading to the second
complaint under Section 138 of the NI Act. Both proceedings are pending
simultaneously and it is for this Court to decide whether the complainant can be
allowed to pursue both the cases or whether one of them must be quashed and the
consequences resulting from such quashing.
C.1 Parallel prosecutions
24 Section 138 of the NI Act stipulates thus:
“Dishonour of cheque for insufficiency, etc., of funds in the
account.
Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any amount
PART C
16
of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is
returned by the bank unpaid, either because of the amount of
money standing to the credit of that account is insufficient to
honour the cheque or that it exceeds the amount arranged to
be paid from that account by an agreement made with that
bank, such person shall be deemed to have committed an
offence and shall, without prejudice to any other provision of
this Act, be punished with imprisonment for a term which may
be extended to two years, or with fine which may extend to
twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply
unless--
(a) the cheque has been presented to the bank within a
period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as
the case may be, makes a demand for the payment of the
said amount of money by giving a notice; in writing, to the
drawer of the cheque, within thirty days of the receipt of
information by him from the bank regarding the return of the
cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of
the said amount of money to the payee or, as the case may
be, to the holder in due course of the cheque, within fifteen
days of the receipt of the said notice.
Explanation.-- For the purposes of this section, debt of other
liability means a legally enforceable debt or other liability.”
25 The ingredients of the offence under Section 138 are:
(i) The drawing of a cheque by person on an account maintained by him with the
banker for the payment of any amount of money to another from that account;
(ii) The cheque being drawn for the discharge in whole or in part of any debt or
other liability;
(iii) Presentation of the cheque to the bank;
(iv) The return of the cheque by the drawee bank as unpaid either because the
amount of money standing to the credit of that account is insufficient to
PART C
17
honour the cheque or that it exceeds the amount arranged to be paid from
that account;
(v) A notice by the payee or the holder in due course making a demand for the
payment of the amount to the drawer of the cheque within 30 days of the
receipt of information from the bank in regard to the return of the cheque; and
(vi) The drawer of the cheque failing to make payment of the amount of money to
the payee or the holder in due course within 15 days of the receipt of the
notice.
26 The ingredients of the offence were summarized in fairly similar terms in a
judgment of a two judge Bench of this Court in K Bhaskaran v. Sankaran Vaidhyan
Balan20. Justice K T Thomas observed:
“14. The offence under Section 138 of the Act can be
completed only with the concatenation of a number of acts.
The following are the acts which are components of the said
offence: (1) drawing of the cheque, (2) presentation of the
cheque to the bank, (3) returning the cheque unpaid by the
drawee bank, (4) giving notice in writing to the drawer of the
cheque demanding payment of the cheque amount, (5) failure
of the drawer to make payment within 15 days of the receipt
of the notice.”
27 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. The
nature of the proceedings under Section 138 of the NI Act was considered by a
three judge Bench decision of this Court in P Mohanraj and Others v. Shah
20 (1999) 7 SCC 510
PART C
18
Brothers Ispat Private Limited21, where Justice RF Nariman, after adverting to the
precedents of this Court, observed that:
“53. A perusal of the judgment in Ishwarlal
Bhagwandas [S.A.L. Narayan Row v. Ishwarlal Bhagwandas,
(1966) 1 SCR 190 : AIR 1965 SC 1818] would show that a
civil proceeding is not necessarily a proceeding which begins
with the filing of a suit and culminates in execution of a
decree. It would include a revenue proceeding as well as a
writ petition filed under Article 226 of the Constitution, if the
reliefs therein are to enforce rights of a civil nature.
Interestingly, criminal proceedings are stated to be
proceedings in which the larger interest of the State is
concerned. Given these tests, it is clear that a Section 138
proceeding can be said to be a “civil sheep” in a “criminal
wolf’s” clothing, as it is the interest of the victim that is sought
to be protected, the larger interest of the State being
subsumed in the victim alone moving a court in cheque
bouncing cases, as has been seen by us in the analysis
made hereinabove of Chapter XVII of the Negotiable
Instruments Act.”
28 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. The decision of this Court in Meters and Instruments (P)
Ltd. v. Kanchan Mehta22 summarises the objective of allowing compounding of an
offence under Section 138 of the NI Act:
“18.2. The object of the provision being primarily
compensatory, punitive element being mainly with the object
of enforcing the compensatory element, compounding at the
initial stage has to be encouraged but is not debarred at later
stage subject to appropriate compensation as may be found
acceptable to the parties or the court.”
21 (2021) 6 SCC 258 22 (2018) 1 SCC 560
PART C
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29 In Prakash Gupta v. SEBI23 a two judge Bench of this Court of which one of
us (Justice DY Chandrachud) was a part, analysed the decision in Meters and
Instruments (supra) in the context of a discussion on whether compounding of an
offence requires the consent of an aggrieved party (para 78). The decision in Meters
and Instruments (supra) is cited above in regard to the rationale behind
compounding of offences punishable under Section 138. In Damodar S Prabhu v.
Sayed Babalal24 a three judge Bench of this Court observed that the effect of an
offence under Section 138 of the NI Act is limited to two private parties involved in a
commercial transaction. However, the intent of the legislature in providing a criminal
sanction for dishonour of cheques is to ensure the credibility of transactions
involving negotiable instruments. The Court observed:
“4. It may be noted that when the offence was inserted in the
statute in 1988, it carried the provision for imprisonment up to
one year, which was revised to two years following the
amendment to the Act in 2002. It is quite evident that the
legislative intent was to provide a strong criminal remedy in
order to deter the worryingly high incidence of dishonour of
cheques. While the possibility of imprisonment up to two
years provides a remedy of a punitive nature, the provision for
imposing a “fine which may extend to twice the amount of the
cheque” serves a compensatory purpose. What must be
remembered is that the dishonour of a cheque can be best
described as a regulatory offence that has been created to
serve the public interest in ensuring the reliability of these
instruments. The impact of this offence is usually confined to
the private parties involved in commercial transactions.”
23 (2021) SCC Online SC 485 24 (2010) 5 SCC 663
PART C
20
30 However, this Court also noted that the introduction of a criminal remedy has
given rise to a worrying trend where cases under Section 138 of the NI Act are
disproportionately burdening the criminal justice system. This Court observed:
“5. Invariably, the provision of a strong criminal remedy has
encouraged the institution of a large number of cases that are
relatable to the offence contemplated by Section 138 of the
Act. So much so, that at present a disproportionately large
number of cases involving the dishonour of cheques is
choking our criminal justice system, especially at the level of
Magistrates’ Courts. As per the 213th Report of the Law
Commission of India, more than 38 lakh cheque bouncing
cases were pending before various courts in the country as of
October 2008. This is putting an unprecedented strain on our
judicial system.”
31 Thus, under the shadow of Section 138 of the NI Act, parties are encouraged
to settle the dispute resulting in ultimate closure of the case rather than continuing
with a protracted litigation before the court. This is beneficial for the complainant as
it results in early recovery of money; alteration of the terms of the contract for higher
compensation and avoidance of litigation. Equally, the accused is benefitted as it
leads to avoidance of a conviction and sentence or payment of a fine. It also leads to
unburdening of the judicial system, which has a huge pendency of complaints filed
under Section 138 of the NI Act. In Damodar S. Prabhu (supra) this Court had
emphasised that the compensatory aspect of the remedy under Section 138 of the
NI Act must be preferred and has encouraged litigants to resolve disputes amicably.
The Court observed:
“18. It is quite obvious that with respect to the offence of
dishonour of cheques, it is the compensatory aspect of the
remedy which should be given priority over the punitive
aspect. There is also some support for the apprehensions
raised by the learned Attorney General that a majority of
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21
cheque bounce cases are indeed being compromised or
settled by way of compounding, albeit during the later stages
of litigation thereby contributing to undue delay in justice
delivery. The problem herein is with the tendency of litigants
to belatedly choose compounding as a means to resolve their
dispute. Furthermore, the written submissions filed on behalf
of the learned Attorney General have stressed on the fact that
unlike Section 320 CrPC, Section 147 of the Negotiable
Instruments Act provides no explicit guidance as to what
stage compounding can or cannot be done and whether
compounding can be done at the instance of the complainant
or with the leave of the court.
19. As mentioned earlier, the learned Attorney General’s
submission is that in the absence of statutory guidance,
parties are choosing compounding as a method of last resort
instead of opting for it as soon as the Magistrates take
cognizance of the complaints. One explanation for such
behaviour could be that the accused persons are willing to
take the chance of progressing through the various stages of
litigation and then choose the route of settlement only when
no other route remains. While such behaviour may be viewed
as rational from the viewpoint of litigants, the hard facts are
that the undue delay in opting for compounding contributes to
the arrears pending before the courts at various levels. If the
accused is willing to settle or compromise by way of
compounding of the offence at a later stage of litigation, it is
generally indicative of some merit in the complainant’s case.
In such cases it would be desirable if parties choose
compounding during the earlier stages of litigation. If
however, the accused has a valid defence such as a mistake,
forgery or coercion among other grounds, then the matter can
be litigated through the specified forums.
[…]
23. We are also in agreement with the learned Attorney
General’s suggestions for controlling the filing of multiple
complaints that are relatable to the same transaction. It was
submitted that complaints are being increasingly filed in
multiple jurisdictions in a vexatious manner which causes
tremendous harassment and prejudice to the drawers of the
cheque. For instance, in the same transaction pertaining to a
loan taken on an instalment basis to be repaid in equated
monthly instalments, several cheques are taken which are
dated for each monthly instalment and upon the dishonour of
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22
each of such cheques, different complaints are being filed in
different courts which may also have jurisdiction in relation to
the complaint. In light of this submission, we direct that it
should be mandatory for the complainant to disclose that no
other complaint has been filed in any other court in respect of
the same transaction. Such a disclosure should be made on a
sworn affidavit which should accompany the complaint filed
under Section 200 CrPC. If it is found that such multiple
complaints have been filed, orders for transfer of the
complaint to the first court should be given, generally
speaking, by the High Court after imposing heavy costs on
the complainant for resorting to such a practice. These
directions should be given effect prospectively.”
32 This concern has been reiterated recently by a Constitution Bench of this
Court in Re: Expeditious Trial of Cases under Section 138 of the NI Act 188125,
where it was observed that
“5. The situation has not improved as courts continue to
struggle with the humongous pendency of complaints under
Section 138 of the Act. The preliminary report submitted by
the learned Amici Curiae shows that as on 31.12.2019, the
total number of criminal cases pending was 2.31 crores, out
of which 35.16 lakh pertained to Section 138 of the Act. The
reasons for the backlog of cases, according to the learned
Amici Curiae, is that while there is a steady increase in the
institution of complaints every year, the rate of disposal does
not match the rate of institution of complaints. Delay in
disposal of the complaints under Section 138 of the Act has
been due to reasons which we shall deal with in this order.
[…]
23. Though we have referred all the other issues which are
not decided herein to the Committee appointed by this Court
on 10.03.2021, it is necessary to deal with the complaints
under Section 138 pending in Appellate Courts, High Courts
and in this Court. We are informed by the learned Amici
Curiae that cases pending at the appellate stage and before
the High Courts and this Court can be settled through
mediation. We request the High Courts to identify the pending
revisions arising out of complaints filed under Section 138 of
25 Suo Motu Writ Petition (Crl.) No. 2 of 2020, 16 April 2021, available at
https://main.sci.gov.in/supremecourt/2020/9631/9631_2020_31_501_27616_Judgement_16-Apr-2021.pdf.
PART C
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the Act and refer them to mediation at the earliest. The Courts
before which appeals against judgments in complaints under
Section 138 of the Act are pending should be directed to
make an effort to settle the disputes through mediation.”
33 The pendency of court proceedings under Section 138 of the NI Act and the
multiplicity of complaints in which a cause of action arising from one transaction is
litigated has dampened the ease of doing business in India, impacted business
sentiments and hindered investments from investors. Recognising these issues, the
Ministry of Finance by a notice26 dated 8 June 2020, has sought comments
regarding decriminalisation of minor offences, including Section 138 of the NI Act, to
improve the business sentiment in the country.
34 It is in this backdrop that we must now analyse the issue regarding pendency
of parallel proceedings for complaints under Section 138 of the NI Act. The question
that arises for our consideration is whether once the settlement has been entered
into, the complainant can be allowed to pursue the original complaint under Section
138 of the NI Act.
35 The narration of facts would indicate that initially 18 cheques dated 8 August
2012 of a total value of Rs. 9 crores were issued by ACL in favour of the appellant
(Gimpex Private Limited). The dishonour of the cheques on 21 August 2012 on the
ground that the payment had been stopped by the drawer or, as the case may be,
for insufficiency of funds led to the issuance of legal notices under Section 138 of
the NI Act and the institution of the first criminal complaint before the Seventh
Metropolitan Magistrate. It was at that stage that Mukesh Goel, a director of ACL
26 https://financialservices.gov.in/sites/default/files/Decriminalization%20-%20Public%20Comments.pdf
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was arrested by the Central Crime Branch on 3 March 2013, in connection with
Crime No. 21/2013 which was registered for offences under Sections 409 and
506(1) of the IPC. In this backdrop, the deed of compromise was entered into on 12
March 2013. The deed of compromise envisages that:
(i) A demand draft of Rs. 3 crores was handed over to the complainant on 11
March 2013;
(ii) On receipt of the amount of Rs.3 crores, the complainant would not object to
the bail application filed by Manoj Goel;
(iii) Apart from the amount of Rs. 3 crores, the balance of Rs. 7 crores would be
paid within three months in three equal monthly instalments each of
Rs.2,33,33,333/- commencing from 11 April 2013 and ending on 11 June
2013;
(iv) The amount of Rs. 2.33 crores would be divided equally between Sitaram
Goel, Manoj Goel and ACL who would issue cheques in favour of the
complainant in compliance of the settlement;
(v) Towards discharge of the liability, post-dated cheques dated 11 April 2013, 11
May 2013 and 11 June 2013 had been handed over; and
(vi) Any default in complying with the conditions set out in the compromise deed
would entitle the complainant to file a fresh criminal complaint under the NI
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25
Act against the drawer of the cheques and to proceed against the other
directors; and
(vii) Upon the payment of the entire settlement amount of Rs. 10 crores, all
criminal complaints, suits, arbitration proceedings and Section 138
proceedings would be withdrawn.
36 It is not in dispute that following the receipt of an amount of Rs. 3 crores, in
pursuance of the compromise deed, Mukesh Goel was granted bail by the
competent court. The balance due and payable under the deed of compromise has
admittedly not been paid and the second set of cheques has been dishonoured.
ACL proceeded to institute a suit before the Madras High Court to challenge the
deed of compromise. While the suit is pending, the interim application stands
dismissed. In this backdrop, there are two sets of criminal complaints under Section
138 of the NI Act based on the dishonour of the first set of cheques and the second
set respectively.
37 Allowing prosecution under both sets of complaints would be contrary to the
purpose of the enactment. As noted above, 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. This Court in R. Vijayan v. Baby27 has
27 (2012) 1 SCC 260
PART C
26
emphasised how punishment of the offender is of a secondary concern for the
complainant in the following terms:
“17. The apparent intention is to ensure that not only the
offender is punished, but also ensure that the complainant
invariably receives the amount of the cheque by way of
compensation Under Section 357(1)(b) of the Code. Though
a complaint Under Section 138 of the Act is in regard to
criminal liability for the offence of dishonouring the cheque
and not for the recovery of the cheque amount (which strictly
speaking, has to be enforced by a civil suit), in practice once
the criminal complaint is lodged Under Section 138 of the Act,
a civil suit is seldom filed to recover the amount of the
cheque. This is because of the provision enabling the court to
levy a fine linked to the cheque amount and the usual
direction in such cases is for payment as compensation, the
cheque amount, as loss incurred by the complainant on
account of dishonour of cheque. Under Section 357(1)(b) of
the Code and the provision for compounding the offences
Under Section 138 of the Act most of the cases (except those
where liability is denied) get compounded at one stage or the
other by payment of the cheque amount with or without
interest. Even where the offence is not compounded, the
courts tend to direct payment of compensation equal to the
cheque amount (or even something more towards interest) by
levying a fine commensurate with the cheque amount. A
stage has reached when most of the complainants, in
particular the financing institutions (particularly private
financiers) view the proceedings under Section 138 of the
Act, as a proceeding for the recovery of the cheque amount,
the punishment of the drawer of the cheque for the offence of
dishonour, becoming secondary.”
38 When a complainant party enters into a compromise agreement with the
accused, it may be for a multitude of reasons – higher compensation, faster
recovery of money, uncertainty of trial and strength of the complaint, among others.
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
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27
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.
39 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 – a problem noted in multiple
judgements of this Court cited above. 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
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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.
40 Thus, in our view, 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. It has been urged by Mr V Giri, learned Senior Counsel, and Ms Liz
Mathew, learned counsel, that parallel prosecutions would not lead to a multiplicity
of proceedings, as in the present case, both complaints are being tried by the same
court. This may be true for the case before us, however, this Court in Damodar S.
Prabhu (supra) and Re: Expeditious Trial of Cases (supra) has recognized
multiplicity of complaints as one of the major reasons for delay in trial of cases under
Section 138 of the NI Act and the consequent choking of the criminal justice system
by a disproportionate number of Section 138 cases. While it is true that the trial in
this case is before one court, that is not necessarily the ground reality in all cases.
41 At this stage, it may be necessary to dwell on the decision of this Court in
Lalit Kumar Sharma v. State of Uttar Pradesh28 and Arun Kumar v. Anita
Mishra29. In Lalit Kumar Sharma (supra), a company, with two directors (Manish
Arora and Ashish Narula), had obtained a loan for the amount of Rs.5,00,000/- and
28 (2008) 5 SCC 638 29 (2020) 16 SCC 118
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29
drew two cheques in an equivalent amount in favour of the first respondent. The
cheques were returned unpaid for “insufficiency of funds”. A complaint was instituted
under Section 138 of the NI Act against the two directors. The appellants, who were
also directors of the said company, were not signatories to the cheques and had not
been made parties to the complaint. During the pendency of the complaint, an
agreement was entered into between Manish Arora, Ashish Narula and the
complainant under which it was envisaged that if a cheque for Rs.5,02,050/- was
issued, the complaint would be withdrawn. Manish Arora issued a cheque which was
returned on presentation for insufficiency of funds. Meanwhile, Ashish Narula and
the company entered into an agreement stating that the liability arising from the said
transaction was of the director personally, and not of the company. Another
complaint was filed on the basis of the return of the subsequent cheque, where
Manish Arora and Ashish Narula and the appellants were made parties. In this
backdrop, the Court noted that in respect of the first cheques, the appellants were
not proceeded against and though a compromise was entered into between Manish
Arora and Ashish Narula and the complainant, the complaint had not been
withdrawn and the two directors had been found guilty of an offence under Section
138 of NI Act. Manish Arora had issued the second cheque in terms of the
settlement between the parties. It was in this backdrop, that the Court observed:
“15. Evidently, therefore, the second cheque was issued in
terms of the compromise. It did not create a new liability. As
the compromise did not fructify, the same cannot be said to
have been issued towards payment of debt.
[…]
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30
17. Thus, the second cheque was issued by Manish Arora for
the purpose of arriving at a settlement. The said cheque was
not issued in discharge of the debt or liability of the Company
of which the appellants were said to be the Directors. There
was only one transaction between Shri Ashish Narula, Shri
Manish Arora, Directors of the Company and the complainant.
They have already been punished. Thus, the question of
entertaining the second complaint did not arise. It was, in our
opinion, wholly misconceived. The appeal, therefore, in our
opinion, must be allowed. It is directed accordingly. The
respondent shall bear the costs of the appellants. Counsel’s
fee assessed at Rs. 25,000.”
42 The Court noted that the second cheque was issued by Manish Arora for
arriving at the settlement in his personal capacity and not in discharge of a debt or
liability of the company. There was only one transaction between Manish Arora and
Ashish Narula and the complainant for which there was an order of conviction and
punishment. It was in this background that the Court held that the question of
entertaining the second complaint against the appellants did not arise because the
cheques issued pursuant to the settlement were not issued in discharge of the debt
or liability of the company of which the appellants were the directors. Thus, the
decision in Lalit Kumar Sharma (supra) is not applicable in the present case as
there was already an adjudication on the question of liability and a conviction with
respect to the first cheque. The second complaint was misconceived as the trial in
the first complaint had been taken to its logical conclusion and there remained no
pending liability. Thus, there were no parallel proceedings that were pending with
regards to the same transaction. The first complaint had concluded, only after which
the Court observed that the second complaint could not be initiated. In fact, Lalit
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31
Kumar Sharma (supra) bolsters the case that multiple prosecutions cannot arise
from one legal liability under Section 138 of the NI Act and parties must either go to
trial or compromise and settle the matter.
43 The above decision has been subsequently considered in a very recent
decision of a two judge Bench in Arun Kumar v. Anita Mishra30. In that case, a
complaint was filed by the appellant under Section 138 against the respondent. The
Judicial Magistrate, First Class, convicted and sentenced the respondent to six
months’ imprisonment and to a fine. During the pendency of the criminal appeal, a
compromise was arrived at before the Lok Adalat in terms of which the respondent
issued a post-dated cheque in favour of the appellant. The cheque was dishonoured
on presentation and this led to the institution of a complaint under Section 138. The
respondent filed an application for dismissal of the complaint. The application and a
revision were dismissed. A petition under Section 482 CrPC thereafter was allowed
by the High Court on the ground that the question of quashing the second complaint
did not arise when the cheque was not issued in discharge of any debt or liability but
on account of a settlement. Distinguishing the earlier judgment in Lalit Kumar
Sharma (supra), the Court held:
“9. Lalit Kumar case [Lalit Kumar Sharma v. State of U.P.,
(2008) 5 SCC 638 : (2008) 2 SCC (Cri) 682] is distinguishable
on facts, in that the cheque had not been issued in discharge
of any debt or liability of the company of which the accused
were said to be the Directors. The cheque was found to have
been issued for the purpose of arriving at a settlement.
30 (2020) 16 SCC 118
PART C
32
10. In the instant case, the respondent clearly had a liability.
As observed above, there was an earlier adjudication
which led to the conviction of the respondent accused.
Thus there was adjudication of liability of the respondent
accused. While the appeal was pending, the matter was
settled in the Lok Adalat in acknowledgment of liability of
the respondent-accused to the appellant complainant.
11. The cheque issued pursuant to the order of the Lok
Adalat, was also dishonoured. This clearly gave rise to a
fresh cause of action under Section 138 of the Negotiable
Instruments Act.”
(emphasis supplied)
44 In the decision in Arun Kumar (supra), the subsequent cheque, following the
conviction of the appellant in an earlier complaint under Section 138, was issued
towards a settlement which was arrived at before the Lok Adalat during the
pendency of the appeal. The Court distinguished the decision in Lalit Kumar
Sharma (supra) by holding that the dishonour of the cheques in pursuance of the
order of the Lok Adalat gave rise to a fresh cause of action under Section 138.
Moreover, the Court was persuaded to act on the second complaint as the first
complaint had resulted in a clear finding of guilt, however no punishment had been
granted owing to the compromise. Thus, there was no doubt regarding the existence
of a debt or liability in furtherance of which the cheque was issued. Hence, the
decision in Arun Kumar (supra) would indicate that the question as to whether the
dishonour of a subsequent cheque (in that case pursuant to a settlement before the
Lok Adalat) gives rise to a fresh cause of action is a question of fact to be
determined in each case. In other words, the earlier decision in Lalit Kumar
Sharma (supra) cannot be construed as laying down and invariable or inflexible
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33
principle that a cheque issued subsequently in terms of a settlement, after the
dishonour of an earlier cheque does not create a new liability. Lalit Kumar Sharma
(supra) was decided on the facts of the case, as noticed earlier in the present
judgment.
45 Based on the discussion above, in our opinion, 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.
C.2 Liability arising from the settlement agreement
46 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.
47 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 Manoj
Goel. Manoj Goel 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. The Single Judge of the High Court adverted to
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34
clause 9 of the deed of compromise which stipulated that upon the payment of the
entire settlement amount of Rs. 10 crores, all proceedings including the criminal
complaints would have to be withdrawn. The Single Judge was persuaded to quash
the criminal complaint instituted against Manoj Goel on the basis of the second set
of cheques on the ground that:
(i) Since the proceedings under the NI Act for the dishonour of the first set of
cheques was pending, the second set of cheques issued only on the basis of
the deed of compromise could not be construed as being towards the
discharge of a liability; and
(ii) The validity of the deed of compromise had been challenged in the suit
pending before the High Court.
48 Each of these grounds which weighed with the Single Judge of the High Court
in our view is misplaced. 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 learned 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
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35
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.
49 Mr Jayant Bhushan, learned Senior Counsel has made an earnest attempt to
urge that under Section 39 of the Indian Contract Act 1872 when a party to contract
has refused to perform his promise in its entirety; the promisee has the option of
putting an end to the contract unless he signifies his acquiescence in its
continuance. Learned Senior Counsel submitted that since proceedings under
Section 138 are in the nature of a civil wrong, though the legislature has imparted
criminal sanctions. The deed of compromise, according to the submission,
represented a novation. Extending this line of argument, it was urged that it was the
appellant who did not withdraw the criminal proceedings and pursued with the
arbitration in which event its conduct must be construed to amount to repudiation of
the settlement. Thus, it has been urged that the appellant can only insist on the
enforcement of the liability in relation to the first set of cheques.
50 We are unable to accept the line of argument on two grounds. First, as held
above, 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. Second, the breach of the deed of
compromise has arisen due to the dishonour of the cheques which were issued by
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36
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. For as a two judge Bench of this Court
held in HMT Watches Ltd. v. M.A. Abida31:
“10. […] Whether the cheques were given as security or not,
or whether there was outstanding liability or not is a question
of fact which could have been determined only by the trial
court after recording evidence of the parties. In our opinion,
the High Court should not have expressed its view on the
disputed questions of fact in a petition under Section 482 of
the Code of Criminal Procedure, to come to a conclusion that
the offence is not made out. The High Court has erred in law
in going into the factual aspects of the matter which were not
admitted between the parties.”
Following the above principle, another decision of a two judge Bench in Sampelly
Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd.32
held:
“16. As is clear from the above observations of this Court, it is
well settled that while dealing with a quashing petition, the
court has ordinarily to proceed on the basis of averments in
the complaint. The defence of the accused cannot be
considered at this stage. The court considering the prayer for
quashing does not adjudicate upon a disputed question of
fact.”
51 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.
31 (2015) 11 SCC 776 32 (2016) 10 SCC 458
PART C
37
Interpreting the provisions of Section 139 in Kumar Exports v. Sharma Carpets33
this Court has observed:
“18. Applying the definition of the word “proved” in Section 3
of the Evidence Act to the provisions of Sections 118 and 139
of the Act, it becomes evident that in a trial under Section 138
of the Act a presumption will have to be made that every
negotiable instrument was made or drawn for consideration
and that it was executed for discharge of debt or liability once
the execution of negotiable instrument is either proved or
admitted. As soon as the complainant discharges the burden
to prove that the instrument, say a note, was executed by the
accused, the rules of presumptions under Sections 118 and
139 of the Act help him shift the burden on the accused. The
presumptions will live, exist and survive and shall end only
when the contrary is proved by the accused, that is, the
cheque was not issued for consideration and in discharge of
any debt or liability. A presumption is not in itself evidence,
but only makes a prima facie case for a party for whose
benefit it exists.
19. The use of the phrase “until the contrary is proved” in
Section 118 of the Act and use of the words “unless the
contrary is proved” in Section 139 of the Act read with
definitions of “may presume” and “shall presume” as given in
Section 4 of the Evidence Act, makes it at once clear that
presumptions to be raised under both the provisions are
rebuttable. When a presumption is rebuttable, it only points
out that the party on whom lies the duty of going forward with
evidence, on the fact presumed and when that party has
produced evidence fairly and reasonably tending to show that
the real fact is not as presumed, the purpose of the
presumption is over.”
52 The accused, the Court held, may adduce direct evidence to prove that the
cheque in question was not supported by consideration and that there was no debt
or liability to be discharged. To disprove the presumption, the accused has to bring
on the record circumstances which may lead the court to believe that the
consideration and debt did not exist or it was so probable that a prudent man would
33 (2009) 2 SCC 513
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38
act upon the plea that they did not exist. After adverting to these decisions, a two
judge Bench in Kishan Rao v. Shankargouda34, noted in that case that:
“21. In the present case, the trial court as well as the
appellate court having found that cheque contained the
signatures of the accused and it was given to the appellant to
present in the Bank, the presumption under Section 139 was
rightly raised which was not rebutted by the accused. The
accused had not led any evidence to rebut the aforesaid
presumption. The accused even did not come in the witness
box to support his case. In the reply to the notice which was
given by the appellant, the accused took the defence that the
cheque was stolen by the appellant. The said defence was
rejected by the trial court after considering the evidence on
record with regard to which no contrary view has also been
expressed by the High Court.”
53 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. As held in Arun Kumar (supra) and discussed above, 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
34 (2018) 8 SCC 165
PART C
39
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 Madras 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, as we have
explained above, has 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.
54 A submission was urged by the appellants that in the event the second
complaint is found to be non-maintainable and the compromise deed is held to be
invalid, they would be left remediless and thus, the first trial should be allowed to
continue. We do not find any merit in this submission. In the event that the
compromise deed is found to be void ab initio on account of coercion, the very basis
for quashing of the first complaint is removed since the settlement agreement is
deemed to have never existed and hence it had no effect on the liability subsisting
under the first complaint. The appellants may then approach the competent court for
reinstatement of the original complaint and the trial can proceed on that basis.
PART D
40
D Conclusion
55 For the above reasons, we hereby pass the following order:
(i) We are of the view that the Single Judge was in error in quashing the
complaint CC No. 389/2017 pending on the file of the Seventh Metropolitan
Magistrate, Chennai. The judgment of the Single Judge quashing the
complaint is set aside;
(ii) Based on our analysis in Section C.1 above, we hereby quash the complaint
CC Nos.3326-3329 of 2012 and CC Nos.99-101 of 2013.
56 As regards the companion appeal, we have already noted the submission of
Mr Jayant Bhushan that the issue as to whether the transaction was not a sale or
otherwise could not have been enquired into in the course of the proceedings under
Section 482 CrPC. All the rights and contentions of the parties are kept open in the
course of the trial. Accordingly Criminal Appeal No. 1068 of 2021 arising out of SLP
(Criminal) No. 6564 of 2019 and Criminal Appeal Nos. 1069-1075 of 2021 arising
out of SLP (Criminal) Nos.7632-7638 of 2019 shall stand partially allowed in the
above terms.
PART D
41
57 Pending application(s), if any, stand disposed of.
…….………….…………………................................J.
[Dr. Dhananjaya Y Chandrachud]
…..…….………….…………………...........................J.
[Vikram Nath]
…..…….………….…………………...........................J.
[B.V. Nagarathna]
New Delhi;
October 08, 2021.
