With the surge in electronic monetary transactions and the increase in issuance of cheques during business dealings, there has been a corresponding increase in criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the NI Act), commonly known as cheque dishonour or cheque bounce cases.

In examining the statutory framework governing the settlement of cheque dishonour cases, it is pertinent to note that Section 147 of the NI Act explicitly stipulates that offences punishable under Section 138 of the NI Act are compoundable in nature. For ease of reference, the relevant provision is reproduced hereinbelow:

Section 147 of NI Act

Offences to be Compoundable—Notwithstanding anything contained in the Code of Criminal Procedure, 1973, every offence punishable under this Act shall be compoundable.

Legality of Settlement in 138 Ni Act Cases:

In the landmark judgment dated 17.10.2017 titled as “DAYAWATI Vs YOGESH KUMAR GOSAIN”, a division bench of Hon’ble High Court of Delhi held that it is legal to refer a criminal compoundable case as one under Section 138 of the NI Act to mediation. In the said judgment, apart from legality of settlement in 138 of the NI Act cases, the Court delved into the question of procedure to be followed by Courts after the Settlement and the process of recovery of the settlement amount in case of non compliance of the settlement terms by the Accused persons.

Effect of Non Compliance of Settlement Terms by Accused:

While Courts allow compounding of cheque dishonour cases under Section 138 of the Negotiable Instruments Act, 1881, at any stage of the proceedings, a recurring concern arises when the accused, having benefited from a settlement with the complainant, fails to comply with the agreed terms. The critical questions that arise for consideration is What remedies are available to the complainant for recovering the settlement amount from the accused?

In practice, Courts often keep the original 138 NI Act Complaint pending until the complete settlement amount has been paid by the accused in terms of the settlement agreement. In numerous cases, the accused person issues post dated cheques corresponding to the payments of instalments stipulated in the settlement agreement. When such cheques are dishonoured upon presentation, a pertinent legal issue arises: Can the complainant initiate a separate complaint under Section 138 for the dishonour of cheques issued pursuant to the settlement, while simultaneously pursuing the original complaint?

Various Courts have considered whether parallel prosecutions arising from single transaction under Section 138 of the NI Act can be sustained?

The Hon’ble Supreme Court of India in its judgment dated 08.10.2021 titled as “M/s Gimpex Private Limited vs. Manoj Goel”, addressed the issue comprehensively. The Apex Court held that once parties have voluntarily entered into a compromise 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.

The Hon’ble High Court of Delhi, in its judgment dated 24.04.2024 in “Vinod Bansal vs M/S Intec Capital Ltd.”, reiterated the legal position established in Gimpex (supra). The Court held that:

“….Applying the dicta of the Supreme Court in Gimpex (Supra) to the facts of the present case, it is clear that the respondent/complainant could not have maintained a complaint qua the initial cheque issued by the petitioner in his capacity as a guarantor inasmuch as once the parties had entered into a settlement, the respondent could only have gained a cause of action once the cheque issued in pursuance of the settlement were dishonoured.”

Other Remedies Available to Complainant to Recover Settlement Amount

The judgment in “DAYAWATI Vs YOGESH KUMAR GOSAIN” (supra) provides significant clarity on the remedies available to the Complainant when a settlement agreement is not complied with by the accused. One of the key questions addressed by the Court in this regard is:

“Question IV : If the settlement in Mediation is not complied with – is the court required to proceed with the case for a trial on merits, or hold such a settlement agreement to be executable as a decree?

In case the mediation settlement accepted by the court as above is not complied with, the following procedure is required to be followed:

(i) In the event of default or non-compliance or breach of the settlement agreement by the accused person, the magistrate would pass an order under Section 431 read with Section 421 of the Cr.P.C. to recover the amount agreed to be paid by the accused in the same manner as a fine would be recovered.

(ii) Additionally, for breach of the undertaking given to the magistrate/court, the court would take appropriate action permissible in law to enforce compliance with the undertaking as well as the orders of the court based thereon, including proceeding under Section 2(b) of the Contempt of Courts Act, 1971 for violation thereof.”

It is pertinent to mention here that Dayawati judgment gave a clear picture regarding the recourse available to the Complainant for recovering the settlement amount and for that matter, it is important to understand Section 421 and 431 of Cr.P.C, which govern the recovery of money payable as fines:

Section 421 of Cr.P.C. (now substituted by Section 461 of the Bharatiya Nagarik Suraksha Sanhita, BNSS) provides for Warrant for levy of fine by prescribing two methods of recovering the amount as follows:

1. Issuance of warrant for the realisation of the amount by attachment and sale of any movable property
2. Issuance of warrant to the Collector of the district, authorising him to realise the amount as arrears of land revenue from the movable or immovable property

Whereas, Section 431 of Cr.P.C. (now substituted by Section 471 of the BNSS) stipulates that Any money (other than a fine), payable by virtue of any order made under Cr.P.C. and the method of recovery of which is not otherwise expressly provided for, shall be recoverable as if it were a fine.

The Hon’ble High Court of Delhi in its judgment dated 03.09.2022 titled as “Raja Arora & Anr. vs Ms. Meera Arun & Ors.” set aside the order of trial court of dismissing the application of the Complainant for recovery of settlement amount u/s 421 and 431 of Crpc and directed the Trial Court to enforce the terms of the settlement agreement against the accused by way of attachment of the property by holding as under:

“…..after the mediation settlement the entire amount, be it outstanding in some other Court can be realised by the Court which has accepted the settlement and it may proceed for recovery under Section 431/421 Cr.P.C.”

Conclusion:

From the above mentioned judgments, it can be adduced that Settlement in cheque dishonour cases u/s 138 of NI Act recorded by the Court after satisfying its voluntariness is legally binding and the parties cannot be allowed to reverse the effects of the agreement. Once a settlement is reached, it supersedes the original complaint, preventing double prosecution. Overall, the legal framework ensures both the enforcement of settlements and the recovery of dues, providing a fair mechanism for resolution.