NI Act | Large Number Of Cheque Bounce Cases Serious Concern, Courts Must Encourage Compounding If Parties Are Willing: Supreme Court

The Supreme Court recently reiterated that the purpose of making cheque bounce an offence was to ensure reliability of cheques, and compensatory aspect of remedy under the Negotiable Instruments Act, 1881 has priority over the punitive aspect in such cases.

A bench of Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah observed that courts should encourage settlement in cheque dishonour cases.

“It is to be remembered that dishonour of cheques is a regulatory offence which was made an offence only in view of public interest so that the reliability of these instruments can be ensured. A large number of cases involving dishonour of cheques are pending before courts which is a serious concern for our judicial system. Keeping in mind that the 'compensatory aspect' of remedy shall have priority over the 'punitive aspect', courts should encourage compounding of offences under the NI Act if parties are willing to do so”, the court held.

The Court referred to its earlier decision in Raj Reddy Kallem v. State of Haryana & Anr., where it quashed a conviction despite the complainant refusing to give consent, observing that the accused had sufficiently compensated the complainant.

The court set aside the conviction of M/s New Win Export and its partner P. Kumarasamy (appellants), in a cheque bounce case following a settlement between the parties. The case arose from a complaint filed under Section 138 of the NI Act by A. Subramaniam, the respondent.

In 2006, Kumarasamy borrowed Rs. 5,25,000 from the respondent. To repay the debt, he issued a cheque for Rs.5,25,000 in the name of his partnership firm, M/s New Win Export. The cheque was dishonoured due to insufficient funds, prompting the respondent to file a complaint under Section 138 of the NI Act.

The Trial Court, in its order dated October 16, 2012, convicted the appellants and sentenced the accused to one year of simple imprisonment each. The appellants appealed the conviction, and the Appellate Court subsequently acquitted them. However, upon further appeal by the complainant, the High Court reversed the Appellate Court's decision on April 1, 2019, and reinstated the Trial Court's conviction.

Before approaching the Supreme Court, the appellants and the complainant entered into a settlement agreement on January 27, 2024. As per the agreement, the appellants paid Rs.5,25,000 to the complainant, who agreed to settle the matter and had no objection to the appellants' conviction being set aside.

The Supreme Court noted that Section 147 of the NI Act allows for the compounding of offences under the Act. The Court highlighted that under Section 320(5) of the Criminal Procedure Code (CrPC), compounding after conviction requires the leave of the court where the appeal is pending.

The Court stressed the importance of verifying the authenticity of the settlement documents at the appellate stage. In this case, the complainant had filed an affidavit confirming the settlement and receipt of the payment, and expressed no objection to setting aside the conviction.

Recognizing the genuineness of the settlement, the Court concluded that maintaining the conviction would serve no purpose. “In our opinion, this settlement agreement can be treated to be compounding of the offence”, said the court.

Therefore, the Supreme Court allowed the appeal, set aside the High Court's order dated April 1, 2019, and the Trial Court's order dated October 16, 2012. The appellants were acquitted, and Kumarasamy, who had been exempted from surrendering, was not required to surrender.

Case no. – Criminal Appeal No. 2948 of 2024

Case Title – M/s. New Win Export & Anr. v. A. Subramaniam

Citation : 2024 LiveLaw (SC) 490