S.138 NI Act | Offence Can Be Compounded At Initial Stage Without Complainant's Consent, Provided They Are Duly Compensated

Justice Anil Pansare of the Nagpur bench quashed a cheque bounce case against six out of twelve accused subject to the accused depositing the cheque amount along with interest and litigation costs as compensation to the complainant.

“when the application for compounding offences u/s 138 of the NI Act is made at the initial stage of the case and if the complainant is duly compensated, the trial Court will be fully justified in compounding the offence without consent of the complainant”, the court held.

The court set aside an order passed by the Additional Chief Judicial Magistrate (ACJM) in Nagpur, who rejected an application by the six persons for compounding the offence on the ground that the complainant-company did not consent to such compounding.

The court further held that a piecemeal compromise and compounding of offences qua only some of the accused would be valid in appropriate cases.

The court stayed the impugned judgment for six weeks at the request of the complainant who expressed intention to challenge the order before the Supreme Court.

Twelve entities or individuals were accused of dishonouring a cheque amounting to Rs. 15 lakhs. The complainant company alleged that the accused, including the applicants, had placed purchase orders for specific materials. The complainant supplied goods for approximately Rs. 3.16 crores, and to settle part of this liability, a cheque of Rs. 15 lakhs was issued by the accused company.

The cheque, however, bounced due to insufficient funds, leading to the legal proceedings.

The applicants, who are directors of the accused company, approached the High Court after the trial court refused to compound the offence.

The applicants contended that the impugned order failed to consider precedents set by the Supreme Court in Damodar S Prabhu v. Sayed Babalal (2010) and Meters and Instruments Private Limited v. Kanchan Mehta (2018) which allowed for compounding without the complainant's consent.

The complainant relied on JIK Industries Limited and Ors. v. Amarlal V Jumani and Anr. (2012) to argue that court cannot compound an offence without the complainant's consent.

The court opined that the JIK Industries case and the Meters and Instruments case, both passed by division benches of the Apex Court, did not have a conflict.

It held that while an offence under section 138 would not get automatically compounded without the complainant's consent, a court could, in appropriate cases, compound the offence without the complainant's consent, as held in Meters and Instruments case.

According to Supreme Court guidelines in Damodar's case, a Writ of Summons could be modified making it clear to the accused that he could seek compounding of the offences at the first or second hearing of the case and compounding may be allowed by the court without imposing any cost.

In the present case, the court noted, that the summons issued to the applicants did state that if compounding was sought at the first or second hearing of the case, it may be allowed. The applicants applied for compounding on the third hearing, the court noted.

It was opined that unless the complainant gives justifiable reason to not give consent, the trial court has to consider the application for compounding favourably, otherwise the very purpose of issuing summons encouraging accused to opt for compounding would be defeated.

The court rejected the complainant's argument that adequate compensation in this case would be based on not just the value of the cheque but the entire dispute of alleged dues of Rs. 3 crores. The concept of “duly compensated” will have to be considered, as per the NI Act and the cheque value, the court held.

The court noted that accused company is undergoing a Corporate Insolvency Resolution Process and the complainant has initiated recovery proceedings under the Insolvency & Bankruptcy Code, 2016 for the claim amount. The court said that withholding consent for compounding in such a case on the ground that dues of Rs. 3 crores are owed amounts to abuse of process of law.

Accordingly, the court allowed the criminal application.

The compounding of offences was granted, subject to the applicants depositing Rs. 15,00,000 along with interest at 9 percent from December 23, 2017, to December 11, 2018, and an additional Rs. 25,000 as litigation costs, as the accused sought to compound on the third hearing, and not the first or second hearing as provided in Supreme Court guidelines.

Advocates DP Singh and KN Shukul represented the applicants. APP Shamsi Haider represented the State. Senior Advocate Anand Jaiswal along with advocate SG Joshi represented the complainant.

Case no. – Criminal Application (APL) No. 566/2023

Case Title – Anuradha Kapoor and Ors. v. State of Maharashtra and Ors.