Section 138 NI Act | Conviction Cannot Be Confirmed Overriding Agreement Between Parties To Compound The Offence : Supreme Court

The Supreme Court recently set aside an order of the Telangana High Court which confirmed the conviction in a cheque dishonour case overriding the agreement between the parties to compound the offence.

A bench comprising Justices Krishna Murari and V Ramasubramanian held that when parties to a litigation proceeding have entered into an agreement to compound a compoundable offence, High Courts cannot override such compounding and impose their will on the parties.   

Brief Facts of the Appeals 

The Appeals were filed against the judgment  passed by the High Court of Judicature at Hyderabad convicting the Appellants for offences under Section 138 of the Negotiable Instruments Act, 1881. 

During the revision before the High Court, the parties entered into a Memorandum of Understanding to settle the dispute. Clause 8 of the Memorandum Of Understanding stated that the dispute was to be settled amicably, and in the event of the dispute still not being amicably resolved, it must be first referred to a sole Arbitrator. Another clause in the agreement stated that the Respondent No. 2 would file a compromise petition before the High Court. 

However, it must be noted that the Respondent No. 2 never filed a compromise petition and that led to the High Court dismissing the Revision and confirming the conviction of the Appellants. 

Court's Analysis

Referring to the MoU entered into by the parties, the top court said, "terms and conditions of the settlement entered into by the parties binds them to settle the dispute amicably, or through an arbitration as has been stated in clause 8 of the Memorandum Of Understanding. In such a circumstance, the Appellants cannot be convicted on the basis of the orders passed by the courts below, as the settlement is nothing but a compounding of the offence." 

The Court further held, "This is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation. When such a step has been taken by the parties, and the law very clearly allows them to do the same, the High Court then cannot override such compounding and impose its will."

With the above observations, the top court allowed the Appeals and resultantly set aside the order of conviction passed by the trial court. 

Case Title: BV Seshaiah vs State of Telangana  & B Vamsi Krishna vs State of Telangana

Citation : 2023 LiveLaw (SC) 75

For Petitioner(s M/S. M. Rambabu And Co., AOR Mr. Mullapudi Rambabu, Adv. Ms. Prity Kumari, Adv. Mr. N. Eswara Rao, Adv.

For Respondent(s) Mr. S.. Udaya Kumar Sagar, AOR Mr. Lakshay Saini, Adv. 

Negotiable Instruments Act 1881 - Section 138- conviction cannot be confirmed overriding the agreement between the parties to compound the offence- Terms and conditions of the settlement entered into by the parties binds them to settle the dispute amicably, or through an arbitration as has been stated in clause 8 of the Memorandum Of Understanding. In such a circumstance, the Appellants cannot be convicted on the basis of the orders passed by the courts below, as the settlement is nothing but a compounding of the offence- This is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation. When such a step has been taken by the parties, and the law very clearly allows them to do the same, the High Court then cannot override such compounding and impose its will.- Para 8,9,11

Code of Criminal Procedure 1973 -Section 320 - Negotiable Instruments Act 1881 - Section 147-Compounding of offences- The Appellants cannot be convicted on the basis of the orders passed by the courts below, as the settlement is nothing but a compounding of the offence-This is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation. When such a step has been taken by the parties, and the law very clearly allows them to do the same, the High Court then cannot override such compounding and impose its will - Para 8,9,11

Negotiable Instruments Act 1881 - Section 138, 147 -The nature of offence under section 138 of the N.I Act is primarily related to a civil wrong and is a compoundable offence-M/S Meters and Instruments Private Limited & Anr. Vs Kanchan Mehta 2018 (1) SCC 560 - Para 10

Read the Judgment Here