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New guidelines of SC for dealing with cheque bouncing cases

G S Rao , Last updated: 05 December 2017  


1.1 The recent judgment rendered by two judges bench of Supreme court in the case M/s Meters and Instruments Private Ltd Vs Kanchan Mehta, gives relief to accused persons as primacy is given to summary trial and compounding of offence u/s 138 of Negotiable Instruments Act,1881. As per this judgment, the complainant cannot refuse to give consent for compounding, if compensation as assessed by the court meets the ends of justice. The bench considering ultimate object of 2002 amendments to NI, Act, held that trial court can achieve twin objectives of summary trial and also providing compensation to the Complainant as per Section 143(Summary trial) Section 147 (Compounding) of NI Act, read with Section 258 of Cr.PC (discharge of accused)

1.2 The other significant aspect of this judgment is that it reinforced already laid guidelines for expeditious trial and disposal of 138 cases, barring cases where accused person contests the complainant's case or compensation is not adequate or sentence of more than one year is warranted. This article highlights the situation that existed prior to this judgment and scenario post the judgment

Background to the appeals:

2.0 This judgment disposed of two appeals filed against the order of High court of Punjab and Haryana which rejected the prayer of the accused persons for compounding the offence u/s 138 of NI, Act and dispense with their personal appearance.

2.1 The lower court in one of these appeals held a view that the case cannot be tried summarily as sentence of more than one year has to be passed. In the second appeal, the accused was ready and willing to pay the cheque amount by Demand draft as per guidelines of Damodar S Prabhu Judgment but the complainant refused to accept the payment and the prayer for compounding was rejected. Thus the Apex court had to address the following two issues in this appeal.

i. Whether personal appearance of the accused should be exempted?
ii. Whether consent of the complainant is required for compounding offence u/s 138 of NI, Act?

Compounding guidelines prior to this judgment:

3.0 In Damodar.S Prabhu Vs. Sayed Babalal H (2010)5 SCC 663 Apex court laid guidelines to bring uniformity in compounding of offence and also to encourage early settlement of cheque bouncing cases for reducing the burden of courts. It is necessary to mention here that in this particular case both the parties were willing to compound the offence. As per guidelines in this judgment, if an application for compounding is made at the first or second hearing, no costs will be imposed. If it is made in the second or subsequent hearing, 10 % of the cheque amount will be payable as fine. 15% of cheque amount is payable, in appeals before Sessions court/high court and 20% in the case of appeal before Supreme court.

Scenario after current judgment

3.1 Now the right of complainant to object compounding is limited to cases where huge amount of compensation cannot be awarded by the court and awarding sentence becomes necessary. This matter is dealt with in detail in the following paragraphs.

Observations of Supreme Court:

4.0 The observations of Supreme Court in this judgment can be summed up as follows:-

On exemption from personal appearance of Accused

a) With regard to dispensing with personal appearance of accused person, the bench referred to section 143 of the Act and reiterated that summary procedure to be followed for 138 cases is flexible and application of Cr.PC provisions are not strictly applicable. Apex court expressed its view that evidence in the presence of Advocate can be recorded as per 273 of Cr.PC and Magistrate is empowered to proceed with trial even in the absence of accused, if he is represented by the pleader or Advocate as per Section317 of Cr.PC. It referred to Apex court's earlier judgment in the case 'Bhaskar Industries Ltd Vs Bhiwani Denim & Apparels Ltd (2001) 7 SCC 401 and noted that in appropriate cases, Magistrate should exercise his power u/s 205 Cr.PC and exempt personal appearance of the accused to avoid hardship without causing prejudice to the prosecution proceedings. It is further clarified that this judgment does not take away the power of the Magistrate to insist for presence of the accused, if it feels appropriate.

On Compounding

b) Amendments were made in 2002 to NI, Act, to make trial of 138 cases simple, swift and permit compounding of offence. Keeping in view the objective of amendments made in 2002 to NI, Act, compounding should be encouraged at the early stage of litigation.

c) The Bench noted that object of the Act is not only to provide cheque amount but also to provide for compensation up to double the amount of the cheque to cover interest and costs as per Section 357((1)(b) and (3) of Cr.PC. In Vijayan Vs Baby(2012 1 SCC 260, the Apex court held that Section 357 (1) (b) of Cr.PC provides for payment of compensation for the loss caused by the offence out of the fine.

d) The bench also noted that guidelines were framed in the case Damodar S Prabhu Vs Sayed Babalal for compounding of offence to encourage early disposal of Section138 cases.

e) After taking cognizance of offence, summons be sent by Post/E- mail/Courier clearly indicating the specified amount to be deposited on specified date. This will facilitate early closure of proceedings and discharge the accused. Thus interests of both complainant and Accused are balanced.

f) The bench noted that as per the judgment delivered in the case of JIK Industries Ltd Vs Amarlal Jumani(2012) 3 SCC 255, consent of the complainant is required for compounding of offence u/s section 138 of negotiable instruments Act. While examining this issue of consent for compounding, it gave following reasons as to why consent of Complainant is not to be encouraged where compensation is an adequate measure.

• Section 138 offence is a regulatory offence. Primary objective of NI Act, is to inculcate faith in use of cheques in commercial transactions and to curb dishonour of cheques. The punitive provision is to ensure compensation. Therefore compounding at the initial stage has to be encouraged.

• Even in the absence of consent, in cases where awarding compensation u/s 357(3) meets the ends of justice, the court can use its discretion to stop the proceedings and discharge the accused by exercising power u/s 258 of Cr.PC.

• Where sentence of one year may have to be awarded and the compensation is not an adequate measure, considering the size of the amount and conduct of the accused, then only summons trial procedure be followed

New directions/guidelines:

5.0 Keeping in view guidelines of Apex court in the case of Indian Bank Association and Ors Vs. Union of India & Ors (2014) 5 SCC 590, the bench through this judgment emphasized on use of technology, summary trial, advocated for online/video conferencing. The following are those recommendations:-

a. In every complaint filed under Section 138 of NI Act, it is desirable that the complainant may give his bank account number and e-mail ID of the accused. If email ID is available with the bank where the accused has an account, it may be collected from the bank.

b. The court may indicate in the summons served that the court will assess the compensation, if justified, it can close the proceeding on the specified date on payment of specified amount. The accused can respond and signify his consent for settlement; the court can close the case and discharge the accused.

c. Where compensation is inadequate having regard to amount of cheque, conduct financial capacity of the accused, sentence exceeding one year is necessary, then sentence may be awarded.

d. Use modern technology and dispose of cases online where disputed questions are not required to be adjudicated. Affidavits and documents be allowed to be filed on line and processed online. This will obviate the need for personal appearance of the complainant or accused.

e. Even where the case is contested by the accused, the presence of the accused may be allowed through his counsel.

f. Wherever it is possible video conferencing can be used for recording the presence of the complainant or accused.

g. In case the accused wants to contest the case, he must disclose specific defence for contest. Even then the court can still explore the possibility for settlement.

h. It is left open to the High courts to consider and lay down category of cases where proceedings or part thereof can be conducted online by designated courts or otherwise and any other directions.

i. It is further left open to High Courts to issue any further updated directions, keeping in view the above directions for expeditious disposal of 138 cases.

Conclusion: The trend of judgments since 'Indian Banks Association' case, indicate that continuous efforts are being made by high courts and Apex court for simplifying the procedure for dealing with 138 cases and laid emphasize on compensation in preference to imposing sentence of imprisonment. The new guidelines encourage use of modern technology which will certainly pave way for expeditious disposal of 138 cases. It is a win-win situation for courts, complainants and accused persons, as all get relief by cutting short the time taken for hearings and disposal of 138 cases.

  • Source: (1) Negotiable Instruments Act, 1881. (2) Judgments of high courts and Supreme court
  • Tags: Negotiable Instruments Act, 1881, Dishonour of Cheques, compounding

Disclaimer: This article contains interpretation of the Act and personal views of the author are based on such interpretation. Readers are advised either to cross check the views of the author with the Act or seek the expert's views if they want to rely on contents of this article.

Published by

G S Rao
(Deputy General Manager)
Category Others   Report

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