Can cheque dishonour proceedings be closed without consent of complainant? Lack of clarity in law

Section 138 of the Negotiable Instruments Act, 1881 (NI Act) was added by way of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988. A new Chapter XVII was incorporated for penalties in cases of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque.

This amendment was brought with the predominant purpose of enhancing the sanctity of a cheque given by the drawer of the cheque to the payee of the cheque.

Section 147 of the NI Act provides a broad prescription that every offence committed under the Act can be compounded. However, this Section does not provide any legislative guidance as to how and at what stage this compounding can take place. In the seminal judgment of Damodar S Prabhu v. Sayed Babalal H, the Supreme Court attempted to fill in the legislative vacuum. It held that the compounding of a cheque dishonour offence can be done before the trial court, the sessions court, the High Court or even the Supreme Court. Furthermore, it held that the more the accused causes delay in compounding of the offence, the higher the one-time penalty it shall have to deposit with the court allowing compounding. This judgment made it clear that compounding can very well take place post-conviction and sentencing by the trial court.

However, this judgment did not contemplate a situation where the accused would be willing to compound the matter by providing the cheque amount (and a reasonable interest and cost in addition to it too), but the complainant does not agree to compound the matter.

Leaving this issue open, the Supreme Court opened up various permutations and combinations in the hands of the complainant who could now very well abuse the quasi-criminal nature of this offence. The Court failed to envisage a situation where the complainant could demand abnormal sums of money from the accused by putting the accused in fear of potential imprisonment under Section 138 of NI Act. The complainant simply has to not provide consent for compounding, which is mandatory as per the mother provision under Section 320 of the Code of Criminal Procedure (CrPC), 1973, which regulates all forms of compounding.

In my experience, and I am sure in the experience of many other practitioners, the civil remedy of seeking recovery of the outstanding amount and the remedy under the NI Act for seeking prosecution for a cheque dishonour are pursued simultaneously by the plaintiff/complainant.

For instance, X (seller) needs to recover ₹1,20,00,000/- from Y (buyer) on the basis of the updated ledger of X. Y also hands over a cheque of ₹50,00,000/- in part discharge of its liability. X presents this cheque and the same gets dishonoured on presentation due to insufficiency of funds in Y`s account. In such cases, X shall file a civil suit for recovery of Rs. ₹1,20,00,000/- and file a Section 138 criminal complaint for dishonor of cheque of ₹50,00,000/-.

Given the above remedies which most sellers pursue, it is very common that the plaintiff/complainant can leverage the Section 138 trial, appellate or revision proceedings for the purposes of demanding the total amount in dispute (₹1,20,00,000/- in the above example) or possibly a much higher amount too. As mentioned above, the judgment of Damodar S Prabhu enunciated that the accused can compound the offence post conviction and sentencing. Juxtaposing this situation with what has been mentioned above, there would be several situations where the accused is facing a sentence of 3, 6, 9 or 12 months under the NI Act, 1881 and now having suffered this sentence, wants to compound the offence as per Damodar S Prabhu guidelines. This will present the perfect situation for a complainant who now knows that the accused is at their mercy and the accused would have to mandatorily satisfy the demanded amount by the complainant in case they wish to not suffer imprisonment.

In order to provide a solution to the above stated problem, the Supreme Court in Meters & Instruments Private Limited v. Kanchan Mehta held that since dishonour of a cheque is primarily a civil wrong, the appropriate court can at its discretion close the proceedings when the accused has paid the cheque amount along with a reasonable interest and litigation costs. The appropriate court can exercise this power under Section 258 of Code of Criminal Procedure, 1973 (CrPC) even in those cases where the complainant does not provide consent for the compounding of the offence.

This judgment of Meters was followed by the High Court of Madras in R Kalaiyarasi v C Jaipal [2018 SCC OnLine Mad 1331] and in M/s Som Distilleries Ltd. v State of MP by the High Court of Madhya Pradesh. The legal position in Meters that compounding of a Section 138 offence can also be done without the consent of the complainant was further followed by the Delhi High Court in Nayati Medical Pvt Ltd & Ors v. AS Pharma Pvt Ltd. The Allahabad High Court also followed this reasoning in Rani Gaur v State of UP.

In contrast to the above, there was a parallel line of judgments pronounced by the Supreme Court and the High Courts stating that no proceedings under Section 138 can be closed or compounded in cases where the complainant does not consent to the same. These pronouncements include In Re : Expeditious Trial of Cases Under Section 138 of NI Act, wherein the Supreme Court held that Section 258 of CrPC cannot apply to prosecutions under a complaint lodged under Section 138 of the NI Act because Section 258 of CrPC only applies in any summons-case instituted otherwise than upon complaint. Essentially, the Supreme Court in this judgment stated that Section 138 proceedings cannot be closed without the consent of the complainant.

Therefore, to the extent that the Meters judgment relies on Section 258 of CrPC to close the proceedings, the Court In Re: Expeditious Trial of Cases overruled the Meters judgment. It is noteworthy to mention here that In Re: Expeditious Trial of Cases was a judgment pronounced by a Constitution Bench of five judges, whereas Meters was a judgment pronounced by a bench of two judges. This line of reasoning as enunciated in In Re: Expeditious Trial of Cases was followed by the Supreme Court in Prakash Gupta v SEBI [(2021) 17 SCC 451].

Most recently, in Anuradha Kapoor & Ors v. State of Maharashtra & Ors, the Bombay High Court adopted the line of reasoning provided in Meters and compounded the offence without the consent of the complainant. Interestingly, this judgment by the Bombay High Court does notice the judgment of In Re: Expeditious Trial of Cases in its judgment.

Therefore, it is clear that there is a divergence of views adopted by the Supreme Court and different High Courts on the given issue at hand. I do not think there is any doubt that the present law of the land in light of the five-judge bench judgment of In Re: Expeditious is that compounding of an offence under Section 138 of the NI Act, 1881 cannot be done without the consent of the complainant.

Whether this position of law is desirable or not is the next question which falls for consideration. In my opinion, this position of law is severely problematic, because in the present scenario, the complainant gets arbitrary power to ask for an amount which is much higher than the cheque amount and the applicable interest on it. The present scenario is also problematic as it takes away the power from the accused to compound the cheque dishonour offence even after the accused is willing and ready to make the payment of the cheque amount along with reasonable interest and litigation costs to the complainant.

The Supreme Court seems to be absolutely right in stating that Meters judgment is premised on a wrong application of Section 258 of the CrPC as Section 258 of CrPC cannot apply to summons cases filed through private complaints. But, the effect of such overruling of the Meters judgment by the Supreme Court leads to problematic consequences, giving excessive bargaining power to the complainant. Maybe a legislative amendment expanding the text and scope of Section 147 of the NI Act is one of the solutions to the given problem. 

Roshan Santhalia is an Advocate on Record at the Supreme Court.