A COMPLAINT UNDER SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT CANNOT BE PROCEEDED ONCE THE ACCUSED AND COMPAINANT ENTERED INTO A SETTLEMENT AGREEMENT

[Mr. M. GOVINDARAJAN]

In ‘M/S GIMPEX PRIVATE LIMITED VERSUS MANOJ GOEL [2021 (10) TMI 378 - SUPREME COURT],  the appellant entered into three High Seas Sale Agreements with Aanchal Cement Limited (‘ACL’ for short).   On the request of ACL, the appellant paid an amount of ₹ 6.96 crores as customs duty and ₹ 8.04 crores as wharfage charges in order to clear the goods on behalf of ACL which is alleged to have promised to repay the amount with interest.   Though the appellant supplied the goods, ACL failed to make payments.   On 06.08.2012, ACL issued 18 cheques dated 08.08.2012, each in the amount of ₹ 50 lakhs, for a total value of ₹ 9 crores in favor of the appellant in part payment of the outstanding liability.  The said 18 cheques were dishonored due to want of fund in the account.

A complaint was lodged by the appellant on with the Commissioner of Police against ACL and its directors for offences under Sections 409 and 506(1) of the Indian Penal Code 1860.  The said complaint was registered and filed an FIR.  The appellant issued legal notices under Section 138 of the Negotiable Instruments Act to ACL and its directors - Sitaram Goel, Manoj Goel (the respondents) and Mukesh Goel in respect of the dishonor of the 18 cheques.  The appellant filed criminal complaints under Section 138 of the Negotiable Instruments Act, in respect of the dishonor of the cheques of the value of ₹ 9 crores.   Sitaram Goel filed petitions under Section 482 of the Cr.PC for quashing the complaints qua him.    Later Mukesh Goel, a director of ACL was arrested by the Central Crime Branch.  Mukesh filed a bail application.

During the pendency of the bail application, ACL approached the appellant to settle the matter and arrive at a compromise.   According to the settlement-

• ACL would hand over a demand draft to the appellant for ₹ 3 crores on 11.03.2013.
• On receipt of the amount ACL would file no objection for bail application of Mukesh.
• ACL would pay the balance amount in 3 installments @ ₹ 2,33,33,333/- every month and the same would be paid on or before of the following month i.e., on 11.04.2013, 11.05.2013 and 11.06.2013.
• ACL would hand over the three cheques to the appellant.
• The appellant on encashing the cheques dated 11.04.2013 would withdraw the garnishee application filed in Arbitration proceedings filed against the ACL pending before Madras High Court.
• After the settlement of the entire amount the appellant shall withdraw all criminal complaints, suits, arbitration proceedings.
• ACL shall withdraw the suit filed against the appellant before the Civil Court, Kolkata.

It is agreed by both parties, contravention of the terms of settlement would amount to cheating and fraud and the bail granted to Mukesh shall be deemed to be cancelled.  Mukesh was granted bail on the basis of the above settlement.

Despite this position ACL instituted a suit before High Court, Madras challenging the settlement deed as illegal, null and void and to return the cheques issued to the appellants pursuant to the settlement.  Initially, an interim injunction was issued and the cheques were replaced. By an order dated 02.12.2013, the interim application was rejected and the claim of ACL that the deed of compromise was obtained by force, fraud and coercion was not found to be worthy of acceptance.   An appeal against the judgment of the Single Judge was dismissed as withdrawn on 12.12.2014.

The Supreme Court, on appeal, stayed further proceedings arising out of FIR.   On 15.11.2016, the Madras High Court dismissed the proceedings initiated by Sitaram Goel for quashing of the first set of complaints under Section 138 of the Negotiable Instrument Act against him.  Since the cheques issued under the settlement terms were dishonored the appellant filed a second criminal complaint.  ACL and its directors filed petitions before Madras High Court to quash the criminal proceedings initiated against them under section 138 of the Negotiable Instruments Act.   They also filed petitions before Madras High Court to quash the second complaint filed by the appellant against them.  The High Court refused to quash the criminal proceedings against them.   The petitioners are granted liberty to approach the High Court again to take up this plea and we expect the High Court to deal with the issue on its own merits.   The High Court also refused to quash the criminal proceedings in the second complaint.

ACL filed an application seeking review together with the clarification of the findings to the effect that they shall not influence the trial of the criminal complaint. The High Court passed their order on 08.07.2019.  Against this order appeal was filed before the Supreme Court.

The appellants submitted the following before the Supreme Court-

• The offence under Section 138 of the Negotiable Instruments  Act, 1881 is complete once its ingredients are fulfilled.
• Once the offence is complete and a prosecution is launched, it must proceed to trial.
• It was not open to the High court in the exercise of its jurisdiction under Section 482 Cr.PC to quash the prosecution on the basis of the deed of compromise which has not been implemented due to the default of the accused.
• Whether a liability exists and whether the cheques were issued, as indicated in the defence,  as and by way of security are matters for trial.
• In view of the presumption under Section 139 of the Negotiable Instruments Act, at this stage the Court has to proceed on the basis that the cheques were issued in discharge of a legally enforceable debt.
• The mere pendency of a suit seeking to challenge the deed of compromise is not a ground to quash the criminal complaint given the clear distinction in law between an order of conviction and an order at an anterior stage seeking quashing of a criminal complaint.
• There is no embargo under Section 138 of the Negotiable Instruments Act on parallel proceedings for distinct offences involving the dishonor of cheques.

The respondent submitted the following before the Supreme Court-

• The essential issue is whether a criminal trial can go on with both sets of cheques.
• The important ingredient of Section 138 is that a cheque must be for the discharge, in whole or in part of any debt or other liability. 
• There cannot be a two prosecutions for the same liability.
• The liability under the first set of cheques was replaced following the deed of compromise by the second set of cheques;
• As a consequence of the deed of compromise there was a novated contracted between the parties.
• It is open to the appellant as the promisee to elect whether to repudiate the agreement or continue with its performance on breach of the agreement by the respondents.
• The appellant has in fact repudiated the deed of compromise by failing to withdraw the criminal complaint and the arbitral proceedings.
• The appellant can in the circumstances only enforce the liability in respect of the first set of cheques as a consequence of which the criminal prosecution in respect of only the first set may proceed.

The Supreme Court considered the submissions made by the parties to the appeal.  The principal issue to be considered by the Supreme Court is as to whether parallel prosecutions arising from a single transaction under Section 138 of the Negotiable Instruments Act can be sustained.  In this case, the Supreme Court, the first set of cheques issued to the appellant was dishonored for which he filed a complaint against the accused.  Then settlement reached between the parties.  The cheques issued by the respondent on the terms of the settlement were also dishonored.  Therefore the appellant filed a second complaint against the respondent.  Both the proceedings were pending before the Court.  The Supreme Court is now to decide whether the complainant can be allowed to pursue both the cases or whether one of them must be quashed and the consequences resulting from such quashing.

The Supreme Court analyzed the provisions of section 138 of the Negotiable Instruments Act and also relied on some judgments on this issue.  The Supreme Court observed that the primary purpose of Section 138 of the Negotiable Instrument Act is to ensure compensation to the complainant, the Negotiable Instrument Act also allows for parties to enter into a compromise, both during the pendency of the complaint and even after the conviction of the accused.   The parties are encouraged to settle the dispute resulting in ultimate closure of the case rather than continuing with a protracted litigation before the court. This is beneficial for the complainant as it results in early recovery of money; alteration of the terms of the contract for higher compensation and avoidance of litigation. Equally, the accused is benefitted as it leads to avoidance of a conviction and sentence or payment of a fine. It also leads to unburdening of the judicial system.

The Supreme Court observed that allowing prosecution under both sets of complaints would be contrary to the purpose of the enactment.   Once parties have voluntarily entered into an agreement and agree to abide by the consequences of non-compliance of the settlement agreement, they cannot be allowed to reverse the effects of the agreement by pursuing both the original complaint and the subsequent complaint arising from such non-compliance.  The settlement agreement subsumes the original complaint.  Non-compliance of the terms of the settlement agreement or dishonor of cheques issued subsequent to it, would then give rise to a fresh cause of action attracting liability under Section 138 of the Negotiable Instruments Act and other remedies under civil law and criminal law.   There was a serious error on the part of the Single Judge in allowing the petition under Section 482 to quash the prosecution on the basis that the deed of compromise would not constitute a legally enforceable liability. The mere fact that a suit is pending before the High Court challenging the validity of the compromise deed would furnish no cogent basis to quash the proceedings under Section 138.  The Supreme Court quashed the complaints filed for the first time.