2012 (2) TMI 269 - SC - Companies Law

Offence committed under Negotiable Instrument Act - non-payment of debts arising out of dishonour of cheques - sanction of a scheme u/s 391 of the Companies Act, 1956 whether such sanction amounts to compounding of an offence u/s 138 read with Section 141 of the N.I. Act - High Court held aforesaid in negative and also held that such sanction will not have the effect of termination or dismissal of complaint proceedings under N.I. Act Held that - In the instant appeal in most of the cases the offence under the N.I. Act has been committed prior to the scheme. Therefore, the offence which has already been committed prior to the scheme does not get automatically compounded only as a result of the said scheme. Scheme u/s 391 of the Companies Act cannot have the effect of overriding the requirement of any law. Further, basic mode and manner of effecting the compounding of an offence under Section 320 of the Criminal Procedure Code cannot be said to be not attracted in case of compounding of an offence under N.I. Act in view of Section 147 of the same. However, the main principle of such compounding, namely, the consent of the person aggrieved or the person injured or the complainant cannot be wished away nor can the same be substituted by virtue of Section 147 of N.I. Act. For the reasons aforesaid - Appeal stands dismissed.

Issues Involved:
1. Whether the sanction of a scheme under Section 391 of the Companies Act amounts to compounding of an offence under Section 138 read with Section 141 of the Negotiable Instruments Act (N.I. Act).
2. Whether the scheme under Section 391 of the Companies Act can terminate or dismiss complaint proceedings under the N.I. Act.
3. The applicability of Section 147 of the N.I. Act and Section 320 of the Criminal Procedure Code (CrPC) in the context of compounding offences under the N.I. Act.
4. The legal implications of the scheme under Section 391 on the enforceability of pre-compromise debts.

Detailed Analysis:

1. Sanction of a Scheme Under Section 391 of the Companies Act and Compounding of Offence Under Section 138 of the N.I. Act:
The appellants argued that once a scheme of compromise or arrangement under Section 391 of the Companies Act is sanctioned by the High Court, it should be binding on all creditors, including dissenting ones, and should result in the compounding of offences under Section 138 of the N.I. Act. They contended that the scheme restructures the old debts and makes them payable as per the scheme, implying that pre-compromise debts cannot be enforced through criminal complaints under Section 138.

The Supreme Court, however, held that the approval of a scheme under Section 391 does not automatically compound offences under Section 138 of the N.I. Act. The Court emphasized that a scheme under Section 391 does not create new debts but merely restructures the existing ones. Therefore, offences committed prior to the scheme's sanction do not get automatically compounded by the scheme's approval. The Court reiterated that compounding of offences is governed by statutory provisions and cannot be indirectly achieved through the sanction of a scheme by the Company Court.

2. Termination or Dismissal of Complaint Proceedings Under the N.I. Act:
The appellants sought the quashing of criminal proceedings under Section 138 of the N.I. Act based on the sanctioned scheme. The High Court had earlier dismissed such writ petitions, stating that the scheme's sanction does not terminate or dismiss complaint proceedings under the N.I. Act. The Supreme Court upheld this view, stating that a scheme under Section 391 cannot override the requirements of any law, including the N.I. Act. The Court clarified that the compounding of an offence requires the explicit consent of the complainant, which cannot be assumed or deemed through the scheme's sanction.

3. Applicability of Section 147 of the N.I. Act and Section 320 of the CrPC:
The appellants argued that Section 147 of the N.I. Act, which makes offences under the Act compoundable, should override the requirements of Section 320 of the CrPC, which governs the compounding of offences. They contended that the non-obstante clause in Section 147 should negate the need for the complainant's consent.

The Supreme Court rejected this argument, stating that while Section 147 of the N.I. Act makes offences under the Act compoundable, it does not obliterate the procedural requirements of Section 320 of the CrPC. The Court held that the fundamental principle of compounding, which requires the consent of the person aggrieved or the complainant, remains applicable. The non-obstante clause in Section 147 does not imply that the entire procedure of Section 320 is inapplicable; it only overrides the non-compoundable nature of certain offences under Section 320(9) of the CrPC.

4. Legal Implications of the Scheme Under Section 391 on Enforceability of Pre-Compromise Debts:
The appellants argued that post-sanction, the debts restructured under the scheme are not legally enforceable in their original form, and thus, cheques issued for such debts should not attract Section 138 liability. The Supreme Court, however, held that the scheme does not affect the enforceability of pre-compromise debts in the context of criminal liability under the N.I. Act. The Court noted that the offence under Section 138 is committed at the time of cheque dishonour, and the restructuring of debt under a scheme does not retrospectively affect the criminal liability already incurred.

Conclusion:
The Supreme Court affirmed the High Court's judgment, holding that the sanction of a scheme under Section 391 of the Companies Act does not amount to the compounding of offences under Section 138 of the N.I. Act. The scheme does not terminate or dismiss complaint proceedings under the N.I. Act, and the compounding of offences requires the explicit consent of the complainant as per Section 320 of the CrPC. The appeals were dismissed, and the High Court's judgment was upheld.

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