2019 (6) TMI 312 - HC - Indian Laws

Dishonor of Cheque - section 138 of NI Act - cancellation of suit - HELD THAT - Though the counsel for the plaintiff in her arguments has repeatedly gone into the merits of the challenge also but the question seized at the moment being only of maintainability of the suit and for which reason the written statement of the defendants also has not been noted hereinabove, I have steered clear from the arguments on merits which are to be considered only in the event of the suit being found to be maintainable in this Court and in the event of the suit being not found to be maintainable, before the appropriate forum. The suit on the basis of averments in the plaint to be not disclosing a cause of action and being barred by law and dismiss the suit.

Summary

Issues Involved:
1. Declaration and cancellation of the Compromise Deed dated 15th November, 2008.
2. Maintainability of the civil suit under Section 31 of the Specific Relief Act, 1963, in relation to a compromise forming part of judicial proceedings.

Issue-Wise Detailed Analysis:

1. Declaration and Cancellation of the Compromise Deed:
The plaintiff sought the declaration of the Compromise Deed dated 15th November, 2008, as null and void, alleging it was obtained dishonestly and fraudulently. The plaintiff claimed to have first learned about the Compromise Deed upon the issuance of a Non-Bailable Warrant (NBW) in a criminal complaint under Section 138 of the Negotiable Instruments (NI) Act, 1881. The plaintiff contended that she never engaged the advocate who appeared on her behalf in the previous complaint and had not authorized any compromise. It was further alleged that the signatures on the compromise were obtained under fraudulent circumstances, including the misuse of blank papers signed by the plaintiff. The plaintiff also highlighted that the Compromise Deed was not mentioned in earlier proceedings and that the stamp paper for the Compromise Deed was purchased without her instruction. Additionally, the plaintiff argued that the defendants were not financially competent to provide the loan, and the amount was not reflected in the Income Tax Returns, violating Indian law that prohibits cash loans over ?20,000.

2. Maintainability of the Civil Suit:
The court questioned whether a civil suit under Section 31 of the Specific Relief Act, 1963, was maintainable for a compromise deed forming part of judicial proceedings or if the challenge should be made within those proceedings. The court referred to Order XXIII Rule 3 and Rule 3A of the Code of Civil Procedure, 1908 (CPC), which bar a suit to set aside a decree based on a compromise. The court reasoned that proceedings under Section 138 of the NI Act, although quasi-civil, should follow similar principles. Allowing a separate suit for challenging a compromise could lead to judicial incongruities and abuse of process.

The plaintiff's counsel argued that the Compromise Deed was a sham document executed outside the court and not scrutinized by the Magistrate. It was contended that the only remedy available to the plaintiff was a civil suit, as a criminal court cannot pass a decree. Reliance was placed on various judgments to support the argument that a compromise in criminal proceedings does not equate to a decree.

The defendants' counsel referred to Supreme Court judgments, emphasizing that the validity of a compromise decree should be challenged in the same court that passed the decree. The court also referred to the Division Bench judgment in Dayawati Vs. Yogesh Kumar Gosain, which held that principles of CPC could guide the procedure for recording settlements in Section 138 NI Act proceedings.

Judgment:
The court found that the Compromise Deed, although part of a criminal proceeding, had judicial endorsement and could not be challenged in a separate civil suit. The court held that the challenge to the compromise should be made in the same court where the compromise was recorded. The court emphasized that allowing a separate suit would lead to judicial inefficiency and potential abuse of process. The suit was dismissed for not disclosing a cause of action and being barred by law, with no costs awarded. The decree sheet was ordered to be drawn up.

Conclusion:
The court concluded that the suit for cancellation of the Compromise Deed was not maintainable and should be challenged within the original judicial proceedings. The judgment underscores the importance of challenging compromises in the same court to maintain judicial efficiency and prevent multiplicity of proceedings.