Section 138 of NI Act: FRAMEWORK & SC Guidelines for
Compounding
In
a case reported as (2025) ibclaw.in 385 SC captioned as Sanjabij Tari Vs
Kishore S Borcar & Anr (arising out of Criminal Appeal No. 1755 of
2010), the Supreme Court has redefined the aspect of compounding of cases , in
the event the accused enters appearance and seeks settlement. This is in furtherance
to Damodar S. Prabhu vs. Sayed Babalal H., (2010) 5 SCC and such
other cases. The law in this regard shall be deliberated hereinafter.
The
appeal in Sanjabij Tari (Supra) was preferred while challenging
the ex-parte judgment and order dated 16th April 2009 passed by the High
Court of Bombay at Goa acquitting the Respondent No.1-Accused under Section 138
of the Negotiable Instruments Act, 1881 (for short ‘NI Act’) and reversing the
concurrent judgments of the Trial Court and the Sessions Court.
The contentions of the APPELLANT-COMPLAINANT
(i)
The High Court in exercise of its revisional jurisdiction erred in upsetting
the conviction of the Respondent No.1-Accused under Section 138 of the NI Act
based on categorical findings of facts rendered by both the Courts below that
the dishonoured cheque had been issued in favour of the Appellant- Complainant
in discharge of a legally enforceable debt.
(ii)
There was no evidence on record to establish that the Appellant-Complainant did
not have the financial means to advance a friendly loan of Rs.6,00,000/-
(Rupees Six Lakhs) to the Respondent No.1-Accused.
(iii)
The Appellant-Complainant in his statement under oath had stated that in order
to oblige his friend/Respondent No.1-Accused , the Appellant- Complainant had
arranged money from his father, who was a cloth merchant having two shops and
even went to the extent of parting with a portion of the loan amount which he
himself had borrowed from a financial institution.
(iv)
The Respondent No.1-Accused during the course of arguments on sentencing
before the Trial Court had prayed for leniency on the ground that he was ready
to pay the cheque amount to the Appellant- Complainant within a reasonable
time.
(v)
Though the Appellant-Complainant filed an application under Section 482 of
the Code of Criminal Procedure (‘Cr.P.C.’) for recall of the impugned judgment
by substantiating sufficient cause for the absence of his advocate on 16th
April 2009, yet the learned Single Judge had been pleased to dismiss the said
application holding that the Court had become functus officio and it had
no jurisdiction under criminal law to recall the impugned order. He submitted
that the High Court erred in not exercising its inherent powers to set aside
the impugned judgment which, for all legal purposes, was an ex-parte order.
(vi)
It was stated that if the Supreme Court were to set aside the impugned
judgment of the High Court and restore the concurrent judgments of the Trial
Court and Sessions Court, the Appellant-Complainant would accept the payment of
outstanding amount in instalments as directed by the Trial Court.
ARGUMENTS
ON BEHALF OF RESPONDENT NO.1-ACCUSED
(i)
The Appellant-Complainant was being paid a salary of only Rs.2,300/- (Rupees
Two Thousand and Three Hundred) per month at the relevant point of time, which
was not even adequate to take care of his family, leave alone sufficient to
advance a loan of Rs.6,00,000/- (Rupees Six Lakhs).The Appellant-Complainant
was a highly indebted person who did not have any source of income other than
his meagre salary and therefore, he did not have the wherewithal to advance
such a huge loan and that too without issuance of any kind of receipt.
(ii)
The accused can always rely on material and/or evidence filed by the
complainant in order to raise a probable defence which creates doubts about the
existence of a legally enforceable debt or liability. The reliance was placed upon
the judgment of the Supreme Court in Rangappa vs. Sri Mohan, (2010) 11
SCC 441.
(iii)
Whenever
the accused questions the financial capacity of the complainant in support of
his probable defence, despite the presumption of a legally enforceable debt
under Section 139 of the NI Act, the onus shifts back to the complainant to
prove his financial capacity, more particularly, when it is a case of giving
loan by cash and thereafter issuance of a cheque. Reliance was placed on APS
Forex Services Private Limited vs. Shakti International Fashion Linkers and
Ors., (2020) 12 SCC 724.
(iv)
The
defence of the Respondent No.1-Accused that a blank cheque had been given to
the Appellant-Complainant to enable him to obtain a loan from the bank was more
than a probable defence to rebut the presumption under the NI Act,
particularly, in view of the fact that the parties were known to each other.
ANALYSIS
The
Chapter XVII (Sections 138 to 148) of NI Act which has been inserted by Act 66
of 1988 w.e.f. 1st April 1989. The Statement of Objects and Reasons of Act 66
of 1988 states, “….to enhance the acceptability of cheques in settlement of
liabilities by making the drawer liable for penalties in case of bouncing of
cheques due to insufficiency of funds in the accounts or for the reason that it
exceeds the arrangements made by the drawer, with adequate safeguards to
prevent harassment of honest drawers.”
The
provisions contained in Chapter XVII provide that where any cheque drawn by a
person for the discharge of any liability is returned by the bank unpaid for
the reason of the insufficiency of the amount of money standing to the credit
of the account on which the cheque was drawn or for the reason that it exceeds
the arrangements made by the drawer of the cheque with the banker for that
account, the drawer of such cheque shall be deemed to have committed an
offence. In that case, the drawer, without prejudice to the other provisions of
the said Act, shall be punishable with imprisonment for a term which may extend
to two years, or with fine which may extend to twice the amount of the cheque,
or with both.
The
intent behind introducing Chapter XVII is to restore the credibility of cheques
as a trustworthy substitute for cash payment and to promote a culture of using
cheques. Further, by criminalizing the act of issuing cheques without
sufficient funds or for other specified reasons, the law promotes financial
discipline, discourages irresponsible practices and allows for a more efficient
and timely resolution of disputes compared to the previous pure civil remedy
which was found to involve the payee in a long-drawn out process of litigation.
ONCE EXECUTION OF
CHEQUE IS ADMITTED, PRESUMPTIONS UNDER SECTIONS 118 AND 139 OF THE NI ACT ARISE
In
the present case, the cheque in question has admittedly been signed by the
Respondent No.1-Accused. This Court is of the view that once the execution of
the cheque is admitted, the presumption under Section 118 of the NI Act that
the cheque in question was drawn for consideration and the presumption under
Section 139 of the NI Act that the holder of the cheque received the said
cheque in discharge of a legally enforceable debt or liability arises against
the accused. It is pertinent to mention that observations to the contrary by a
two Judges Bench in Krishna Janardhan Bhat vs. Dattatraya G. Hegde,
(2008) 4 SCC 54 have been set aside by a three Judges Bench in Rangappa
(supra). By creating this presumption, the law reinforces the
reliability of cheques as a mode of payment in commercial transactions. Needless
to mention that the presumption contemplated under Section 139 of the NI Act,
is a rebuttable presumption. However, the initial onus of proving that the
cheque is not in discharge of any debt or other liability is on the accused/drawer
of the cheque [Ref: Bir Singh vs. Mukesh Kumar, (2019) 4 SCC 197].
The
judgment APS Forex Services Private Limited (supra) relied upon
by learned counsel for the Respondent No.1-Accused only says that presumption
under Section 139 of the NI Act is rebuttable and when the same is rebutted,
the onus would shift back to the complainant to prove his financial capacity,
more particularly, when it is a case of giving loan by cash. This judgment
nowhere states, that in cases of dishonour of cheques, in lieu of cash loans,
the presumption under Section 139 of the NI Act does not arise.
Therefore,
the approach of some courts in not giving effect to the presumption under
section 118 and section 139 of NI Act is contrary to the mandate of the Parliament.
The
Supreme Court, while referring to a recent Kerala High Court judgment has
disapproved it. The Kerala High Court in P.C. Hari vs. Shine Varghese
& Anr., 2025 SCC OnLine Ker 5535 has taken the view that a debt
created by a cash transaction above Rs. 20,000/- (Rupees Twenty Thousand) in
violation of the provisions of Section 269 SS of the Income Tax Act, 1961 (for
short ‘IT Act, 1961’) is not a ‘legally enforceable debt’ unless there is a
valid explanation for the same, meaning thereby that the presumption under
Section 139 of the Act will not be attracted in cash transactions above Rs.
20,000/- (Rupees Twenty Thousand).
According
to the Supreme Court any breach of Section 269SS of the IT Act, 1961 is subject
to a penalty only under Section 271D of the IT Act, 1961. Further neither
Section 269SS nor 271D of the IT Act, 1961 state that any transaction in breach
thereof will be illegal, invalid or statutorily void. Therefore, any violation
of Section 269SS would not render the transaction unenforceable under Section
138 of the NI Act or rebut the presumptions under Sections 118 and 139 of the
NI Act because such a person, assuming him/her to be the payee/holder in due
course, is liable to be visited by a penalty only as prescribed. Consequently,
the view that any transaction above Rs.20,000/- (Rupees Twenty Thousand) is
illegal and void and therefore does not fall within the definition of ‘legally
enforceable debt’ cannot be countenanced.
Thus,
the approach of the courts in not giving effect to the presumptions
incorporated in Sections 118 and 139 of NI Act and are treating the proceedings
under the NI Act as another civil recovery proceedings and to call upon the
complainant to prove the antecedent debt or liability. This Court is of the
view that such an approach is not only prolonging the trial but is also
contrary to the mandate of Parliament, namely, that the drawer and the bank
must honour the cheque, otherwise, trust in cheques would be irreparably
damaged.
In
Sanjabij Tari (Supra) the
Respondent No.1- Accused has filed no documents and/or examined any independent
witness or led any evidence with regard to the financial incapacity of the
Appellant- Complainant to advance the loans in question. The Supreme Court in Rajaram
S/o Sriramulu Naidu (Since Deceased) Through LRs. vs. Maruthachalam (Since
Deceased) Through LRs., (2023) 16 SCC 125 has held that presumptions
under Sections 118 and 139 of the NI Act can be rebutted by the accused
examining the Income Tax Officer and bank officials of the complainant/drawee.
The
accused can rely upon the evidence adduced by the complainant to rebut the
presumption with regard to the existence of a legally enforceable debt or
liability, yet in the present case, when the evidence of Appellant-Complainant
(PW-1) is read in its entirety, like it should be, it cannot be said that the
Appellant-Complainant had no wherewithal to advance any loan to the Respondent
No.1-Accused. The Appellant-Complainant, in his statement, has stated that as
the Respondent No.1-Accused was his friend, he had advanced part of the loan received
by him and had also taken loan from his father to advance money to the
Respondent No.1-Accused.
The
Trial Court in its order and judgment dated 30th April 2007 has held that the
Respondent No.1-Accused has failed to rebut the presumption under Sections 118
and 139 of the NI Act and that the Appellant-Complainant has proved the legally
enforceable debt. The relevant portion of the Trial Court’s order and judgment
dated 30th April 2007 is reproduced hereinbelow:-
“11…Accused
had not disputed his signature on the cheque. Complainant stated that he had
advanced to accused amount of cheque in two different installments on two
different occasions cannot be believed has no merit. Accused himself admitted
his signature on the cheque and accused had failed
to
rebut the presumption in favour of the complainant as available under Negotiable
Instruments Act, 1881.
12.As
regard the contention of the Ld. Advocate for the accused that the complainant
failed to show legally enforceable liability due to him by the accused has also
no merit as there is cogent evidence of the complainant supported with
documentary evidence as regard the cheque and its dishonour and its non payment
by the accused inspite of the receipt of the notice to pay the same….”
The
Sessions Court too specifically rejected the contention of the Respondent
No.1-Accused that the Appellant-Complainant had no means to advance the loan of
Rs.6,00,000/- (Rupees Six Lakhs) to the Respondent No.1- Accused. The relevant
portion of the Sessions Court’s judgment dated 17th September 2008
is reproduced hereinbelow:-
“15…The
contention of the accused, now in appeal, that the complainant had no means to
sustain himself and was in debt to various institutions is not borne out from
the records. No doubt, no documentary evidence is produced by the complainant
nor any witness is there to prove that he gave Rs.6,00,000/- to the accused.
But the circumstances, discussed above are such that the testimony of PW1 is
sufficient to prove the said friendly loan transaction…”
It
is well settled that in revisional jurisdiction, the high court does not should not, in absence of perversity
upset concurrent factual findings. It is well settled that in exercise
of revisional jurisdiction, the High Court does not, in the absence of
perversity, upset concurrent factual findings [Ref: Bir Singh (supra)].
The Supreme Court has consistently held that it is not for the Revisional Court
to re-analyse and re-interpret the evidence on record (Ref: Southern
Sales & Services and Others vs. Sauermilch Design and Handels GMBH, (2008)
14 SCC 457).
Thus,
in absence of perversity, it was not open to the High Court in the present
case, in revisional jurisdiction, to upset the concurrent findings of the Trial
Court and the Sessions Court.
FAILURE OF ACCUSED TO
REPLY TO NOTICE LEADS TO AN INFERENCE
The
fact that the accused has failed to reply to the statutory notice under Section
138 of the NI Act leads to an inference that there is merit in the
Appellant-Complainant’s version. The Supreme Court in Tedhi Singh vs. Narayan
Dass Mahant, (2022) 6 SCC 735 has held that the accused has the initial
burden to set up the defence in his reply to the demand notice that the complainant
did not have the financial capacity to advance the loan. The relevant portion
of the said judgment is reproduced hereinbelow:-
“10.
… The proceedings under Section 138 of the NI Act is not a civil suit. At the
time, when the complainant gives his evidence, unless a case is set up in the
reply notice to the statutory notice sent, that the complainant did not have
the wherewithal, it cannot be expected of the complainant to initially lead
evidence to show that he had the financial capacity. To that extent, the courts
in our view were right in holding on those lines. However, the accused has the
right to demonstrate that the complainant in a particular case did not have the
capacity and therefore, the case of the accused is acceptable which he can do
by producing independent materials, namely, by examining his witnesses and
producing documents. It is also open to him to establish the very same aspect
by pointing to the materials produced by the complainant himself. He can
further, more importantly, achieve this result through the cross-examination of
the witnesses of the complainant. Ultimately, it becomes the duty of the courts
to consider carefully and appreciate the totality of the evidence and then come
to a conclusion whether in the given case, the accused has shown that the case
of the complainant is in peril for the reason that the accused has established
a probable defence.”
EFFECT OF NO REPLY to legal Notice
The
Supreme Court in MMTC Ltd. and Another vs. Medchl Chemicals & Pharma (P)
Ltd. and Another, (2002) 1 SCC 234 has specifically held that when a statutory
notice is not replied, it has to be presumed that the cheque was issued towards
the discharge of liability.
After
receipt of the legal notice, wherein the Appellant-Complainant alleged that
the Respondent No.1-Accused’s cheque had bounced, no complaint or legal
proceeding was initiated by the Respondent No.1-Accused alleging that the
cheque was not to be encashed. Consequently, the defence of financial
incapacity of Appellant-Complainant advanced by the Respondent No.1-Accused is
an afterthought.
Improbable
defence
The
defence in rebuttal that a signed blank cheque was issued to enable the
complainant to obtain a loan is unbelievable and absurd. The Supreme court has
thus agreed with the Sessions Court’s finding in the present case that, “It is
funny to say that for obtaining loan from the bank, one can show a cheque which
is issued on an account in which there are not sufficient funds. The case of
the accused is unbelievable”.
In
view of massive backlog of cheque bouncing case, the guidelines were issued
that shall be dealt with later.
What
is worth noting that despite repeated directions by the Supreme Court in
various judgments including Indian Bank Association and Others vs. Union
of India and Others, (2014) 5 SCC 590, Damodar S. Prabhu vs. Sayed Babalal H.,
(2010) 5 SCC 663 and In Re: Expeditious Trial of cases under
Section 138 of NI Act 1881, (2021) 16 SCC 116, pendency of cheque
bouncing cases under the NI Act in District Courts in major metropolitan cities
of India continues to be staggeringly high. For instance, the pendency of
Section 138 cases as on 01st September 2025 in Delhi District Courts
is 6,50,283 (Six Lakhs Fifty Thousand Two Hundred Eighty Three), Mumbai
District Courts is 1,17,190 (One Lakh Seventeen Thousand One Hundred Ninety)
and Calcutta District Courts is 2,65,985 (Two Lakhs Sixty Five Thousand Nine
Hundred Eighty Five) [Source: National Judicial Data Grid]. This
pendency is putting an unprecedented strain on the judicial system as in some
States, cases under Section 138 of the NI Act constitute nearly fifty per cent
(50%) of the pendency in Trial Court (in Delhi Section 138 NI Act cases
constitute 49.45% of total Trial Court pendency).
In
P. Mohanraj and Others v. Shah Brothers Ispat Private Limited, (2021) 6
SCC 258, this Court while re-iterating the position of law with regard
to the nature of offence under Section 138 of the NI Act, has held as under:
“53.
A perusal of the judgment in Ishwarlal Bhagwandas [S.A.L. Narayan Row v.
Ishwarlal Bhagwandas, (1966) 1 SCR 190 : AIR 1965 SC 1818] would show that a
civil proceeding is not necessarily a proceeding which begins with the filing
of a suit and culminates in execution of a decree. It would include a revenue
proceeding as well as a writ petition filed under Article 226 of the Constitution,
if the reliefs therein are to enforce rights of a civil nature. Interestingly,
criminal proceedings are stated to be proceedings in which the larger interest
of the State is concerned. Given these tests, it is clear that a Section 138
proceeding can be said to be a “civil sheep” in a “criminal wolf’s” clothing,
as it is the interest of the victim that is sought to be protected, the larger
interest of the State being subsumed in the victim alone moving a court in
cheque bouncing cases, as has been seen by us in the analysis made
hereinabove of Chapter XVII of the Negotiable Instruments Act.”
Admittedly,
the offence under Section 138 of the NI Act is quasi-criminal in character and
is compoundable [See: Damodar S. Prabhu (supra)]. Recently, in Gian
Chand Garg v. Harpal Singh & Anr. (Criminal Appeal No. 3789 of
2025 dated 11th August 2025), a co-ordinate Bench of the Supreme
Court has set aside concurrent
convictions rendered by the Courts below on the ground that the proceeding
under Section 138 of the NI Act is essentially a civil proceeding and it is
open to the parties to enter into a voluntary compromise. Consequently, the
Supreme Court is of the view that not only a voluntary compromise can bring the
proceedings under Section 138 NI Act to an end, but the accused under the said
offence are entitled to benefit under the Probation of Offenders Act, 1958
[See: Chellammal & Another vs. State Represented by the Inspector of
Police, 2025 SCC OnLine SC 870]. Observations to the contrary by Kerala
HC in M.V. Nalinakshan vs. M. Rameshan & Anr. 2009 All MR (Cri) IBC
Laws® (2025) ibclaw.in 385 SC Journal 273 are set aside.
Thus,
in Sanjabij Tari (Supra) in para no. 36 it is observed and
following directions are passed:
36.
Keeping
in view the massive backlog of cheque bouncing cases and the fact that service
of summons on the accused in a complaint filed under Section 138 of the NI Act
continues to be one of the main reasons for the delay in disposal of the
complaints as well as the fact that punishment under the NI Act is not a means
of seeking retribution but is more a means to ensure payment of money and to
promote credibility of cheques as a trustworthy substitute for cash payment,
this Court issues the following directions:-
A.
In all cases filed under Section 138 of the NI Act, service of summons shall
not be confined through prescribed usual modes but shall also be issued dasti
i.e. summons shall be served upon the accused by the complainant in
addition. This direction is necessary as a large number of Section 138 cases
under the NI Act are filed in the metropolitan cities by financial
institutions, by virtue of Section 142(2) of the NI Act, against accused who
may not be necessarily residing within the territorial jurisdiction of the
Court where the complaint has been filed. The Trial Courts shall further resort
to service of summons by electronic means in terms of the applicable
Notifications/Rules, if any, framed under sub- Sections 1 and 2 of Section 64
and under Clause (i) of Section 530 and other provisions of the Bhartiya
Nagarik Suraksha Sanhita, 2023 (for short ‘BNSS, 2023’) like Delhi BNSS (Service
of Summons and Warrants) Rules, 2025. For this purpose, the complainant
shall, at the time of filing the complaint, provide the requisite particulars
including e-mail address, mobile number and/or WhatsApp number/messaging
application details of the accused, duly supported by an affidavit verifying
that the said particulars pertain to the accused/respondent.
B.
The complainant shall file an affidavit of service before the Court. In the
event such affidavit is found to be false, the Court shall be at liberty to
take appropriate action against the complainant in accordance with law.
C.
In order to facilitate expeditious settlement of cases under Section 138 of the
NI Act, the Principal District and Sessions Judge of each District Court shall
create and operationalise dedicated online payment facilities through secure QR
codes or UPI links. The summons shall expressly mention that the
Respondent/Accused has the option to make payment of the cheque amount at the
initial stage itself, directly through the said online link. The complainant
shall also be informed of such payment and upon confirmation of receipt,
appropriate orders regarding release of such money and compounding/closure of
proceedings under Section 147 of the NI Act and/or Section 255 of Cr.P.C./278
BNSS, 2023 may be passed by the Court in accordance with law. This measure
shall promote settlement at the threshold stage and/or ensure speedy disposal
of cases.
D.
Each and every complaint under Section 138 of the NI Act shall contain a
synopsis in the following format which shall be filed immediately after the
index (at the top of the file) i.e. prior to the formal complaint:-
Complaint
under Section 138 of the Negotiable Instruments Act, 1881
I.
Particulars of the Parties
(i)
Complainant: ____________
(ii)
Accused: ____________
(In
case where the accused is a company or a firm then Registered Address, Name of
the Managing Director/Partner, Name of the signatory, Name of the persons
vicariously liable)
II.
Cheque Details
(i)
Cheque No. ___________
(ii)
Date: ____________
(iii)
Amount: ____________
(iv)
Drawn on Bank/Branch: ____________
(v)
Account No.: ____________
III.
Dishonour
(i)
Date of Presentation: ____________
(ii)
Date of Return/Dishonour Memo: ____________
(iii)
Branch where cheque was dishonoured:_________
(iv)
Reason for Dishonour: ___________
IV.
Statutory Notice
(i)
Date of Notice: ____________
(ii)
Mode of Service: ____________
(iii)
Date of Dispatch & Tracking No.: ____________
(iv)
Proof of Delivery & date of delivery: ____________
(v)
Whether served:____________________
(vi)
If Not, reasons thereof:________________
(vii)
Reply to the Legal Demand Notice, if any_______________
V.
Cause of Action
(i)
Date of accrual: ____________
(ii)
Jurisdiction invoked under Section 142(2): ____________
(iii)
Whether any other complaint under section 138 NI Act is
pending
between the same parties, If Yes, in which court and the date and year of the
institution.
VI.
Relief Sought
(i)
Summoning of accused and trial under Section 138 NI
Act__________
(ii)
Whether Award of Interim compensation under Section 143A of NI Act sought _____
VII.
Filed through:
Complainant/Authorized
Representative”
E.
Recently, the High Court of Karnataka in Ashok Vs. Fayaz Aahmad, 2025 SCC
OnLine Kar 490 has taken the view that since NI Act is a special
enactment, there is no need for the Magistrate to issue summons to the accused
before taking cognizance (under Section 223 of BNSS) of complaints filed under
Section 138 of NI Act. The Supreme Court is in agreement with the view taken by
the High Court of Karnataka.
Consequently,
the Supreme Court directs that there shall be no requirement to issue summons
to the accused in terms of Section 223 of BNSS i.e., at the pre-cognizance
stage.
F.
Since the object of Section 143 of the NI Act is quick disposal of the complaints
under Section 138 by following the procedure prescribed for summary trial under
the Code, this Court reiterates the direction of this Court in In Re:
Expeditious Trial of cases under Section 138 of NI Act (supra) that the
Trial Courts shall record cogent and sufficient reasons before converting a
summary trial to summons trial. To facilitate this process, the Supreme Court
clarifies that in view of the judgment of the Delhi High Court in Rajesh
Agarwal vs. State and Anr., 2010 SCC OnLine Del 2511, the Trial Court
shall be at liberty (at the initial post cognizance stage) to ask questions, it
deems appropriate, under Section 251 Cr.P.C. / Section 274 BNSS, 2023 including
the following questions:-
(i)
Do you admit that the cheque belongs to your account? Yes/No
(ii)
Do you admit that the signature on the cheque is yours? Yes/No
(iii)
Did you issue/deliver this cheque to the complainant? Yes/No
(iv)
Do you admit that you owed liability to the complainant at the time of
issuance? Yes/No
(v)
If you deny liability, state clearly the defence:
(a)
Security cheque only;
(b)
Loan repaid already;
(c)
Cheque altered/misused;
(d)
Other (specify).
(vi)
Do you wish to compound the case at this stage? Yes/No
G.
The Court shall record the responses
to the questions in the order sheet in the presence of the accused and his/her
counsel and thereafter determine whether the case is fit to be tried summarily
under Chapter XXI of the Cr.P.C. / Chapter XXII of the BNSS, 2023.
H.
Wherever, the Trial Court deems it
appropriate, it shall use its power to order payment of interim deposit as
early as possible under Section 143A of the NI Act.
I.
Since physical courtrooms create a
conducive environment for direct and informal interactions encouraging early
resolution, the High Courts shall ensure that after service of summons, the
matters are placed before the physical Courts. Exemptions from personal
appearances should be granted only when facts so warrant. It is clarified that
prior to the service of summons the matters may be listed before the digital
Courts.
J.
Wherever cases under Section 138 of
the NI Act are permitted to be heard and disposed of by evening courts, the
High Courts should ensure that pecuniary limit of the cheque amount is
realistic. For instance, in Delhi, the jurisdiction of the evening courts to
hear and decide cases of cheque amount is not exceeding Rs.25,000/-. In the
opinion of this Court, the said limit is too low. The High Courts should
forthwith issue practice directions and set up realistic pecuniary benchmarks
for evening Courts.
K.
Each District and Sessions Judge in
Delhi, Mumbai and Calcutta shall maintain a dedicated dashboard reflecting the
pendency and progress of cases under Section 138 of the NI Act. The dashboard
shall include, inter alia, details regarding total pendency, monthly disposal
rates, percentage of cases settled/compounded, average number of adjournments
per case and the stage-wise breakup of pending matters. The District and
Sessions Judges in aforesaid jurisdictions shall conduct monthly reviews of the
functioning of Magistrates handling NI Act matters. A consolidated quarterly
report shall be forwarded to the High Court.
L.
The Chief Justices of Delhi, Bombay
and Calcutta are requested to form Committee on the Administrative side to
monitor pendency and to ensure expeditious disposal of Section 138 of the NI
Act cases. These Committees should meet at least once a month and explore the
option of appointing experienced Magistrates to deal with Section 138 of the NI
Act cases as well as promoting mediation, holding of Lok Adalats and other alternative
dispute resolution mechanisms in Section 138 NI Act cases.
GUIDELINES FOR COMPOUNDING OF
THE CASES
The
Supreme Court has framed guidelines for compounding offences under the NI Act
nearly fifteen years back in Damodar S. Prabhu (supra). The
relevant portion of the said Judgment is reproduced hereinbelow:-
“THE
GUIDELINES
(i)
In the circumstances, it is proposed as follows:
(a)
That directions can be given that the writ of summons be suitably modified
making it clear to the accused that he could make an application for
compounding of the offences at the first or second hearing of the case and that
if such an application is made, compounding may be allowed by the court without
imposing any costs on the accused.
(b)
If the accused does not make an application for compounding as aforesaid, then
if an application for compounding is made before the Magistrate at a subsequent
stage, compounding can be allowed subject to the condition that the accused
will be required to pay 10% of the cheque amount to be deposited as a condition
for compounding with the Legal Services Authority, or such authority as the
court deems fit.
(c)
Similarly, if the application for compounding is made before the Sessions Court
or a High Court in revision or appeal, such compounding may be allowed on the
condition that the accused pays 15% of the cheque amount by way of costs.
(d)
Finally, if the application for compounding is made before the Supreme Court,
the figure would increase to 20% of the cheque amount.
24.
We are also conscious of the view that the judicial endorsement of the Above quoted
Guidelines could be seen as an act of judicial law-making and therefore an
intrusion into the legislative domain. It must be kept in mind that Section 147
of the Act does not carry any guidance on how to proceed with the compounding
of offences under the Act. We have already explained that the scheme
contemplated under Section 320 CrPC cannot be followed in the strict sense. In
view of the legislative vacuum, we see no hurdle to the endorsement of some
suggestions which have been designed to discourage litigants from unduly
delaying the composition of the offence in cases involving Section 138 of the
Act
25.
The graded scheme for imposing costs is a means to encourage compounding at an
early stage of litigation. In the status quo, valuable time of the court is
spent on the trial of these cases and the parties are not liable to pay any
court fee since the proceedings are governed by the Code of Criminal Procedure,
even though the impact of the offence is largely confined to the private
parties. Even though the imposition of costs by the competent court is a matter
of discretion, the scale of costs has been suggested in the interest of
uniformity. The competent court can of course reduce the costs with regard to
the specific facts and circumstances of a case, while recording reasons in
writing for such variance. Bona fide litigants should of course contest the
proceedings to their logical end.
26.
Even in the past, this Court has used its power to do complete justice under
Article 142 of the Constitution to frame guidelines in relation to the subject-matter
where there was a legislative vacuum.”
In the present case Sanjabij
Tari (Supra) the Supreme Court has further amplified the aforesaid
guidelines as under:
38.
Since
a very large number of cheque bouncing cases are still pending and interest
rates have fallen in the last few years, this Court is of the view that it is time
to ‘revisit and tweak the guidelines’. Accordingly, the aforesaid
guidelines of compounding are modified as under:-
(a)
If the accused pays the cheque amount before recording of his evidence (namely
defence evidence), then the Trial Court may allow compounding of the offence
without imposing any cost or penalty on the accused.
(b)
If the accused makes the payment of the cheque amount post the recording of his
evidence but prior to the pronouncement of judgment by the Trial Court, the
Magistrate may allow compounding of the offence on payment of additional 5% of
the cheque amount with the Legal Services Authority or such other Authority as
the Court deems fit.
(c)
Similarly, if the payment of cheque amount is made before the Sessions Court or
a High Court in Revision or Appeal, such Court may compound the offence on the
condition that the accused pays 7.5% of the cheque amount by way of costs.
(d)
Finally, if the cheque amount is tendered before this Court, the figure would
increase to 10% of the cheque amount.
It
is further held by the Supreme Court in para no.39 of Sanjabij Tari (Supra)
as under:
39.
This Court is of the view that if the Accused is
willing to pay in accordance with the aforesaid guidelines, the Court may
suggest to the parties to go for compounding. If for any reason, the financial
institutions/complainant asks for payment other than the cheque amount or
settlement of entire loan or other outstanding dues, then the Magistrate may
suggest to the Accused to plead guilty and exercise the power under Section
255(2) and/or 255(3) of the Cr.P.C. or 278 of the BNSS, 2023 and/or give the
benefit under the Probation of Offenders Act, 1958 to the Accused”.
In
view of the above discussion, in Sanjabij Tari (Supra) , the appeal is allowed and impugned
the order passed by the High Court dated 16th April, 2009 was set aside, while the judgment
as well as the orders of Trial Court and Sessions Court are restored with a
direction to the Respondent No.1-Accused to pay Rs.7,50,000/- (Rupees Seven
Lakhs Fifty Thousand) in 15 (fifteen) equated monthly instalment of Rs.50,000/-
(Rupees Fifty Thousand) each. The High Courts and District Courts are directed
to implement the aforesaid guidelines not later than 01st November,
2025.
The
aforesaid discussion has taken note of procedural wrangles in the complaints
pending in the courts of Magistrates and in appeals and therefore pragmatic
approach of compounding of the complaints, post Damodar S Prabhu
(Supra) for compounding of offence and therefore the Damodar S Prabhu (Supra) has
been revisited by the Supreme Court. The judgment rendered in Sanjabij
Tari (Supra) is not only
significant for the guidelines form compounding of complaints u/s 138 of
Negotiable Instruments Act, but has also clarified the elem4ent of presumption
and rebuttal of presumption in terms of Section 118 and section 139 of Negotiable
Instruments Act. The financial capacity and applicability of Section 269 SS of
the Income Tax Act, 1961 (for short ‘IT Act, 1961’) has also been dealt with
comprehensively so as to financial incapacity and its impact on maintaining a
complaint u/s 138 of NI Act could be dealt with without shred of ambiguity.
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Anil K Khaware
Founder & Senior Associate
Societylawandjustice.com
