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The Supreme Court has delivered a significant order allowing the compounding of an offence under Section 138 of the Negotiable Instruments Act, setting aside the conviction of the appellants in a cheque dishonour case.
A Division Bench comprising Justices Sudhanshu Dhulia and Ahsanuddin Amanullah allowed an appeal against a Madras High Court order that had convicted the appellants under Section 138 of the NI Act.
The court noted that the appellants and the respondent-complainant had entered into a settlement agreement, with the appellants paying Rs. 5,25,000 to settle the dispute. The complainant had agreed to support the appellants’ petition and had no objection to setting aside their conviction.
Emphasizing the importance of compounding offences under the NI Act, the court held, “Keeping in mind that the ‘compensatory aspect’ of the remedy shall have priority over the ‘punitive aspect,’ courts should encourage compounding of offences under the NI Act if parties are willing to do so.”
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The court further observed that dishonour of cheques is a regulatory offence made punishable only to ensure the reliability of these instruments. It stated, “A large number of cases involving dishonour of cheques are pending before courts, which is a serious concern for our judicial system.”
Expressing its view on verifying settlement agreements, the court noted, “In cases where the accused relies upon some document for compounding the offence at the appellate stage, courts shall try to check the veracity of such a document, which can be done in multiple ways.”
The court allowed the appeal and acquitted the appellants, setting aside both the High Court’s order dated 01.04.2019 and the Trial Court’s order dated 16.10.2012. It also discharged the sureties of Appellant No. 2, who had been exempted from surrendering.
In conclusion, while allowing the compounding of the offence based on the settlement between the parties, the court emphasized the need to prioritize the compensatory aspect over the punitive aspect in cheque dishonour cases under the Negotiable Instruments Act.
