Case Note & Summary
The Supreme Court allowed an appeal against the High Court's refusal to quash criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) and related IPC offences. The appellant, Raj Reddy Kallem, had issued cheques to the complainant for return of an advance of Rs.1.55 crore paid for a machine that was not supplied. Some cheques were dishonoured, leading to proceedings under Section 138 NI Act and an FIR under Sections 406, 420, 120B IPC. The appellant was convicted under Section 138 NI Act and sentenced to 2 years' imprisonment. During appeal, parties settled before a Lok Adalat in December 2015, agreeing that if the appellant paid the entire amount within 16 months, the NI Act offence would be compounded and the FIR quashed. The appellant defaulted, and the settlement was declared frustrated in July 2016. Over the next few years, the appellant paid substantial amounts, and by 2020 only Rs.20 lacs remained. The Supreme Court in 2019 directed the appellant's wife to deposit Rs.20 lacs within three weeks, but she failed, and the SLP was dismissed. The appellant then presented a Demand Draft of Rs.20 lacs to the trial court, which refused to accept it. The High Court dismissed the appellant's Section 482 CrPC application, citing failure to comply with the Supreme Court's timeline. In the present appeal, the Supreme Court passed interim orders directing deposit of Rs.20 lacs and later Rs.10 lacs as interest, which the appellant complied with. The complainant refused to settle, claiming no settlement was reached. The Court held that while compounding under Section 147 NI Act requires the complainant's consent, the compensatory aspect of the remedy should be given priority over the punitive aspect. Since the appellant had paid the entire principal amount of Rs.1.55 crore and Rs.10 lacs as interest, no ground remained for continuing criminal proceedings. The Court allowed the appeal, quashed the FIR and all proceedings arising from it, and set aside the conviction under Section 138 NI Act, directing the trial court to pass consequential orders.
Headnote
A) Negotiable Instruments Act - Compounding of Offence - Section 147 NI Act - Consent Requirement - Compounding under Section 147 requires complainant's consent, but court may quash proceedings if entire amount with interest paid, prioritizing compensatory jurisprudence over punitive aspect (Paras 11-12). B) Negotiable Instruments Act - Dishonour of Cheque - Section 138 NI Act - Regulatory Offence - Dishonour of cheque is a regulatory offence created to ensure reliability of instruments, with compensatory aspect given priority (Paras 11-12). C) Criminal Procedure Code - Quashing of FIR - Section 482 CrPC - Settlement Frustrated - Even if settlement frustrated due to default, subsequent full payment with interest can justify quashing of proceedings (Paras 10-12).
Issue of Consideration
Whether criminal proceedings under Section 138 NI Act and related IPC offences can be quashed when the accused has paid the entire cheque amount and interest, despite the complainant's refusal to consent to compounding after an earlier settlement was frustrated.
Final Decision
Appeal allowed. FIR No.35 of 2014 and all proceedings arising therefrom quashed. Conviction under Section 138 NI Act set aside. Trial court to pass consequential orders.
Law Points
- Compounding under Section 147 NI Act requires consent
- but court may quash proceedings if entire amount paid with interest
- compensatory aspect prevails
- Section 138 NI Act is regulatory offence
- settlement frustrated due to default does not bar later compounding
