INTRODUCTION
Lok Adalats are recognized as an effective form of alternative dispute resolution in India, aimed at enabling swift and friendly settlements. Frequently, parties agree to resolve their disputes by issuing post-dated cheques as part of the agreement. However, complications arise when such a cheque is returned unpaid. This discourse explores whether the dishonour leads to criminal liability under Section 138 of the Negotiable Instruments Act, 1881, or if the response is solely civil in nature.
LEGAL PROVISIONS
- Section 138 of the Negotiable Instruments Act, 1881: Addresses the dishonour of a cheque owing to insufficient funds or when the drawer stops payment. It is categorized as a criminal offence, which may result in imprisonment, a fine, or both.
- Section 21 of the Legal Services Authorities Act, 1987 stipulates that a judgment from a Lok Adalat is regarded as a decree of a civil court, which is final and binding on all parties involved.
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RELEVANT CASE LAWS
1. M/s Shree Shyam Agencies v. M/s Payal Vision Ltd., 2017 SCC OnLine Del 7743
The Delhi High Court determined that the dishonour of a cheque issued in connection with a Lok Adalat settlement can still initiate proceedings under Section 138 of the NI Act, reinforcing that it does not diminish the legal obligation associated with the cheque.
2. G. Harini v. The State, 2020 SCC OnLine Mad 3436
The Madras High Court concluded that the mere fact that a cheque was issued as part of a settlement does not imply that the offence under Section 138 is nullified.
3. K. R. Indira v. Dr. G. Adinarayana, (2003) 8 SCC 300
The Supreme Court emphasized that the purpose of Section 138 is to maintain the integrity of transactions conducted through cheques, regardless of the surrounding circumstances.
PRACTICAL IMPLICATIONS AND REMEDIES
- Criminal Remedy: The payee may initiate criminal action under Section 138 if the cheque is dishonoured, even after a Lok Adalat settlement.
- Civil Remedy: Since a Lok Adalat award is treated as a decree, the payee can initiate execution proceedings in a civil court to enforce the settlement terms.
- Dual Action: Both civil execution and criminal complaints can be pursued simultaneously, depending on the context and strategy.
- • Proof of Intention: If the cheque was issued solely as a token or for security rather than as part of a legally enforceable obligation, the criminal case may not be sustainable.
CONCLUSION
This blog has examined the legal consequences of cheque dishonour following a Lok Adalat settlement. While Lok Adalats aim to settle disputes, the occurrence of a bounced cheque in such a context does not eliminate the statutory remedies available to the affected party. Courts have consistently upheld that Section 138 is applicable in these situations, depending on the nature of the transaction. Legal Opinion: The prevailing judicial stance indicates that such dishonour can be classified as a criminal offence, provided the cheque was issued in satisfaction of a legally enforceable liability. However, the particulars of each case must be carefully considered, and parties should remain vigilant in articulating their settlement terms.
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FAQs
Q1. Is it possible to file a bounced cheque case after reaching a settlement in Lok Adalat?
Yes, if the cheque issued as part of the settlement bounces, you can proceed under Section 138 of the NI Act.
Q2. Does a Lok Adalat award bar criminal proceedings?
No. It does not inhibit prosecution for cheque bounce if a legal liability continues to exist.
Q3. What civil remedies are available if the cheque bounces?
You may initiate execution proceedings since the award is regarded as a judgment from a civil court
Q4. Can both civil and criminal proceedings be filed together?
Yes, you are able to pursue both at the same time if the evidence backs it up.
Q5. What if the cheque was given only as a security?
If proven, the cheque may not attract criminal liability under Section 138. Courts examine the intent and purpose behind issuing the cheque.
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