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Court compell complainant to compound (138ni)

(Querist) 30 November 2011 This query is : Resolved 
Dear Experts
JMFC court judge is compelling complainant to compound (138 NI Act). My client (complainat) is not ready to compormise. Is there any ruling favouring complainant?
Is it right on the part of the court to compell complainant to compound the offence?
Advocate. Arunagiri (Expert) 30 November 2011
No judge can compel the complainant to compound a case. You can complain it to the registrar High Court.
M.Sheik Mohammed Ali (Expert) 30 November 2011
yes, i do agree
Devajyoti Barman (Expert) 30 November 2011
Yes, no court can compel the complainant to compound an offence
venkatesh Rao (Expert) 30 November 2011
Not only court, but no force on the earth can compel the compromise because, its basic feature is voluntariness.
Shailesh Kr. Shah (Expert) 30 November 2011
Nowhere in the act so provided.
ajay sethi (Expert) 30 November 2011
agree with experts court cannot force you to compound your case
M/s. Y-not legal services (Expert) 01 December 2011
am also agree with experts..,
V R SHROFF (Expert) 01 December 2011
DO NOT COMPROMISE.

Put on record to expedite the matter, and that deal with accused as per Law.

Object any Adjournment, and proceed with the matter.

Judge if try to force you compromise, it will become obvious, and you can ask for Transfer of this case, and complaint to DJ/ Registry & Your Bar Asso.to take action
Raj Kumar Makkad (Expert) 01 December 2011
I think Courts can now compel the complainants to compound the offence under 138 NI Act if the accused is ready to pay the amount of cheque with penalty. Experts are required to go through the judgment cited below and make their opinion here:

Supreme Court Judgment on N.I Act
REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 963 of 2010

[Arising out of SLP (Crl.) No. 6369 of 2007]

Damodar S. Prabhu ... Appellant (s)
Versus
Sayed Babalal H. ... Respondent (s)
WITH

CRIMINAL APPEAL NOS. 964-966 OF 2010
[Arising out of SLP (Crl.) Nos. 6370-6372 of 2007]


O R D E R

1. Leave granted.

2. The present appeals are in respect of litigation involving the offence enumerated by Section 138 of the Negotiable Instruments Act, 1881 [Hereinafter `Act']. It is not necessary for us to delve into the facts leading up to the institution of proceedings before this Court since the appellant and the respondent have arrived at a settlement and prayed for the compounding of the offence as contemplated by Section 147 of the Act. It would suffice to say that the parties were involved in commercial transactions and that disputes had arisen on account of the dishonour of five cheques issued by the appellant. Thereafter, the parties went through the several stages of litigation before their dispute reached this Court by way of special leave petitions. With regard to the impugned judgments delivered by the High Court of Bombay at Goa, the appellant has prayed for the setting aside of his conviction in these matters by relying on the consent terms that have been arrived at between the parties. The respondent has not opposed this plea and, therefore, we allow the compounding of the offence and set aside the appellant's conviction in each of the impugned judgments.

3. However, there are some larger issues which can be appropriately addressed in the context of the present case. It may be recalled that Chapter XVII comprising sections 138 to 142 was inserted into the Act by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988). The object of bringing Section 138 into the statute was to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. It was 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 insufficient arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. If the cheque is dishonoured for insufficiency of funds in the drawer's account or if it exceeds the amount arranged to be paid from that account, the drawer is to be punished 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. It may be noted that when the offence was inserted in the statute in 1988, it carried the provision for imprisonment up to one year, which was revised to two years following the amendment to the Act in 2002. It is quite evident that the legislative intent was to provide a strong criminal remedy in order to deter the worryingly high incidence of dishonour of cheques. While the possibility of imprisonment up to two years provides a remedy of a punitive nature, the provision for imposing a `fine which may extent to twice the amount of the cheque' serves a compensatory purpose. What must be remembered is that the dishonour of a cheque can be best described as a regulatory offence that has been created to serve the public interest in ensuring the reliability of these instruments. The impact of this offence is usually confined to the private parties involved in commercial transactions.

4. Invariably, the provision of a strong criminal remedy has encouraged the institution of a large number of cases that are relatable to the offence contemplated by Section 138 of the Act. So much so, that at present a disproportionately large number of cases involving the dishonour of cheques is choking our criminal justice system, especially at the level of Magistrates' Courts. As per the 213th Report of the Law Commission of India, more than 38 lakh cheque bouncing cases were pending before various courts in the country as of October 2008. This is putting an unprecedented strain on our judicial system.

5. Mr. Goolam E. Vahanvati, Solicitor General (now Attorney-General for India) had appeared as amicus curiae in the present matter and referred to the facts herein as an illustration of how parties involved in cheque bounce cases usually seek the compounding of the offence at a very late stage. The interests of justice would indeed be better served if parties resorted to compounding as a method to resolve their disputes at an early stage instead of engaging in protracted litigation before several forums, thereby causing undue delay, expenditure and strain on part of the judicial system. This is clearly a situation that is causing some concern, since Section 147 of the Act does not prescribe as to what stage is appropriate for compounding the offence and whether the same can be done at the instance of the complainant or with the leave of the court. The learned Attorney General stressed on the importance of using compounding as an expedient method to hasten the disposal of cases. In this regard, the learned Attorney General has proposed that this Court should frame some guidelines to disincentivise litigants from seeking the compounding of the offence at an unduly late stage of litigation. In other words, judicial directions have been sought to nudge litigants in cheque bounce cases to opt for compounding during the early stages of litigation, thereby bringing down the arrears.

6. Before examining the guidelines proposed by the learned Attorney General, it would be useful to clarify the position relating to the compounding of offences under the Negotiable Instruments Act, 1881. Even before the insertion of Section 147 in the Act (by way of an amendment in 2002) some High Courts had permitted the compounding of the offence contemplated by Section 138 during the later stages of litigation. In fact in O.P. Dholakia v. State of Haryana,(2000) 1 SCC 672, a division bench of this Court had permitted the compounding of the offence even though the petitioner's conviction had been upheld by all the three designated forums. After noting that the petitioner had already entered into a compromise with the complainant, the bench had rejected the State's argument that this Court need not interfere with the conviction and sentence since it was open to the parties to enter into a compromise at an earlier stage and that they had not done so. The bench had observed:-

"... Taking into consideration the nature of the offence in question and the fact that the complainant and the accused have already entered into a compromise, we think it appropriate to grant permission in the peculiar facts and circumstances of the present case, to compound."

7. Similar reliefs were granted in orders reported as Sivasankaran v. State of Kerala & Anr., (2002) 8 SCC 164, Kishore Kumar v. J.K. Corporation Ltd., (2004) 12 SCC 494 and Sailesh Shyam Parsekar v. Baban, (2005) 4 SCC 162,among other cases. As mentioned above, the Negotiable Instruments Act, 1881 was amended by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 which inserted a specific provision, i.e. Section 147 `to make the offences under the Act compoundable'. We can refer to the following extract from the Statement of Objects and Reasons attached to the 2002 amendment which is self explanatory:-

"Prefatory Note Statement of Objects and Reasons. The Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 wherein a new Chapter XVII was incorporated for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque. These provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. The existing provisions in the Negotiable Instruments Act, 1881, namely, Sections 138 to 142 in Chapter XVII have been found deficient in dealing with dishonour of cheques. Not only the punishment provided in the Act has proved to be inadequate, the procedure prescribed for the courts to deal with such matters has been found to be cumbersome. The courts are unable to dispose of such cases expeditiously in a time bound manner in view of the procedure contained in the Act. ..."(emphasis supplied)

In order to address the deficiencies referred to above, Section 10 of the 2002 amendment inserted Sections 143, 144, 145, 146 and 147 into the Act, which deal with aspects such as the power of the Court to try cases summarily (Section 143), Mode of service of summons (Section 144),Evidence on affidavit(Section 145), Bank's slip to be considered as prima facie evidence of certain facts (Section 146) and Offences under the Act to be compoundable (Section 147). At present, we are of course concerned with Section 147 of the Act, which reads as follows:-

"147. Offences to be compoundable.Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable."

8. At this point, it would be apt to clarify that in view of the non-obstante clause, the compounding of offences under the Negotiable Instruments Act, 1881 is controlled by Section 147 and the scheme contemplated by Section 320 of the Code of Criminal Procedure [Hereinafter `CrPC'] will not be applicable in the strict sense since the latter is meant for the specified offences under the Indian Penal Code. So far as the CrPC is concerned, Section 320 deals with offences which are compoundable, either by the parties without the leave of the court or by the parties but only with the leave of the Court. Sub-section (1) of Section 320 enumerates the offences which are compoundable without the leave of the Court, while sub-section (2) of the said section specifies the offences which are compoundable with the leave of the Court. Section 147 of the Negotiable Instruments Act, 1881 is in the nature of an enabling provision which provides for the compounding of offences prescribed under the same Act, thereby serving as an exception to the general rule incorporated in sub-section (9) of Section 320 of the CrPC which states that `No offence shall be compounded except as provided by this Section'. A bare reading of this provision would lead us to the inference that offences punishable under laws other than the Indian Penal Code also cannot be compounded. However, since Section 147 was inserted by way of an amendment to a special law, the same will override the effect of Section 320(9) of the CrPC, especially keeping in mind that Section 147 carries a non-obstante clause.

9. In Vinay Devanna Nayak v. Ryot Sewa Sahakari Bank Ltd., (2008) 2 SCC 305, this Court had examined `whether an offence punishable under Section 138 of the Act which is a special law can be compounded'. After taking note of a divergence of views in past decisions, this Court took the following position (C.K. Thakker, J. at Para. 17):-

" ... This provision is intended to prevent dishonesty on the part of the drawer of negotiable instruments in issuing cheques without sufficient funds or with a view to inducing the payee or holder in due course to act upon it. It thus seeks to promote the efficacy of bank operations and ensures credibility in transacting business through cheques. In such matters, therefore, normally compounding of offences should not be denied. Presumably, Parliament also realised this aspect and inserted Section 147 by the Negotiable Instruments(Amendment and Miscellaneous Provisions) Act,2002 (Act 55 of 2002). ..."

In the same decision, the court had also noted (Para. 11):-

"..Certain offences are very serious in which compromise or settlement is not permissible. Some other offences, on the other hand, are not so serious and the law may allow the parties to settle them by entering into a compromise. The compounding of an offence signifies that the person against whom an offence has been committed has received some gratification to an act as an inducement for his abstaining from proceeding further with the case."


10. It would also be pertinent to refer to this Court's decision in R. Rajeshwari v. H.N. Jagadish, (2008) 4 SCC 82, wherein the following observations were made (S.B. Sinha, J. at Para. 12):-

"Negotiable Instruments Act is a special Act. Section 147 provides for a non obstante clause, stating:147. Offences to be compoundable. Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),every offence punishable under this Act shall be compoundable. Indisputably, the provisions of the Code of Criminal Procedure, 1973 would be applicable to the proceedings pending before the courts for trial of offences under the said Act. Stricto sensu, however,the table appended to Section 320 of the Code of Criminal Procedure is not attracted as the provisions mentioned therein refer only to provisions of the Penal Code and none other."

11. The compounding of the offence at later stages of litigation in cheque bouncing cases has also been held to be permissible in a recent decision of this Court, reported as K.M. Ibrahim v.K.P. Mohammed & Anr., 2009 (14) SCALE 262, wherein Kabir, J. has noted (at Paras. 11, 12):-

" As far as the non-obstante clause included in Section 147 of the 1881 Act is concerned, the 1881 Act being a special statute, the provisions of Section 147 will have an overriding effect over the provisions of the Code relating to compounding of offences. It is true that the application under Section 147 of the Negotiable Instruments Act was made by the parties after the proceedings had been concluded before the Appellate Forum. However, Section 147 of the aforesaid Act does not bar the parties from compounding an offence under Section 138 even at the appellate stage of the proceedings. Accordingly, we find no reason to reject the application under Section 147 of the aforesaid Act even in a proceeding under Article 136 of the Constitution."

12. It is evident that the permissibility of the compounding of an offence is linked to the perceived seriousness of the offence and the nature of the remedy provided. On this point we can refer to the following extracts from an academic commentary[Cited from: K.N.C. Pillai, R.V. Kelkar's Criminal Procedure, 5th edn. (Lucknow: Eastern Book Company, 2008) at p. 444]:-

"A crime is essentially a wrong against the society and the State. Therefore, any compromise between the accused person and the individual victim of the crime should not absolve the accused from criminal responsibility. However, where the offences are essentially of a private nature and relatively not quite serious, the Code considers it expedient to recognize some of them as compoundable offences and some others as compoundable only with the permission of the court. ..."

In a recently published commentary, the following observations have been made with regard to the offence punishable under Section 138 of the Act [Cited from: Arun Mohan, Some thoughts towards law reforms on the topic of Section 138, Negotiable Instruments Act Tackling an avalanche of cases (New Delhi: Universal Law Publishing Co. Pvt. Ltd.,2009) at p. 5]

"... Unlike that for other forms of crime, the punishment here (in so far as the complainant is concerned) is not a means of seeking retribution, but is more a means to ensure payment of money. The complainant's interest lies primarily in recovering the money rather than seeing the drawer of the cheque in jail. The threat of jail is only a mode to ensure recovery. As against the accused who is willing to undergo a jail term, there is little available as remedy for the holder of the cheque. If we were to examine the number of complaints filed which were `compromised' or `settled' before the final judgment on one side and the cases which proceeded to judgment and conviction on the other, we will find that the bulk was settled and only a miniscule number continued."

13. It is quite obvious that with respect to the offence of dishonour of cheques, it is the compensatory aspect of the remedy which should be given priority over the punitive aspect. There is also some support for the apprehensions raised by the learned Attorney General that a majority of cheque bounce cases are indeed being compromised or settled by way of compounding, albeit during the later stages of litigation thereby contributing to undue delay in justice-delivery. The problem herein is with the tendency of litigants to belatedly choose compounding as a means to resolve their dispute. Furthermore, the written submissions filed on behalf of the learned Attorney General have stressed on the fact that unlike Section 320 of the CrPC, Section 147 of the Negotiable Instruments Act provides no explicit guidance as to what stage compounding can or cannot be done and whether compounding can be done at the instance of the complainant or with the leave of the court. As mentioned earlier, the learned Attorney General's submission is that in the absence of statutory guidance, parties are choosing compounding as a method of last resort instead of opting for it as soon as the Magistrates take cognizance of the complaints. One explanation for such behaviour could be that the accused persons are willing to take the chance of progressing through the various stages of litigation and then choose the route of settlement only when no other route remains. While such behaviour may be viewed as rational from the viewpoint of litigants, the hard facts are that the undue delay in opting for compounding contributes to the arrears pending before the courts at various levels. If the accused is willing to settle or compromise by way of compounding of the offence at a later stage of litigation, it is generally indicative of some merit in the complainant's case. In such cases it would be desirable if parties choose compounding during the earlier stages of litigation. If however, the accused has a valid defence such as a mistake, forgery or coercion among other grounds, then the matter can be litigated through the specified forums.

14. It may be noted here that Section 143 of the Act makes an offence under Section 138 triable by a Judicial Magistrate First Class (JMFC). After trial, the progression of further legal proceedings would depend on whether there has been a conviction or an acquittal.

· In the case of conviction, an appeal would lie to the Court of Sessions under Section 374(3)(a) of the CrPC; thereafter a Revision to the High Court under Section 397/401 of the CrPC and finally a petition before the Supreme Court, seeking special leave to appeal under 136 of the Constitution of India. Thus, in case of conviction there will be four levels of litigation.

· In the case of acquittal by the JMFC, the complainant could appeal to the High Court under Section 378(4) of the CrPC, and thereafter for special leave to appeal to the Supreme Court under Article 136. In such an instance, therefore, there will be three levels of proceedings.

15. With regard to the progression of litigation in cheque bouncing cases, the learned Attorney General has urged this Court to frame guidelines for a graded scheme of imposing costs on parties who unduly delay compounding of the offence. It was submitted that the requirement of deposit of the costs will act as a deterrent for delayed composition, since at present, free and easy compounding of offences at any stage, however belated, gives an incentive to the drawer of the cheque to delay settling the cases for years. An application for compounding made after several years not only results in the system being burdened but the complainant is also deprived of effective justice. In view of this submission, we direct that the following guidelines be followed:-

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.

Let it also be clarified that any costs imposed in accordance with these guidelines should be deposited with the Legal Services Authority operating at the level of the Court before which compounding takes place. For instance, in case of compounding during the pendency of proceedings before a Magistrate's Court or a Court of Sessions, such costs should be deposited with the District Legal Services Authority.

Likewise, costs imposed in connection with composition before the High Court should be deposited with the State Legal Services Authority and those imposed in connection with composition before the Supreme Court should be deposited with the National Legal Services Authority.

16. We are also in agreement with the Learned Attorney General's suggestions for controlling the filing of multiple complaints that are relatable to the same transaction. It was submitted that complaints are being increasingly filed in multiple jurisdictions in a vexatious manner which causes tremendous harassment and prejudice to the drawers of the cheque. For instance, in the same transaction pertaining to a loan taken on an installment basis to be repaid in equated monthly installments, several cheques are taken which are dated for each monthly installment and upon the dishonor of each of such cheques, different complaints are being filed in different courts which may also have jurisdiction in relation to the complaint. In light of this submission, we direct that it should be mandatory for the complainant to disclose that no other complaint has been filed in any other court in respect of the same transaction. Such a disclosure should be made on a sworn affidavit which should accompany the complaint filed under Section 200 of the CrPC. If it is found that such multiple complaints have been filed, orders for transfer of the complaint to the first court should be given, generally speaking, by the High Court after imposing heavy costs on the complainant for resorting to such a practice. These directions should be given effect prospectively.

17. 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 of the 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. 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. 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 subject-matter where there was a legislative vacuum.

18. The present set of appeals are disposed of accordingly.
.............................. CJI
(K.G. BALAKRISHNAN)

............................... J.
(P. SATHASIVAM)

............................... J.
(J.M. PANCHAL)
New Delhi
May 03, 2010

ITEM NO.1A COURT NO.1 SECTION IIA

AAK (Querist) 01 December 2011
Dear Experts

Pls opion on the judgement cited by Mr.Makkad. The guideline
"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"

It says if an application is filed by the accused, the court may compound... but if the complainant himself is not ready then? whether the case can be closed by the court?
prabhakar singh (Expert) 01 December 2011
When the guide line is to send Summons of such nature then it is clear that if accused follow summons and move the application of compounding then court has no choice but to compound.

The complainant,could move against such summoning,but that too shall prove unnecessary. The compounding process formulated by Apex Court is based on principal that such an offence is a kind of financial default and punishment provided is to compensate the complainant.

After all a complainant can not force the Magistrate to award punishment of his choice.It shall always be liberty of the Magistrate with in ambit of law authorizing him to pass punishment.

So in a criminal case when accuse pleads guilty ,things go beyond hands of victim or
complainant and sets between accused and trail court.
ajay sethi (Expert) 01 December 2011
revise my opinion in view of judgement cited by mr makkad . cour can compel complainant to compound if accused is willing to pay the amount plus compounding charges if applicable
dev kapoor (Expert) 01 December 2011
Hello,
I fail to comprehend where is it held in the supra judgment of the Apex court that 'a court can COMPEL the COMPOUNDING of a case u/s.138 NIA'The guidelines show the proportion of costs to be incurred by the accused seeking COMPOUNDING at various stages & Courts.
Law envisage three phases in Compounding a criminal case viz; (i)Compoundable;(ii) Not Compoundable & (iii) Compoundable with permission.No law can be made by SC or a HC.It is the function of Parliament Courts only interpret what Parliament makes.
Suppose,in this context,if a Complainant "COMPELLED by a court does not AGREE what will be the consequences" ?
Shonee Kapoor (Expert) 01 December 2011
Even I had the same query few weeks back. However, the courts are routinely compounding now.

Regards,

Shonee Kapoor
harassed.by.498a@gmail.com
Devajyoti Barman (Expert) 03 December 2011
I do not think the court even in the context of this decision force a person to go for compounding. This is merely a guideline to clear the backlog as apparent from the decision itself.
R Trivedi (Expert) 18 January 2012
Main issue apart, this order gives guidelines, but creates more confusion. In general Supreme Court Orders are very erudite and explanatory, but this one seems to have missed the point, because what is compounding.... It is to "settle", and if complainant refuses to settle then what can court or accused do ? There are harassed complainant also, there are cheat drawers also, so in all likely-hood complainant may like accused to face the music. So in theory court and accused cannot compound without consent of complainant.

But Supreme Court order" Stating the compounding aspect in summon order, leaves out the complainant, and hence the Judge can ask complainant to compound, in case he refuses, the judge can make order with financial penalty and supreme court guidelines, but most like will not order imprisonment, but the effect of this will be that accused shall be convicted, in case complainant agrees to compounding, accused will be acquitted.
venkatesh Rao (Expert) 11 March 2012
The judgment cited by Makkad is admittedly under 142 of constitution. It is for a particular case under particular circumstances. It can not be a precedent. Moreover there is no element of even remotely smelling about courts power to compel compromise. If a court can, then where on the earth is the "element of free and voluntary"?
Mohan Shandilya (Expert) 10 February 2019
With due respect, Mr Raj Kumar Makkad and Mr Ajay Sethi - you both are wrong. Pls read the latest on COMPOUNDING of 138 offence ... which cannot be done WITHOUT voluntary consent of the complainant: Supreme Court of India
Jik Industries Ltd. & Ors vs Amarlal V.Jumani & Anr on 1 February, 2012
Author: Ganguly
Bench: Asok Kumar Ganguly, Jagdish Singh Khehar
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO_263_ OF 2012
(Arising out of SLP (Crl.) No.4445/2009)
JIK Industries Limited & Ors. ....Appellant(s)
- Versus -
Amarlal V. Jumani and Another ....Respondent(s)
WITH
Crl.A. No...264/2012 @ SLP(Crl) No.4446/2009,
Crl.A. No 265/2012 @ SLP(Crl) No.4447/2009,
Crl.A. No.266/2012 @ SLP(Crl) No.4448/2009,
Crl.A. No.267/2012 @ SLP(Crl) No.4449/2009,
Crl.A. No.268/2012 @ SLP(Crl) No.4450/2009,
Jik Industries Ltd. & Ors vs Amarlal V.Jumani & Anr on 1 February, 2012
Indian Kanoon - http://indiankanoon.org/doc/162743580/ 1
Crl.A. No.269/2012 @ SLP(Crl) No.4451/2009,
Crl.A. No.270/2012 @ SLP(Crl) No.4452/2009,
Crl. A.No.271/2012 @ SLP(Crl) No.4453/2009,
Crl.A. No.272/2012 @ SLP(Crl) No.4454/2009,
Crl.A. No.273/2012 @ SLP(Crl) No.4456/2009,
Crl.A. No.274/2012 @ SLP(Crl) No.4457/2009,
Crl.A. No...275-294/2012 @ SLP(Crl) No.843-862/2010,
Crl.A. No...295-303/2012 @ SLP(Crl) No.6643-6651/2010.
J U D G M E N T
GANGULY, J.
1. Leave granted.
2. This group of appeals were heard together as they involve common questions of law. There are
some factual differences but the main argument by the appellant(s) in this matter was advanced by
Mr. Chander Uday Singh, Senior Advocate on behalf of the Sharp Industries Limited in SLP (Crl.)
No.6643-6651 of 2010 and the facts are taken mostly from the said case.
3. The learned counsel assailed the judgment of the High Court wherein by a detailed judgment
High Court dismissed several criminal writ petitions which were filed challenging the processes
which were issued by the learned Trial Judge on the complaint filed by the respondents in
proceedings under Section 138 read with Section 141 of Negotiable Instruments Act, 1881
(hereinafter `N.I. Act'). By way of a detailed judgment, the High Court after dismissing the writ
petitions held that sanction of a scheme under Section 391 of the Companies Act, 1956 (hereinafter
`Companies Act') does not amount to compounding of an offence under Section 138 read with
Section 141 of the N.I. Act. The High Court also held that sanction of a scheme under Section 391 of
the Companies Act will not have the effect of termination or dismissal of complaint proceedings
under N.I. Act.
However, the learned Judge made it clear that the judgment of the High Court will not prevent the
petitioners from filing separate application invoking the provisions of Section 482 Criminal
Procedure Code, if they are so advised. Assailing the said judgment the learned counsel submitted
that an unsecured creditor who does not oppose the scheme of compromise or arrangement under
Section 391 of the Companies Act must be taken to have supported the scheme in its entirety once
Jik Industries Ltd. & Ors vs Amarlal V.Jumani & Anr on 1 February, 2012
Indian Kanoon - http://indiankanoon.org/doc/162743580/ 2
such a scheme is sanctioned by the High Court, even a dissenting creditor cannot file a criminal
complaint under Section 138 of the N.I. Act for enforcement of a pre-compromise debt. Nor can
such a creditor oppose the compounding of criminal complaint which was filed under Section 138 of
the N.I. Act in respect of pre-compromise debt.
4. The material facts of the case are that the appellant company on or about 12th May, 2005 came
out with a scheme by which it was agreed that the appellant company should be revived and
thereafter payments will be made to the creditors. Pursuant to such scheme the appellant company
filed a petition under Section 391 of the Companies Act to the High Court. The whole scheme was
placed before the High Court and according to the appellant(s), first order of the scheme came to be
passed by the Hon'ble High Court by its order dated 5th May, 2005 in Company Petition No.92 of
2005. At the time the said company petition was pending, a meeting was convened by the appellant
company on 1.6.05 and the same was attended by several creditors including representative of the
first respondents and they opposed the scheme.
Despite the said opposition, the appellant(s) succeeded in getting the scheme approved by statutory
majority as required under the law.
Thereafter, on 17.11.2005 another company petition with a fresh scheme (Company petition No. 460
of 2005) was filed. After the said company petition was filed all proceedings which were initiated by
different companies against the appellant(s) came to be stayed by the High Court. In view of the
aforesaid scheme the appellant company filed application for compounding under Section 147 of the
N.I. Act read with Section 320 of the Criminal Procedure Code (hereinafter, `the Code') and Section
391 of the Companies Act. However, the respondents opposed the said prayer of the petitioner and
by an order dated 19th January, 2007, the learned Chief Judicial Magistrate, Ahmednagar rejected
the application filed by the appellant for termination of the proceedings inter alia on the ground that
the learned Magistrate has no power to quash or terminate the proceedings.
5. Being aggrieved by the said order of the Magistrate, the appellants filed writ petitions before the
High court.
6. Similar petitions were filed on 6.7.2009 by JIK Industries Limited and another. All those
petitioners were dismissed by the High court on 18.3.2010 in view of an order dated 14.8.2008
passed by the High Court in connection with the petitions filed by other similarly placed companies
(JIK Industries).
7. In the background of the aforesaid facts the contentions raised by the appellant company is that
the scheme envisaged a compromise between the company and the secured creditors on the one
hand and its unsecured creditors on the other hand.
Such scheme was framed pursuant to the order of the Company Court dated 5th May, 2005 which
directed meeting of the different classes of creditors for consideration of the scheme.
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Thereafter, meeting was convened of unsecured creditors and the scheme was approved on 1st June,
2005 by the requisite majority of the shareholders and unsecured creditors. Then the scheme was
taken up for sanction by the Company Court. The Court considered the objections of some of the
unsecured creditors and workmen but ultimately by its judgment dated 17th November, 2005
approved the scheme with a few minor modifications. It was also urged that some of the secured and
unsecured creditors have taken advantage of the scheme and did not challenge the scheme.
However, the scheme was challenged by the appellant(s) in respect of certain observations made
therein by the learned Company Judge and the said appeal is pending before the Bombay High
court. The learned counsel for the appellant(s) argued that the effect of a scheme of compromise
between the company and its creditors under Section 391 of the Companies Act is binding upon all
class of creditors whether they are assenting or dissenting. The purpose of a scheme under Section
391 and 392 is restructure and alteration of the old debts which were payable prior to the scheme so
as to make the debts payable in the manner and to the extent provided under the scheme.
8. In so far as the case of JIK Industries is concerned, it has been urged that the scheme in JIK is
different that Sharp. The learned counsel for the appellant(s) urged that the once the scheme is
sanctioned, it relates back to the date of the meeting and in support of the said contention reliance
was placed on a judgment of the Privy Council in the case of Raghubar Dayal vs. The Bank of Upper
India Ltd. reported in AIR 1919 P.C. 9. It was also urged that in a scheme under Section 491 a
judgment is in rem. The learned counsel further submitted that admittedly the respondents objected
to the scheme and is a dissenting creditor.
9. The learned counsel for the respondents (in Sharp Industries case) on the other hand submitted
that in the petition which was filed before the Magistrate on behalf of the Sharp Industries the
prayer was only for quashing of the criminal proceedings and there was no prayer for compounding
of the offences. While the Magistrate refused to quash the said proceeding then while challenging
the same in the High Court the prayer for compounding was made for the first time. The learned
counsel for the respondents (in the case of JIK Industries) has drawn the attention of this Court to
the order dated 3.10.2006 passed by the Metropolitan Magistrate, XII Court Bandra, Mumbai
whereby the learned Magistrate passed an order on the application of the accused, the appellant, for
compounding of offences under Section 138. By the said order the learned Magistrate rejected the
prayer for compounding made by the appellant(s) under Section 147 of the N.I. Act.
10. It was also pointed out by some of the respondents that after the High Court passed the
impugned order whereby the prayer for compounding by the appellant(s) was rejected and the
appellant(s) were given an opportunity to file a petition under Section 482 of the Criminal
Procedure Code for quashing of the complaint, some of the appellant(s) availing of that liberty also
filed application for quashing of the proceedings. They have also filed SLPs before this Court. This
Court should, therefore, dismiss the SLPs.
11. Considering the aforesaid submissions of the rival parties, this Court finds that the effect of
approval of a scheme of compromise and arrangement under Section 391 of the Companies Act is
that it binds the dissenting minority, the company as also the liquidator if the company is under
winding up.
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Therefore, Section 391 of the Companies Act gives very wide discretion to the Court to approve any
set of arrangement between the company and its shareholders.
12. Learned counsel for the appellant(s) placed reliance on the decision of this Court in M/s.
J.K. (Bombay) Private Ltd. vs. M/s. New Kaiser-IHind Spinning and Weaving Co., Ltd., and others reported in AIR 1970 SC 1041 in support of his
contention that a scheme under Section 391 of the Companies Act is not a mere agreement but it has
a statutory force. The learned counsel also urged, relying on the said judgment that the scheme is
statutorily binding even on dissenting creditors and shareholders. The effect of the scheme is that so
long as it was carried out by the company by regular payment in terms of the scheme, a creditor is
bound by it and cannot maintain even a windingup petition.
13. Even if the aforesaid position is accepted the same does not have much effect on any criminal
proceedings initiated by the respondent creditors for non-payment of debts of the company arising
out of dishonour of cheques. Factually the allegation of the respondent is that even payment under
the scheme has not been made. However, without going into those factual controversies, the legal
position is that a scheme under Section 391 of the Companies Act does not have the effect of creating
new debt. The scheme simply makes the original debt payable in a manner and to the extent
provided for in the scheme. In the instant appeal in most of the cases the offence under the N.I. Act
has been committed prior to the scheme.
Therefore, the offence which has already been committed prior to the scheme does not get
automatically compounded only as a result of the said scheme. Therefore, even by relying on the
ratio of the aforesaid judgment, this Court cannot accept the appellant's contention that the scheme
under Section 391 of the Companies Act will have the effect of automatically compounding the
offence under the N.I. Act.
14. The learned counsel for the appellant(s) also relied on various other judgments to show the effect
of the scheme under Section 391 of the Companies Act. Reliance was also placed on the decision of
this Court in the case of S.K. Gupta and another vs. K.P. Jain and another reported in 1979 (3) SCC
54. In the case of S.K. Gupta (supra) also the ratio in the case of M/s. J.K. (Bombay) Private Ltd.
(supra) was relied upon and it was held that a scheme under Section 391 of the Companies Act has a
statutory force and is also binding on the dissenting creditor. Various other questions were
discussed in the said judgment with which we are not concerned in this case.
15. The scheme under Section 391 of the Companies Act has been very elaborately dealt with by this
Court in the case of Miheer H. Mafatlal vs. Mafatlal Industries Ltd. reported in AIR 1997 SC 506.
From a perusal of the various principles laid down in Mafatlal (supra), it is clear that the proposed
scheme cannot be violative of any provision of law, nor can it be contrary to public policy. (see
paragraph 29 sub-paragraph 6 at page 602 of the report).
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16. In Hindustan Lever and another vs. State of Maharashtra and another reported in (2004) 9 SCC
438 it has been reiterated that a scheme under Section 391 of the Companies Act is binding on all
shareholders including those who oppose it from being sanctioned. It has also been reiterated that
the jurisdiction of the Company Court while sanctioning the scheme is supervisory. This Court in
Hindustan Lever (supra) also accepted the principle laid down in sub-para 6 of para 29 in Mafatlal
(supra) discussed above and held that a scheme under Section 391 of the Companies Act cannot be
unfair or contrary to public policy, nor can it be unconscionable or against the law (see para 18 page
451 of the report)
17. In the case of Administrator of the Specified Undertaking of the Unit Trust of India and another
vs. Garware Polyester Ltd. reported in (2005) 10 SCC 682, this Court held that a scheme under
Section 391 of the Companies Act is a commercial document and the principles laid down in the case
of Mafatlal (supra) have been relied upon and in para 32 at page 697 of the report it has been
reiterated that the scheme must be fair, just and reasonable and should not contravene public policy
or any statutory provision and in paragraph 33 at page 697 of the report, sub-paragraph 6 of para 29
of Mafatlal (supra) has been expressly quoted and approved.
18. Therefore, the main argument of the learned counsel for the appellant(s) that once a scheme
under Section 391 of the Companies Act is sanctioned by the Court the same operates as
compounding of offence under Section 138 read with Section 141 of the N.I. Act cannot be accepted.
Rather the principle which has been reiterated by this Court repeatedly in the aforesaid judgments is
that a scheme under Section 391 of the Companies Act cannot be contrary to any law. From this
consistent view of this Court it clearly follows that a scheme under Section 391 of the Companies Act
cannot have the effect of overriding the requirement of any law. The compounding of an offence is
always controlled by statutory provision. There are various features in the compounding of an
offence and those features must be satisfied before it can be claimed by the offender that the offence
has been compounded.
Thus, compounding of an offence cannot be achieved indirectly by the sanctioning of a scheme by
the Company Court.
19. The learned counsel also relied on a few other judgments in order to contend the scheme of
compromise operates a statutory consent and the same will have the effect of restructuring legally
enforceable debts or liabilities of the company.
In support of the said contention reliance was placed on the judgment of this Court in the case of
Balmer Lawrie Workers' Union, Bombay and another vs. Balmer Lawrie & Co. Ltd. and others
reported in 1984 (Supp.) SCC 663. That decision related to a settlement reached in a proceeding
under Industrial Disputes Act in which a representative union was a party. The Court held that such
a settlement is binding on all the workmen of the undertaking. This Court fails to understand the
application of this ratio to the facts of the present case.
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20. Reliance was also placed by the learned counsel for the appellant(s) on the decision of this Court
in the case of Shivanand Gaurishankar Baswanti vs. Laxmi Vishnu Textile Mills and others reported
in (2008) 13 SCC 323. In that case also the question of an agreement under Section 18 of Industrial
Disputes Act came up for consideration by this Court. The wide sweep of an agreement under
Section 18 of the Industrial Disputes Act for the purpose of maintaining industrial peace is not in
issue in this case. Therefore, the decision in Shivanand (supra) does not have any relevance to the
question with which we are concerned in the facts and circumstances of the case.
21. The learned counsel for the appellant(s) then advanced his argument on the provisions of N.I.
Act and the nature of the offence under the N.I.
Act. Reliance was placed on explanation to Section 138 of the N.I. Act in order to show that for the
purposes of an offence under Section 138 of the N.I. Act, debt or other liability must mean a legally
enforceable debt or liability. The learned counsel urged that even if a cheque is issued by the
appellant company and which has been subsequently dishonoured, the same is a cheque relating to
the debt of the company in respect of which there is a sanctioned scheme. Therefore, the same is not
a legally enforceable debt in as much as after the sanctioning of the scheme the debt of the company
can only be enforced against the company by a creditor in accordance with the said scheme and not
otherwise. Reliance was also placed on Section 139 of the N.I. Act in order to contend that the
statutory presumption must be construed in favour of the appellant company in as much as the
cheque which has been received by the respondent is not for the discharge of any debt of the
company which is legally enforceable. The learned counsel relied on several judgments of this Court
on the question of the nature of the offence under Section 138 of the N.I. Act.
22. Reliance was placed on the decision of this Court in the case of Kaushalya Devi Massand vs.
Roopkishore Khore reported in (2011) 4 SCC 593.
The learned counsel relied on the observation made in para 11, at page 595 of the report and
contended that the gravity of a complaint under the N.I. Act cannot be equated with an offence
under the provisions of Indian Penal Code and further urged that this Court held that a criminal
offence under Section 138 of the N.I. Act is almost in the nature of a civil wrong which has been
given criminal overtones.
23. Reliance was also placed on the judgment of this Court in the case of Mandvi Cooperative Bank
Limited vs. Nimesh B. Thakore reported in (2010) 3 SCC 83. This Court in Mandvi (supra) discussed
the scope of N.I. Act including the first amendment to the Act inserted under Chapter XVII in the
Act.
This Court looked into the Statement of Objects and Reasons introducing the amendment and noted
the rationale for introduction of Section 147 of N.I. Act. Section 147 of N.I. Act made the offences
under the said Act compoundable. The Court noted that from the Statement and Objects and
Reasons it is clear that the Parliament became aware of the fact that the courts are not able to
dispose of, in a time bound manner, large number of cases coming under the said Act in view of the
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procedure in the Act. In order to deal with such situation, several amendments were introduced and
one of them is making offences under the said Act compoundable. Section 147 of the N.I. Act is as
follows:
"147. Offences to be compoundable. -
Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every
offence punishable under this Act shall be compoundable."
24. This Court fails to understand the applicability of the principle laid down in Mandvi (supra) to
the facts of the present case. It is no doubt true that Section 147 of the N.I. Act makes an offence
under N.I. Act a compoundable one. But in order to make the offence compoundable the mode and
manner of compounding such offences must be followed. No contrary view has been expressed by
this Court in Mandvi (supra).
25. On the nature of the offence under N.I. Act learned counsel for the appellant(s) also placed
reliance on a decision of this Court in the case of Damodar S. Prabhu vs. Sayed Babalal H. reported
in (2010) 5 SCC 663. In paragraph 4, this Court held that the dishonour of a cheque can be best
described as a regulatory offence which has been created to serve the public interest in ensuring the
reliability of these instruments and the Court has further held that the impact of the offence is
confined to private parties involvement in commercial transactions. The Court also noted the
situation that large number of cases involving dishonour of cheques are choking the criminal justice
system and putting an unprecedented strain on the judicial functioning. In paragraph 7 of the
judgment this Court noted the submissions of the learned Attorney General to the extent that the
Court should frame certain guidelines so as to motivate the litigants from seeking compounding of
the offence at an early stage of litigation and not at an unduly late stage. It was argued that if
compounding is early the pendency of arrears can be tackled.
26. In paragraph 12 of Damodar (supra) this Court dealt with the provision of Section 147 of the N.I.
Act and held that the same is an enabling provision for compounding of the offence and is an
exception to the general rule incorporated in subsection 9 of Section 320 of the Code. This Court harmonised the provision of Section 320 of the
Code along with Section 147 of N.I. Act by saying that an offence which is not otherwise
compoundable in view of the provisions of Section 320 sub-section 9 of the Code has become
compoundable in view of Section 147 of N.I. Act and to that extent Section 147 of N.I. Act will
override Section 320 sub-section 9 of the Code since Section 147 of N.I. Act carries a nonobstante clause. This Court on the basis of the submissions of the learned Attorney General framed
certain guidelines for compounding of offence under Section 138 of the N.I. Act. Those guidelines
are as follows:
"THE GUIDELINES
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(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."
27. The Court held in paragraph 26 of Damodar (supra) that those guidelines have been issued by
this Court under Article 142 of the Constitution in order to fill-up legislative vacuum which exists in
Section 147 of the N.I. Act. The Court held that Section 147 of the N.I. Act does not carry any
guidance on how to proceed with the compounding of the offence under the N.I. Act and the Court
felt that Section 320 of the Code cannot be strictly followed in the compounding of offence under
Section 147 of the N.I. Act. Those guidelines were given to fill up a legislative vacuum.
28. Reliance was also placed by the learned counsel for the appellant(s) on the judgment of this
Court in Central Bureau of Investigation, SPE, SIU (X), New Delh vs. Duncans Agro Industries Ltd.,
Calcutta reported in (1996) 5 SCC 591. The decision of this Court in Duncans Agro (supra) was on
the question of quashing the complaint under Section 482 of Criminal Procedure Code. In the facts
of that case the learned Judges held that the Bank filed suits for recovery of the dues on account of
grant of credit facility and the suits have been compromised on receiving the payments from the
company concerned. The learned Court held if an offence of cheating is prima facie constituted, such
offence is a compoundable offence and compromise decrees passed in the suits instituted by the
Banks, for all intents and purposes amount to compounding of the offence of cheating. In that case
the Court came to the conclusion since the claims of the Banks have been satisfied and the suits
instituted by the Banks have been compromised on receiving payments, the Court felt that the
complaint should not be perused any further and, therefore, the Court felt "in the special facts of the
case" the decision of the High Court in quashing the complaint does not require any interference
under Article 136 of the Constitution.
29. Quashing of a case is different from compounding.
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In quashing the Court applies it but in compounding it is primarily based on consent of injured
party. Therefore, the two cannot be equated.
30. It is clear from the discussion made hereinabove that the said case was not one relating to
compounding of offence. Apart from that the Court found that the dues of the Banks have been
satisfied by receiving the money and the suits filed by the Bank in the Civil Court have been
compromised. The FIRs were filed in 1987-1988 and the investigation had not been completed till
1991. On those facts the Court, rendering the judgment in July, 1996, felt that having regard to the
lapse of time and also having regard to the fact that there is a compromise decree satisfying the
Banks' dues, there is no purpose in allowing the criminal prosecution to proceed. On those
consideration, this Court, in the `special facts of the case', did not interfere with the order of the
High Court dated 23.12.1992 whereby the criminal prosecution was quashed.
31. It is, therefore, clear that no legal proposition has been laid down on the compounding of offence
in Duncans Agro (supra). This Court proceeded on the peculiar facts of the case discussed above.
Therefore, the said decision cannot be an authority to contend that by mere sanctioning of a scheme,
the offences committed by the appellant company, prior to the scheme, stand automatically
compounded.
32. Reliance was also placed on the decision of this Court in the case of Hira Lal Hari Lal Bhagwati
vs. CBI, New Delhi reported in (2003) 5 SCC 257.
In that case reliance was placed on the decision of this Court in Duncans Agro (supra). In Hira Lal
(supra) this Court was discussing the voluntary scheme namely, Kar Vivad Samadhan scheme 1998
introduced by the Government of India. The Court found that the aforesaid scheme being a
voluntary scheme has provided that if the dispute and demand is settled by the authority and
pending proceedings were withdrawn by an importer the balance demand against the importer shall
be dropped and the importer shall be immune from any penal proceedings under any law. The Court
also came to the conclusion that under the Customs Act, 1962 the appellant(s) have been discharged
and the scheme granted them immunity from prosecution. On those facts the Court held that the
immunity which has been granted under the provisions of Customs Act will also extend to such
offences that may, prima facie, be made out on identical allegation, namely, evasion of customs duty
and violation of any notification under the said Act. The Court also found, on a reading of the
chargesheet and the FIR that there was no allegation against the appellant(s) of any intentional
deception or of fraudulent or dishonest intention. On those facts the Court held that once a civil case
has been compromised and the alleged offence has been compounded, the continuance of the
criminal proceedings thereafter would be an abuse of the judicial process.
33. We fail to appreciate how the ratio in the case of Hira Lal (supra) rendered on completely
different facts has any application to the facts of the present case.
34. Reliance was also placed on the judgment of this Court in the case of Nikhil Merchant vs. Central
Bureau of Investigation and another reported in (2008) 9 SCC 677. In paragraphs 30 and 31 of the
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judgment this Court held that dispute between company and the Bank have been set at rest on the
basis of compromise arrived at between them. The Court noted that Bank does not have any claim
against the company. The Court poses the question whether the power of quashing criminal
proceeding which is there with the Court should be exercised.
(See para 30 at page 684 of the judgment)
35. The Court answered the same in Nikhil Merchant (supra) by saying in para 31 that technicality
should not be allowed to stand in the way of quashing of the criminal proceedings since in the view
of the Court the continuance of the same after the compromise could be a futile exercise.
Therefore, the said decision in Nikhil Merchant (supra) was rendered in the peculiar facts of the case
and it was done in exercise of quashing power by the Court. It was not a case of automatic
compounding of an offence on the sanctioning of a scheme under Section 391 of the Companies Act.
36. Mr. K. Parameshwar, learned counsel appearing for the respondent in special leave petition
Nos.4445-
4454/2009 argued that the impugned judgment of the High Court is based on correct principles
inasmuch as the effect of a Scheme under Section 391 of the Companies Act can only be made
applicable to a civil proceeding and it cannot affect criminal liability. Learned counsel further
submitted that under the criminal law there is nothing known as deemed compounding. It was
further urged that under the very concept of compounding, it cannot take place without the explicit
consent of the complainant or the person aggrieved. It was also urged that in the instant case the
offence has been completed prior to the scheme under Section 391 of the Companies Act was
sanctioned by the Court.
37. Learned counsel distinguished between a Scheme under Section 391 and an act of compounding
by urging that a Scheme under section 391 can at most be a Scheme to forego a part of a debt or to
restructure the payment schedule of a debt but the act of compounding an offence must proceed on
the basis of the consent of the person compounding and his consent cannot be assumed under any
situation.
38. Learned counsel further submitted that the impugned judgment of the High Court correctly
formulated the principle of compounding by holding that the act of compounding involves an
element of mutuality and it has to be bilateral and not unilateral.
39. This Court finds lot of substance in the aforesaid submission.
40. Compounding of an offence is statutorily provided under Section 320 of the Code. If we look at
the list of offences which are specified in the Table attached to Section 320 of the Code, it would be
clear that there are basically two categories of offences under the provisions of Indian Penal Code
which have been made compoundable.
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41. There is a category of offence for the compounding of which leave of the Court is required and
there is another category of offences where for compounding the leave of the Court is not required.
But all cases of compounding can take place at the instance of persons mentioned in the Third
Column of the Table. If the said Table is perused, it will be clear that compounding can only be
possible at the instance of the person who is either a complainant or who has been injured or is
aggrieved.
42. Sub-sections 4(a) and 4(b) of Section 320 also reiterate the same principle that in case of
compounding, the person competent to compound, must be represented in a manner known to law.
If the person compounding is a minor or an idiot or a lunatic, the person competent to contract on
his behalf may, with the permission of the Court, compound the offence. Legislature has, therefore,
provided that if the aforesaid category of person was suffering from some disability, a person to
represent the aforesaid category of persons is only competent to compound the offence and in such
cases the permission of the Court is statutory required.
43. Section 320 (4) (b) also reiterates the same principle by providing that when a person who is
otherwise competent to compound an offence is dead, his legal representatives, as defined under the
Code of Civil Procedure may, with the consent of the Court, compound such offence.
44. Therefore, representation of the person compounding has been statutorily provided in all
situations.
45. Sub-section (9) of Section 320 which is relevant in this connection is set out below:
"No offence shall be compounded except as provided by this section."
46. Section 147 of the Negotiable Instrument Act reads as follows:
"147. Offences to be compoundable. -
Notwithstanding anything contained in the code of Criminal Procedure, 1973 (2 of 1974), every
offence punishable under this Act shall be compoundable."
47. Relying on the aforesaid non-obstante clause in Section 147 of the N.I. Act, learned counsel for
the appellant argued that a three-Judge Bench decision of this Court in Damodar (supra), held that
in view of non-obstante clause in Section 147 of N.I. Act, which is a special statute, the requirement
of consent of the person compounding in Section 320 of the Code is not required in the case of
compounding of an offence under N.I. Act.
This Court is unable to accept the aforesaid contention for various reasons which are discussed
below.
48. The insertion of a non-obstante clause is a well known legislative device and in olden times it
had the effect of non obstante aliquo statuto in contrarium (notwithstanding any statute to the
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contrary).
49. Under the Stuart reign in England the Judges then sitting in Westminster Hall accepted that the
statutes were overridden by the process but this device of judicial surrender did not last long. On the
device of non-obstante clause, William Blackstone in his Commentaries on the Laws of England
(Oxford: The Claredon Press, 1st Edn. 1765-
1769) observed that the devise was "...effectually demolished by the Bill of Rights at the revolution,
and abdicated Westminster Hall when James II abdicated the Kingdom" (See Bennion on Statutory
Interpretation, 5th Edition, Section 48).
50. Under the Scheme of modern legislation, nonobstante clause has a contextual and limited application.
51. The impact of a `non-obstante clause' on the concerned act was considered by this Court in many
cases and it was held that the same must be kept measured by the legislative policy and it has to be
limited to the extent it is intended by the Parliament and not beyond that. [See ICICI Bank Ltd. vs.
Sidco Leathers Ltd. and Ors. - (2006) 10 SCC 452 para 37 at page 466]
52. In the instant case the non-obstante clause used in Section 147 of N.I. Act does not refer to any
particular section of the Code of Criminal Procedure but refers to the entire Code. When
non-obstante clause is used in the aforesaid fashion the extent of its impact has to be found out on
the basis of consideration of the intent and purpose of insertion of such a clause.
53. Reference in this connection may be made to the Constitution Bench decision of this Court in the
case of Madhav Rao Scindia Bahadur, etc. vs. Union of India and Another reported in (1971) 1 SCC
85, Chief Justice Hidayatullah delivering the majority opinion, while construing the provision of
Article 363, which also uses non-obstante clause without reference to any Article in the Constitution,
held that when non-obstante clause is used in such a blanket fashion the Court has to determine the
scope of its use very strictly (see paragraph 68-
69 at page 138-139 of the report).
54. This has been followed by a three-Judge Bench of this Court in Central Bank of India vs. State of
Kerala and others reported in (2009) 4 SCC 94, following the principles as laid down in Madhav Rao
(supra) this Court in Central Bank (supra) held as follows:-
"...When the section containing the said clause does not refer to any particular provisions which it
intends to override but refers to the provisions of the statute generally, it is not permissible to hold
that it excludes the whole Act and stands all alone by itself. `A search has, therefore, to be made
with a view to determining which provision answers the description and which does not'."
(Para 105, page 132 of the report)
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55. Section 147 in N.I. Act came by way of amendment.
From the Statement of Objects and Reasons of Negotiable Instrument (Amendment) Bill 2001,
which ultimately became Act 55 of 2002, these amendments were introduced to deal with large
number of cases which were pending under the N.I. Act in various Courts in the country.
Considering the said pendency, a Working Group was constituted to review Section 138 of the N.I.
Act and make recommendations about changes to deal with such pendency.
56. Pursuant to the recommendations of the Working Group, the aforesaid Bill was introduced in
Parliament and one of the amendments introduced was "to make offences under the Act
compoundable".
57. Pursuant thereto Section 147 was inserted after Section 142 of the old Act under Chapter II of Act
55 of 2002.
58. It is clear from a perusal of the aforesaid Statement of Objects and Reasons that offence under
the N.I. Act, which was previously noncompoundable in view of Section 320 sub-Section 9 of the Code has now become compoundable.
That does not mean that the effect of Section 147 is to obliterate all statutory provisions of Section
320 of the Code relating to the mode and manner of compounding of an offence. Section 147 will
only override Section 320 (9) of the Code in so far as offence under Section 147 of N.I. Act is
concerned. This is also the ratio in Damodar (supra), see para 12. Therefore, the submission of the
learned counsel for the appellant to the contrary cannot be accepted.
59. In this connection, we may refer to the provisions of Section 4 of the Code. Section 4 of the Code,
which is the governing statute in India for investigation, inquiry and trial of offences has two parts.
60. Section 4 sub-section (1) deals with offences under the Indian Penal Code. Section 4 sub-section
(2) deals with offences under any other law which would obviously include offences under the N.I.
Act. (See 2007 Crl. Law Journal 3958)
61. In the instant case no special procedure has been prescribed under the N.I. Act relating to
compounding of an offence. In the absence of special procedure relating to compounding, the
procedure relating to compounding under Section 320 shall automatically apply in view of clear
mandate of sub-section (2) of Section 4 of the Code.
62. Sub-section (2) of Section 4 of the code is set out below:-
"4(2) All offences under any other law shall be investigated, inquired into, tried, and otherwise dealt
with according to the same provisions, but subject to any enactment for the time being in force
regulating the manner or place of investigating, inquiring into, trying or otherwise dealing with such
offences."
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63. Interpreting the said Section, this Court in the case of Khatri and Ors. etc. Vs. State of Bihar and
Ors. - AIR 1981 SC 1068 held that the provisions of the Code are applicable where an offence under
the Indian Penal Code or under any other law is being investigated, inquired into, tried or otherwise
dealt with (See para 3 page 1070).
64. In view of Section 4(2) of the Code, the basic procedure of compounding an offence laid down in
Section 320 of the Code will apply to compounding of an offence under N.I. Act.
65. In Vinay Devanna Nayak vs. Ryot Sewa Sahakari Bank Limited reported in (2008) 2 SCC 305,
this Court also considered the object behind the insertion of Section 138 of the N. I. Act by Banking
Financial Institutions and Negotiable Instruments (Amendment) Act 1988. This Court held:-
"...The incorporation of the provision is designed to safeguard the faith of the creditor in the drawer
of the cheque, which is essential to the economic life of a developing country like India. The
provision has been introduced with a view to curb cases of issuing cheques indiscriminately by
making stringent provisions and safeguarding interest of creditors."
(para 16, page 309 of the report)
66. The Court also looked into the scope of Section 147 of the N.I. Act, and held after considering the
two sections, that there is no reason to refuse compromise between the parties. But the Court did
not hold that in view of Section 147, the procedure relating to compounding under Section 320 of
the Code has to be given a go bye.
67. Subsequently in the case of R. Rajeshwari vs. H.
N. Jagadish reported in (2008) 4 SCC 82, another Bench of this Court also construed the provisions
of Section 147 of the N.I. Act, as well as those of Section 320 of the Code. Here also it was not held
that all the requirements of Section 320 of the Code for compounding were to be given a go bye.
68. Both these aforesaid decisions were referred to and approved in Damodar (supra). The decision
in Damodar (supra) was rendered by referring to Article 142 of the Constitution insofar as
guidelines were framed in relation to compounding for reducing pendency of 138 cases. In doing so
the Court held that attempts should be made for compounding the offence early. Therefore, the
observations made in paragraph 24 of Damodar (supra), that the scheme contemplated under
Section 320 of the Code cannot be followed `in the strict sense' does not and cannot mean that the
fundamental provisions of compounding under Section 320 of the Code stand obliterated by a side
wind, as it were.
69. It is well settled that a judgment is always an authority for what it decides. It is equally well
settled that a judgment cannot be read as a statute. It has to be read in the context of the facts
discussed in it. Following the aforesaid well settled principles, we hold that the basic mode and
manner of effecting the compounding of an offence under Section 320 of the Code cannot be said to
be not attracted in case of compounding of an offence under N.I. Act in view of Section 147 of the
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same.
70. Compounding as codified in Section 320 of the Code has a historical background. In common
law compounding was considered a misdemeanour. In Kenny's `Outlines of Criminal Law'
(Nineteenth Edition, 1966) the concept of compounding has been traced as follows:-
"It is a misdemeanour at common law to `compound' a felony (and perhaps also to compound a
misdemeanour); i.e. to bargain, for value, to abstain from prosecuting the offender who has
committed a crime. You commit this offence if you promise a thief not to prosecute him if only he
will return the goods he stole from you; but you may lawfully take them back if you make no such
promise. You may show mercy, but must not sell mercy. This offence of compounding is committed
by the bare act of agreement; even though the compounder afterwards breaks his agreement and
prosecutes the criminal. And inasmuch as the law permits not merely the person injured by a crime,
but also all other members of the community, to prosecute, it is criminal for anyone to make such a
composition; even though he suffered no injury and indeed has no concern with the crime."
71. Russell on Crime (Twelfth Edition) also describes:-
"Agreements not to prosecute or to stifle a prosecution for a criminal offence are in certain cases
criminal".
(Chapter 22 - Compounding Offences, page 339)
72. Later on compounding was permitted in certain categories of cases where the rights of the public
in general are not affected but in all cases such compounding is permissible with the consent of the
injured party.
73. In our country also when the Criminal Procedure Code, 1861 was enacted it was silent about the
compounding of offence. Subsequently, when the next Code of 1872 was introduced it mentioned
about compounding in Section 188 by providing the mode of compounding. However, it did not
contain any provision declaring what offences were compoundable. The decision as to what offences
were compoundable was governed by reference to the exception to Section 214 of the Indian Penal
Code.
The subsequent Code of 1898 provided Section 345 indicating the offences which were
compoundable but the said Section was only made applicable to compounding of offences defined
and permissible under Indian Penal code. The present Code, which repealed the 1898 Code,
contains Section 320 containing comprehensive provisions for compounding. A perusal of Section
320 makes it clear that the provisions contained in Section 320 and the various sub-sections is a
Code by itself relating to compounding of offence. It provides for the various parameters and
procedures and guidelines in the matter of compounding. If this Court upholds the contention of the
appellant that as a result of incorporation of Section 147 in the N.I. Act, the entire gamut of
procedure of Section 320 of the Code are made inapplicable to compounding of an offence under the
N.I. Act, in that case the compounding of offence under N.I.
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Act will be left totally unguided or uncontrolled.
Such an interpretation apart from being an absurd or unreasonable one will also be contrary to the
provisions of Section 4(2) of the Code, which has been discussed above. There is no other statutory
procedure for compounding of offence under N.I.
Act. Therefore, Section 147 of the N.I. Act must be reasonably construed to mean that as a result of
the said Section the offences under N.I. Act are made compoundable, but the main principle of such
compounding, namely, the consent of the person aggrieved or the person injured or the complainant
cannot be wished away nor can the same be substituted by virtue of Section 147 of N.I.
Act.
74. For the reasons aforesaid, this Court is unable to accept the contentions of the learned counsel
for the appellant(s) that as a result of sanction of a scheme under Section 391 of the Companies Act
there is an automatic compounding of offences under Section 138 of the N.I. Act even without the
consent of the complainant.
75. The appeals are dismissed. The judgment of the High Court is affirmed.
.......................J.
(ASOK KUMAR GANGULY) .......................J.
New Delhi (JAGDISH SINGH KHEHAR)
February 1, 2012
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