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Dayawati Vs Yogesh Kumar Gosain: No Bar In Settling Dispute Based On Section 138, NI Act By Utilising Alternate Dispute Resolution

minakshi bindhani ,
  28 August 2021       Share Bookmark

Court :
High Court of Delhi
Brief :
In this case, the respondent, in discharge of his liability, issued two cheques which were dishonoured under Section 138 of the NI Act. Both the parties expressed the intention to amicably settle their disputes and the matter was referred to mediation. The parties agreed to comply with the terms of the settlement, but the respondent failed to do so. The appellant applied for the enforcement of the settlement.
Citation :
CRL.REF.No. 1/2016

17th October 2017

The Acting Chief Justice Gita Mittal
Ms Justice Anu Malhotra

Petitioner- Dayawati
Respondent- Yogesh Kumar Gosain


The Delhi High Court held that the cases of dishonour of cheques could be referred to alternate dispute resolution mechanisms like arbitration, mediation, and conciliation.


  • The appellant filed a complaint under Section 138 of the NI Act against the respondent that he had a liability of Rs.55,99,600/- towards the appellant for thesupply of fire-fighting goods and equipment. The respondent had issued two account payee cheques in favour of the appellant of Rs. 11 lakh and Rs.16 lakh
  • Both the cheques were dishonoured by the respondent's bank on presentation, on account of "insufficiency of funds".
  • The complainant was compelled to serve a legal notice of demand against the respondent. When it went unheeded, it led to the filing of two complaint cases under
  • Section 138 of the NI Act, before the Patiala House Courts, New Delhi. In these proceedings, both the parties had expressed the intention to amicably settle their disputes.
  • Under the agreement between the parties, the respondent agreed to pay the total amount of Rs. 55,54,600/- to the complainant as the full and final settlement amount in instalments. It was agreed that the complainant would withdraw the complainant's cases after receiving the whole amount.
  • The respondent did not fulfil the terms and condition and the appellant moved to the Metropolitan Magistrate, who after giving two or more opportunities for the compliance of settlement, made a reference to the Delhi High Court under Section 395 of the Cr.P.C.


  • Section 138 of Negotiable Instrument Act: Dishonour of cheque for insufficiency, etc., of funds in the account
  • Section 147 of Negotiable Instrument Act: Offences held 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.
  • Section 320 of Cr.P.C- Compounding of offences.
  • Section 395 of Cr.P.C- Reference to High Courts.


  • Whether it is lawful to refer to mediation for the resolution of a criminal case that is compoundable?
  • Whether the Mediation and Conciliation Rules, 2004 framed by the High Court by exercising the powers under the Code of Civil Procedure, 1908 be applied to a criminal case? If not, how can the legal vacuum be filled?
  • What procedure is to be followed after referring the dispute to Mediation?
  • In case of non-compliance of the settlement arrived at in mediation, what procedure is to be followed by the court? Is it obligatory for the court to continue with the case and decide it on merits or to treat such settlement agreement as equal to decree capable of being executed?
  • If the mediation settlement agreement is treated as equivalent to the decree, what is the procedure is to be followed for its execution?


The Court held that:

  • Regarding the first issue, the court referred the case of Afcons Infrastructure Ltd. &Anr. v. CherianVarkey Constructions Co. Pvt. Ltd, wherein the Hon'ble Supreme Court has given a list of cases which are fit for reference to ADR and which are not fit for the same. Cases relating to prosecution for criminal cases are put under the category of non-suitable cases.
  • Further, the High Court of Delhi observed that this decision cannot be regarded as an authoritative judicial pronouncement as it does not specifically involve the legality of mediation in criminal compoundable cases.
  • Regarding the second issue, it was brought to notice that Sec. 477 of the Cr.P.C. deals with the rule-making power of the High Court and Clause (d) confers power on the High Court to formulate rules on any other matter. Thus, by taking into consideration these provisions, the Hon’ble Court held that these powers may also be exercised for criminal cases.
  • Regarding the third issue, the court had observed that the Cr.P.C. and NI Act are merely for the compounding of the offences, however, no technique is laid down as to how the settlement agreement is to be placed or considered by the court. The provisions of the C.P.C do not apply to litigations guided by Cr.P.C. Therefore, there is a legal vacuum, which is required to be filled. It was observed by the court that it could not trace any reason for not applying the principles contained in Order XXIII Rule 3 of the C.P.C. at the time of consideration of a settlement under Sec. 320 of Cr.P.C. or Sec. 147 of the NI Act, which is usually applied in considering a settlement in civil cases.
  • Regarding the fourth issue i.e. the procedure to be followed in case of non-compliance of settlement agreement arrived at in mediation, it was held by the Hon'ble High Court that where an accused person makes a default or commits a breach of the settlement agreement, Sec. 431 read with Sec. 421 of the Cr.P.C. would be applied by the Magistrate. It was further held that contempt proceedings can also be taken under the Contempt of Courts Act, 1971.
  • Regarding the fifth issue, the Hon'ble High Court also referred the case of M/s Arun International v. State of Delhi &Anr., in which it was held that the settlement in mediation under Sec. 138 of the NI Act is binding and is to be treated as an executable decree.


The court held that when the offence is compounded in the form of a settlement, then the court has to acquit/discharge the accused and in case of evasion or non-fulfilment or breach of settlement, the amount would be recovered as fine under Sec. 431 of the Cr.P.C. Thus, a defaulter accused can never be tried for the offence he has committed and he can easily escape from the punishment which he deserved to receive. The mediation process can be used by the accused as a tool for delaying the proceeding and even escaping from the punishment.

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