In a recent judgement of V Seshaiah vs State of Telangana & B Vamsi Krishna vs State of Telangana[1],the Supreme Court of India set aside the order by the Telangana High Court convicting the Appellant for cheque dishonour under Section 138[2] of the Negotiable Instrument Act, 1881. A bench comprising of Justices Krishna Murari and V Ramasubramanian held that a conviction under Section 138 of the Negotiable Instruments Act, 1881 cannot be confirmed if there exists a settlement for compounding of the offence between the concerned parties.
Respondent No. 2 initiated the proceedings under Section 138 of the Negotiable Instrument Act, 1881 against the Appellant, who, in the guise of making investments took money from Respondent No.2 and made wrongful gain for their profits. The trial court convicted the Appellant, after which, a revision was preferred by them in Telangana High Court.
However, during the course of revision, both parties entered into a Memorandum of Understanding, through which they settled the disputes amongst themselves. According to Clause 8 of that Memorandum, the parties should first strive to resolve the dispute amicably. But in the event, it is not solved amicably, they can refer the dispute to the sole arbitrator.
It was also mandated that the Respondent has to file the compromise petition before the High Court. However, the Respondent failed to do so. As a result, the High Court upheld the order of conviction by the trial court and dismissed the revision petition.
The apex court while referring to M/S Meters and Instruments Private Limited & Anr. v. Kanchan Mehta[3], which held that “the nature of offence under section 138 of the N.I Act is primarily related to a civil wrong and has been specifically made a compoundable offence”, gave the present judgement. The Court held that “this is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation. When such a step has been taken by the parties, and the law very clearly allows them to do the same, the High Court then cannot override such compounding and impose its will.”
Furthermore, it was stated that the Respondents were duty bound to file a compromise petition and by not doing so, has withdrawn key information from the High Court, which led to the conviction of the Appellants. Hence, the Court allowed the appeals and set aside the said conviction.
To be clear, the Supreme Court, stated unequivocally, “Conviction cannot be confirmed overriding the agreement between the parties to compound the offence.” and that the nature of offence under section 138 of the Negotiable Instruments Act, 1881 is primarily related to a civil wrong and is a compoundable offence. The Bench also made it clear that this is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation.
– Akshita Shrivastava
[1] Criminal Appeal No. of 2023 ((Arising out of Special Leave Petition (Crl) No. 7099/2018 & 7100/2018)
[2] Section 138. “Dishonour of cheque for insufficiency, etc., of funds in the account”
[3] 2018 (1) SCC 560
