Pendency of proceedings in cheque bounce cases dampened ease of doing business in India: Supreme Court

By: |
October 08, 2021 9:43 PM

A bench headed by Justice D Y Chandrachud made the observations in its 41-page judgement on two petitions arising out of complaints filed under the provision of the Act.

Check bounceThe bench said that under the shadow of section 138 of the NI Act, parties are encouraged to settle the dispute resulting in the ultimate closure of the case rather than continuing with protracted litigation before the court

The pendency of proceedings in cheque bounce cases and the multiplicity of complaints, in which a cause of action arising from one transaction is litigated, has “dampened” the ease of doing business in India and hindered investments, the Supreme Court said on Friday.

The apex court said that the nature of offence under section 138 of the Negotiable Instruments (NI) Act, which relates to the dishonour of cheque, is quasi-criminal and the purpose of the enactment is to “provide security” to creditors and instill confidence in the banking system of the country.

A bench headed by Justice D Y Chandrachud made the observations in its 41-page judgement on two petitions arising out of complaints filed under the provision of the Act. “The pendency of court proceedings under section 138 of the NI Act and the multiplicity of complaints in which a cause of action arising from one transaction is litigated has dampened the ease of doing business in India, impacted business sentiments and hindered investments from investors,” said the bench, also comprising Justices Vikram Nath and B V Nagarathna.

“Recognising these issues, the Ministry of Finance by a notice dated June 8, 2020, has sought comments regarding the decriminalisation of minor offences, including section 138 of the NI Act, to improve the business sentiment in the country,” it said.

The bench said that under the shadow of section 138 of the NI Act, parties are encouraged to settle the dispute resulting in the ultimate closure of the case rather than continuing with protracted litigation before the court.
It said this is beneficial for the complainant as it results in early recovery of money, alteration of the terms of the contract for higher compensation, and avoidance of litigation and equally, the accused is benefitted as it leads to avoidance of a conviction and sentence or payment of a fine. “It also leads to unburdening of the judicial system, which has a huge pendency of complaints filed under section 138 of the NI Act,” the bench said.

The top court said the question which arises for its consideration in this matter is whether once the settlement has been entered into, the complainant can be allowed to pursue the original complaint under section 138 of the Act.
The bench, while dealing with the fact of the case, noted that there are two sets of criminal complaints under section 138 of the Act based on the dishonour of the first set of cheques and the second set respectively.

It said that allowing prosecution under both sets of complaints would be contrary to the purpose of the enactment.
“As noted above, it is the compensatory aspect of the remedy that should be given priority as opposed to the punitive aspect. The complainant in such cases is primarily concerned with the recovery of money, the conviction of the accused serves little purpose. In fact, the threat of jail acts as a stick to ensure payment of money,” it said.

It said when a complainant party enters into a compromise agreement with the accused, it may be for a multitude of reasons like higher compensation, faster recovery of money, the uncertainty of trial, and strength of the complaint, among others. “A complainant enters into a settlement with open eyes and undertakes the risk of the accused failing to honour the cheques issued pursuant to the settlement, based on certain benefits that the settlement agreement postulates,” it said.

The top court said once parties have voluntarily entered into such an agreement and agree to abide by the consequences of non-compliance with the settlement agreement, they cannot be allowed to reverse the effects of the agreement by pursuing both the original complaint and the subsequent complaint arising from such non-compliance. It noted that a complainant “cannot pursue two parallel prosecutions” for the same underlying transaction.

“Once a settlement agreement has been entered into between the parties, the parties are bound by the terms of the agreement and any violation of the same may result in consequential action in civil and criminal law,” it said.
The bench set aside the 2019 order of the Madras High Court which had quashed the proceedings in a complaint filed in 2017 under section 138 of the Act pending before a trial court. It also quashed the original complaint in respect of dishonour of cheques of the value of Rs nine crore.

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