Important Guidelines by Supreme Court in relation to Cheque Dishonour Cases under Section 138 of Negotiable Instruments Act - Meter and Instruments Private Limited v. Kanchan Mehta

The Hon’ble Supreme Court in its latest judicial pronouncement, Meter and Instruments Private Limited v. Kanchan Mehta, has explained, laid down and iterated the principles and guidelines that are usually followed in cases pertaining to Section 138 of the Negotiable Instruments Act, 1881. The important excerpts and principles enunciated by the Hon’ble Supreme Court are as follows: -

1.       The object of introducing Section 138 and other such provisions, is to enhance the acceptability of cheques in the settlement of liabilities.  The Drawer of cheque is made liable to prosecution on dishonour of cheque with safeguards to prevent harassment of honest drawers. The provision is said to be both punitive as well as compensatory in nature.

2.       The offence punishable under Section 138 of the Act of 1881 is primarily related to a civil wrong and the Amendment [The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002] of 2002 specifically made it compoundable. The burden of proof in such cases is on the Accused in view of the presumption under Section 139 and the standard of proof is that of “preponderance of probabilities”.

3.         The Complainant could be given not only the Cheque Amount but also double the amount so as to cover interest and costs. Being quasi-criminal in nature, provisions of Section 357 (1) (b) of the Code of Criminal Procedure, 1973 (Cr.P.C.) are also applicable. Where fine is not imposed, compensation can be granted under Section 357 (3) of Cr.P.C. Thus, the object of Section 138 is not only penal but also to make the Accused honour the Negotiable Instruments.

4.        The Hon’ble Supreme Court in Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, held that the Accused could make an Application for compounding at the first or second hearing in which case the Court ought to allow the same. If such Application is made later, the Accused is required to pay higher amount towards cost etc. It was also held in catena of Judgments that since the concept of compounding involves consent of the Complainant, compounding could not be permitted merely by unilateral payment, without the consent of both the parties.

5.        The Law Commission in its 213th Report, submitted on 24th November, 2008 noted that out of total pendency of 1.8 crores cases in the country (at that time), 38 lakh cases (about 20% of total pendency) related to Section 138 of the Act.

6.      One of the main objectives of the Amendment of 2002 was to have simplified and speedy trials.  The process of adducing evidence has also been made simpler in cases relating to Section 138. Once evidence is given on Affidavit, the extent and nature of examination of such witness is to be determined by the Court. The Affidavit could also prove documents.

7.         According to Section 143 of the Act of 1881, the Trial has to proceed on day to day basis with endeavour to conclude the same within six months. Affidavit of the Complainant can be read as evidence. Bank’s slip or memo of Cheque Dishonour can give rise to the presumption of dishonour of the cheque, unless and until that fact was disproved.

8.         The principle of Section 258 of Cr.P.C. can be applied and the Court can close the proceedings and discharge the accused on satisfaction that the cheque amount with assessed costs and interest is paid and if there is no reason to proceed with the punitive aspect.

9.        Compounding at the initial stage has to be encouraged but is not debarred at later stage subject to appropriate compensation as may be found acceptable to the parties or the Court. Thus, though compounding requires consent of both parties, even in absence of such consent, the Court, in the interests of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the accused.

10.      In every complaint under Section 138 of the Act, it may be desirable that the complainant gives his bank account number and if possible e-mail ID of the accused. The relevant portion of the Judgment is reproduced hereinbelow: -

            “In every summons, issued to the accused, it may be indicated that if the accused deposits the specified amount, which should be assessed by the Court having regard to the cheque amount and interest/cost, by a specified date, the accused need not appear unless required and proceedings may be closed subject to any valid objection of the complainant. If the accused complies with such summons and informs the Court and the complainant by e-mail, the Court can ascertain the objection, if any, of the complainant and close the proceedings unless it becomes necessary to proceed with the case. In such a situation, the accused’s presence can be required, unless the presence is otherwise exempted subject to such conditions as may be considered appropriate. The accused, who wants to contest the case, must be required to disclose specific defence for such contest. It is open to the Court to ask specific questions to the accused at that stage. In case the trial is to proceed, it will be open to the Court to explore the possibility of settlement. It will also be open to the Court to consider the provisions of plea bargaining.”

The guidelines and principles laid down by the Hon’ble Supreme Court are nothing new and are merely iterations of the guidelines laid down earlier. However, the Supreme Court has made clear that compounding can be permitted at any stage, if the Court so deems fit. Also, the Supreme Court has stated that there is a huge pendency of cases relating to Section 138 and the Trial Courts as well as High Court must take pains to adopt summary procedure and take help of technology to conclude the trials as early as possible.