Supreme Court clarifies procedure for Section 138 Negotiable Instruments Act cases: Meters and Instruments vs. Kanchan Mehta (2017)

Can proceedings under Section 138 of the Negotiable Instruments Act be closed if the accused is willing to pay the cheque amount? The Supreme Court of India recently addressed this question in a case concerning cheque dishonor. The court clarified the procedure, emphasizing the compensatory nature of the law and the possibility of closing proceedings upon payment. This judgment was delivered by a bench comprising Justices Adarsh Kumar Goel and Uday Umesh Lalit. Justice Adarsh Kumar Goel authored the judgment.

Case Background

Kanchan Mehta filed a complaint on July 15, 2016, alleging that Meters and Instruments Private Limited and its director (the appellants) failed to pay a monthly amount due to her under an agreement. A cheque dated March 31, 2016, for ₹29,319, issued to discharge a legal liability, was dishonored due to insufficient funds. Despite receiving a legal notice, the appellants did not pay the amount, leading to the complaint under Section 138 of the Negotiable Instruments Act, 1881.

The Magistrate summoned the appellants on August 24, 2016, after reviewing the complaint and preliminary evidence. On November 9, 2016, the Magistrate noted that the case could not be tried summarily, as a sentence of more than one year might be required. A notice of accusation was served under Section 251 of the Code of Criminal Procedure (Cr.P.C.).

The second appellant, a director, stated his willingness to pay the cheque amount, but the complainant refused the demand draft. The appellants then applied under Section 147 of the Act, citing the judgment in *Damodar S. Prabhu v. Sayed Babalal H*. However, the application was dismissed because *JIK Industries Ltd. v. Amarlal V. Jumani* required the complainant’s consent for compounding. The High Court upheld the Magistrate’s order, leading to these appeals.

Timeline

Course of Proceedings

The Magistrate initially summoned the appellants after reviewing the complaint and preliminary evidence. Subsequently, the Magistrate determined that the case could not be tried summarily. The appellants then sought to compound the offense by paying the cheque amount. However, the Magistrate rejected this application, citing the need for the complainant’s consent as per the judgment in *JIK Industries Ltd. v. Amarlal V. Jumani*. The High Court upheld the Magistrate’s decision, leading the appellants to appeal to the Supreme Court.

Legal Framework

The core of this case revolves around Section 138 of the Negotiable Instruments Act, 1881. This provision was introduced to enhance the credibility of cheques in financial transactions. It makes the drawer of a dishonored cheque liable for prosecution. The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, further simplified the procedure, allowing for service of summons by speed post, summary trials, and compounding of the offense.

The Supreme Court noted that the object of Section 138 of the Negotiable Instruments Act is both punitive and compensatory. The intention is to ensure the complainant receives the cheque amount, potentially with additional compensation to cover interest and costs. Section 357(1)(b) of the Cr.P.C. allows for compensation to be paid from fines, and Section 357(3) Cr.P.C. permits compensation even if a fine is not imposed.

Section 143 of the Negotiable Instruments Act allows for summary trials in these cases. It also allows for flexibility in the procedure to ensure speedy trials. The court also considered Section 258 of the Cr.P.C., which allows for stopping proceedings in summons cases. The court noted that the principles of this section can be applied to Section 138 cases.

The court also discussed Section 205 of the Cr.P.C., which allows a Magistrate to dispense with the personal appearance of the accused. This is particularly relevant in cases where the accused is located far from the court’s jurisdiction.

Arguments

The appellants argued that they were willing to pay the cheque amount. They contended that the proceedings should be closed given the compensatory nature of the law. They relied on *Damodar S. Prabhu v. Sayed Babalal H*, which encouraged compounding at early stages. The appellants also argued that the court should consider the hardship caused by requiring personal appearance.

The respondent argued that compounding required their consent as per *JIK Industries Ltd. v. Amarlal V. Jumani*. They contended that the case should proceed to trial since they had not consented to compounding. They argued that the court should not close the proceedings without their agreement.

The amicus curiae submitted that the court should adopt a flexible approach. They argued that the court should prioritize the compensatory aspect of the law. They also contended that the court has the power to close proceedings if the complainant is adequately compensated, even without their consent. The amicus curiae also emphasized the need for speedy trials and the use of technology.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. How can proceedings for an offense under Section 138 of the Negotiable Instruments Act be regulated when the accused is willing to deposit the cheque amount?

The court also considered whether in such a case, the proceedings can be closed, exemption granted from personal appearance, or any other appropriate order can be passed.

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

Judgment

The Court viewed the authorities as follows:

✓ The Court followed *Damodar S. Prabhu*[ (2010) 5 SCC 663 ], which encouraged compounding at the initial stage.

✓ The Court distinguished *JIK Industries Ltd.* [ (2012) 3 SCC 255], stating that while consent is required for compounding, the court has the power to close proceedings if the complainant is compensated.

✓ The Court noted that *Subramanium Sethuraman* [(2004)13 SCC 324] was rendered prior to the 2002 amendment and hence not applicable.

✓ The Court approved the directions in *Indian Bank Association* [(2014) 5 SCC 590] for simpler procedures.

✓ The Court relied on *Bhaskar Industries Ltd.* [(2001) 7 SCC 401] to emphasize the need for considering dispensing with personal appearances.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the compensatory nature of Section 138 of the Negotiable Instruments Act. The Court emphasized that the main objective is to ensure that the complainant receives the cheque amount, along with interest and costs. The punitive aspect of the law was considered secondary, meant to enforce the compensatory element. The Court also focused on the need for speedy trials and reducing the burden on the courts. The court also considered the hardship caused to the accused by requiring personal appearance, especially when they are willing to pay the amount due.

The court’s reasoning process for the main issue can be summarized as follows:

The Court considered alternative interpretations, such as strictly requiring the complainant’s consent for compounding. However, it rejected this interpretation, emphasizing the need for a flexible approach that prioritizes compensatory justice and speedy trials. The Court also considered the burden on the courts and the hardship caused to the accused.

The Court’s decision was that if the accused pays the cheque amount with interest and costs, the court can close the proceedings. The Court stated:

“where the cheque amount with interest and cost as assessed by the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Act read with Section 258 Cr.P .C.”

The Court further clarified:

“normal rule for trial of cases under Chapter XVII of the Act is to follow the summary procedure and summons trial procedure can be followed where sentence exceeding one year may be necessary taking into account the fact that compensation under Section 357(3) Cr.P .C. with sentence of less than one year will not be adequate, having regard to the amount of cheque, conduct of the accused and other circumstances.”

The court also noted:

“Offence under Section 138 of the Act is primarily a civil wrong…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.”

There were no dissenting opinions in this judgment.

The Court’s reasoning was based on the compensatory nature of the law, the need for speedy trials, and the need to reduce the burden on the courts. The Court interpreted Section 143 of the Negotiable Instruments Act and Section 258 of the Cr.P.C. to allow for the closure of proceedings if the complainant is duly compensated. The Court also emphasized the need for a flexible approach that balances the rights of the complainant and the accused.

This judgment has significant implications for future cases under Section 138 of the Negotiable Instruments Act. It clarifies that the court has the power to close proceedings if the accused pays the cheque amount with interest and costs, even without the complainant’s consent. This will likely lead to a reduction in the number of cases that proceed to trial, thereby reducing the burden on the courts. It also provides a clear framework for Magistrates to follow in these cases.

The Court did not introduce any new doctrines but clarified the existing legal principles. It emphasized the compensatory nature of Section 138 and the flexibility in procedure to ensure speedy trials. The Court also clarified that the power to close proceedings is inherent in the scheme of the Act.

Key Takeaways

Practical implications of this judgment include:

• ✓ Courts can close proceedings under Section 138 of the Negotiable Instruments Act if the accused pays the cheque amount with interest and costs.
• ✓ The compensatory aspect of the law is prioritized over the punitive aspect.
• ✓ Speedy trials are emphasized, and courts should encourage compounding at an early stage.
• ✓ Personal appearance of the accused may be dispensed with in appropriate cases.
• ✓ The judgment encourages the use of technology to streamline proceedings.

This judgment will likely reduce the number of cases that proceed to trial, thereby reducing the burden on the courts. It also provides a clear framework for Magistrates to follow in these cases. The emphasis on the compensatory nature of the law will also encourage parties to settle disputes amicably.

Directions

The Supreme Court directed that:

• ✓ High Courts should review the situation and issue updated directions for dealing with Section 138 cases.
• ✓ High Courts should consider categories of cases that can be conducted online.
• ✓ High Courts should consider issuing updated directions for dealing with Section 138 cases in light of the judgments of this Court.

Development of Law

The ratio decidendi of this case is that the court has the power to close proceedings under Section 138 of the Negotiable Instruments Act if the accused pays the cheque amount with interest and costs, even without the complainant’s consent. This is a change from the previous position that required the complainant’s consent for compounding. The court emphasized the compensatory nature of the law and the need for speedy trials.

Conclusion

In conclusion, the Supreme Court’s judgment in *M/S. Meters and Instruments Private Limited & Anr. v. Kanchan Mehta* clarifies the procedure for cases under Section 138 of the Negotiable Instruments Act. The Court held that if the accused pays the cheque amount with interest and costs, the court can close the proceedings. This decision emphasizes the compensatory nature of the law and the need for speedy trials, providing a framework for Magistrates to follow in these cases.