Supreme Court Quashes Conviction in Cheque Bounce Case After Settlement: P. Chandrakala vs. K. Narender (2017)

Date of the Judgment: 24 July 2017

Citation: 2017 INSC 661

Judges: J. Chelameswar, J., S. Abdul Nazeer, J.

Can a conviction for a cheque bounce be overturned if the parties involved reach a settlement? The Supreme Court of India addressed this question in a recent case, focusing on whether a compromise between the parties can lead to the quashing of a conviction under Section 138 of the Negotiable Instruments Act, 1881. This case highlights the importance of amicable resolutions in financial disputes and the court’s willingness to acknowledge such settlements.

The Supreme Court bench, comprising Justices J. Chelameswar and S. Abdul Nazeer, delivered the judgment. Justice S. Abdul Nazeer authored the judgment.

Case Background

The case began with a private complaint filed by K. Narender (Respondent No. 1) against Smt. P. Chandrakala (the Appellant). Narender claimed that Chandrakala had borrowed ₹5,00,000 from him, promising to repay it with 2.5% annual interest. When Chandrakala failed to repay the amount, Narender alleged that she issued a post-dated cheque for ₹7,00,000, dated 29.08.2000. This cheque, when presented on 08.02.2001, was returned due to insufficient funds. Despite a statutory notice, Chandrakala did not pay the amount, leading Narender to file a complaint under Section 138 of the Negotiable Instruments Act, 1881.

Timeline

Course of Proceedings

The V Metropolitan Magistrate, Hyderabad, took cognizance of the complaint and registered it as CC No. 103 of 2001. After trial, the Magistrate convicted Chandrakala on 20.07.2005, sentencing her to six months of simple imprisonment, a fine of ₹500, and a compensation of ₹7,00,000 under Section 357(3) of the Code of Criminal Procedure (Cr.P.C.). Chandrakala’s appeal against this conviction was dismissed by the appellate court on 12.01.2006. Subsequently, the High Court of Judicature at Hyderabad also dismissed her revision petition on 12.08.2014.

Legal Framework

The core legal provision in this case is Section 138 of the Negotiable Instruments Act, 1881, which deals with the dishonour of cheques for insufficient funds. Specifically, it states that if a cheque is returned unpaid due to insufficient funds in the account, the issuer is deemed to have committed an offense. The section aims to ensure the credibility of financial transactions through cheques. The relevant portion of the section is not mentioned in the source document.

Additionally, Section 357(3) of the Code of Criminal Procedure is relevant, which empowers the court to order compensation to the victim of the crime. This provision was invoked by the Magistrate to direct Chandrakala to pay compensation to Narender.

Arguments

The arguments presented before the Supreme Court were primarily focused on the fact that the parties had reached a settlement. The appellant’s counsel submitted that during the pendency of the revision case before the High Court, the matter was compromised, and the entire amount had been paid to the first respondent. The first respondent’s counsel confirmed the receipt of the full amount and stated that he had no objection if the conviction under Section 138 of the Negotiable Instruments Act, 1881, was set aside.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in the judgment. However, the implicit issue before the court was:

1. Whether the conviction under Section 138 of the Negotiable Instruments Act, 1881, can be set aside based on a settlement between the parties and the payment of the full amount.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not explicitly cite any case laws or books in this judgment. The decision was primarily based on the fact that the parties had settled the dispute and the respondent had received the full amount.

Judgment

The Supreme Court allowed the parties to compound the offense, setting aside the judgments of the lower courts and acquitting the appellant. The Court noted that the parties had settled their disputes, and the entire amount had been paid to the first respondent. However, the court also imposed a cost of ₹1,00,000 on the appellant for wasting public time. This cost was directed to be paid to the Delhi Council for Child Welfare.

How each authority was viewed by the Court?

The Court acknowledged the conviction under Section 138 of the Negotiable Instruments Act, 1881* and the compensation order under Section 357(3) of the Code of Criminal Procedure*, but set them aside due to the settlement between the parties.

What weighed in the mind of the Court?

The primary factor that weighed in the mind of the Court was the settlement between the parties. The Court noted that the appellant had paid the entire amount to the respondent, and the respondent had no objection to setting aside the conviction. This indicates that the court prioritized amicable resolutions and the willingness of parties to settle their disputes outside of prolonged litigation.

The court’s reasoning was primarily based on the factual aspect of the settlement and the payment of the full amount, with less emphasis on the strict legal interpretation of Section 138 of the Negotiable Instruments Act, 1881. However, the court also considered the fact that the appellant had wasted public time by prolonging the litigation and imposed a cost of ₹1,00,000.

The court’s decision was based on the principle of encouraging settlements and reducing the burden on the judicial system. The court noted that since the parties had resolved their dispute, it was appropriate to set aside the conviction, even though it was a conviction under Section 138 of the Negotiable Instruments Act, 1881. The court also emphasized that the appellant had wasted public time by prolonging the litigation and imposed a cost to deter such behavior in the future.

The court quoted, “Since the parties have settled their disputes, we allow the parties to compound the offence, set aside the judgment of the courts below and acquit the appellant of the charges against her.”

Further, the court stated, “We are of the view that since the appellant has wasted the public time, while setting aside the aforesaid orders, she should be burdened with exemplary costs, which we quantify at Rupees one lakh.”

The court also directed, “The appellant is directed to pay the cost as ordered by us to an orphanage, namely, Delhi Council for Child Welfare, located at Qudsia Bagh, Yamuna Marg, Civil Lines, Delhi 110054, within four weeks from today and produce an acknowledgement for having paid the amount to the orphanage within one week thereafter.”

Key Takeaways

• A conviction under Section 138 of the Negotiable Instruments Act, 1881, can be set aside if the parties settle the dispute and the full amount is paid.
• The Supreme Court encourages amicable resolutions and settlements in cheque bounce cases.
• The court may impose costs on parties who waste public time by prolonging litigation, even when a settlement is reached.
• The court may direct the costs to be paid to a charitable organization.

Directions

The Supreme Court directed the appellant to pay a cost of ₹1,00,000 to the Delhi Council for Child Welfare within four weeks and produce an acknowledgment within one week thereafter. Failure to comply would result in the revival of the conviction and sentence.

Development of Law

This case reinforces the principle that the Supreme Court encourages settlements in cases under Section 138 of the Negotiable Instruments Act, 1881. While the law provides for punishment for dishonoring cheques, the court is willing to set aside convictions if the parties have resolved their dispute and the complainant has received the full amount. This promotes a pragmatic approach to dispute resolution and reduces the burden on the courts.

Conclusion

In the case of Smt. P. Chandrakala vs. K. Narender, the Supreme Court set aside the conviction under Section 138 of the Negotiable Instruments Act, 1881, after the parties reached a settlement and the appellant paid the full amount to the respondent. The court emphasized the importance of amicable resolutions but also imposed a cost on the appellant for wasting public time. This decision highlights the court’s willingness to prioritize settlements and reduce the burden on the judicial system while also ensuring accountability.