Supreme Court Quashes Criminal Proceedings Despite Complainant’s Refusal to Compound: Raj Reddy Kallem vs. State of Haryana (2024)

Date of the Judgment: April 08, 2024
Citation: 2024 INSC 347
Judges: A.S. Bopanna, J., Sudhanshu Dhulia, J.
Can a criminal case be quashed even if the complainant refuses to settle, especially when the accused has repaid the entire amount due? The Supreme Court of India recently addressed this complex question in a case involving the dishonor of a cheque and related charges. The court, while acknowledging the importance of the complainant’s consent in compounding offenses, ultimately quashed the criminal proceedings, emphasizing that the primary objective of the law in such cases is compensatory rather than punitive. The judgment was delivered by a two-judge bench comprising Justice A.S. Bopanna and Justice Sudhanshu Dhulia.

Case Background

In 2012, Respondent No. 2, the complainant, placed an order with the appellant’s company, M/s Farmax, for a “Promotec Fiber Laser Cutting Machine,” paying an advance of Rs. 1,55,00,000. However, M/s Farmax failed to deliver the machine. Consequently, the appellant issued five cheques to the complainant to refund the advance. Some of these cheques were dishonored, leading the complainant to initiate proceedings under Section 138 of the Negotiable Instruments Act (NI Act) in November-December 2013. Additionally, in January 2014, the complainant filed a complaint under Section 156(3) of the Criminal Procedure Code (CrPC), resulting in FIR No. 35 of 2014 at Police Station Mahesh Nagar (Ambala) under Sections 406, 420, and 120B of the Indian Penal Code (IPC). The complainant alleged that the appellant had wrongfully retained her money and cheated her. A charge sheet was filed against the appellant on 21.07.2014, and the trial commenced.

Timeline:

Course of Proceedings

The trial court convicted the appellant under Section 138 of the NI Act on 25.05.2015/29.05.2015, sentencing him to two years of rigorous imprisonment and directing him to repay the cheque amount. In the appeal before the Additional Sessions Judge, both parties attempted to settle the matter, which was then referred to the Lok Adalat. A settlement was reached on 05.12.2015, where the appellant agreed to repay the entire Rs. 1.55 crore within 16 months, upon which the proceedings under Section 138 of the NI Act and the FIR under Sections 406, 420, and 120B of the IPC would be compounded. However, the appellant failed to meet the payment deadlines, and the Additional Sessions Judge declared the settlement frustrated on 11.07.2016.

Between 2016 and 2020, the appellant approached various courts, including the Supreme Court, seeking extensions to repay the amount. In SLP(Crl) No. 10560 of 2019, the Supreme Court directed the appellant’s wife to deposit Rs. 20 lacs, the remaining outstanding amount, by 29.11.2019. This order was not complied with, and the SLP was dismissed on 14.02.2020. Subsequently, the appellant presented a demand draft for Rs. 20 lacs to the trial court on 12.02.2020, requesting the quashing of the criminal proceedings. The trial court refused to accept the demand draft on 09.02.2021. The High Court dismissed the appellant’s application under Section 482 of the CrPC on 29.11.2022, citing the failure to deposit the amount within the stipulated time.

The Supreme Court, on 14.03.2023, directed the appellant to deposit Rs. 20 lacs before the trial court. The appellant complied, and the trial court submitted a compliance report. On 08.08.2023, the Supreme Court directed the appellant to deposit an additional Rs. 10 lacs towards interest for the delayed payment. The appellant complied with this order as well. On 12.02.2024, the Supreme Court noted that the entire amount had been paid and granted time for settlement. However, on 11.03.2024, the complainant stated that no settlement had been reached and was unwilling to compromise.

Legal Framework

The judgment primarily deals with the interpretation and application of Section 138 of the Negotiable Instruments Act, 1881, which makes the dishonor of a cheque a criminal offense. Section 147 of the NI Act states that all offenses under this Act are compoundable. However, the NI Act does not specify the procedure for compounding, unlike Section 320 of the Criminal Procedure Code (CrPC). To address this gap, the Supreme Court in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663, issued guidelines under Article 142 of the Constitution of India for compounding offenses under Section 138 of the NI Act. The court emphasized that the primary aim of Section 138 is compensatory, not punitive. The court also considered Section 258 of the CrPC which deals with the power to stop proceedings in certain cases.

Section 147 of the Negotiable Instruments Act, 1881 states:

“147. Offences to be compoundable.—Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable.”

Arguments

Appellant’s Submissions:

• The appellant contended that since he had repaid the entire amount of Rs. 1.55 crore and an additional Rs. 10 lacs as interest, there was no basis for continuing the criminal proceedings.
• He argued that the matter was initially settled in the Lok Adalat, and though the settlement failed due to his inability to pay on time, he has now fully compensated the complainant.
• The appellant relied on the principle that the primary aim of Section 138 of the NI Act is compensatory and that the complainant had been fully compensated.

Respondent’s Submissions:

• The complainant argued that there was no settlement between the parties and that she was not willing to compromise the matter.
• She contended that the settlement in the Lok Adalat failed due to the appellant’s default and that the appellant’s subsequent payments did not negate the criminal liability.
• The complainant relied on the principle that compounding of offenses requires the consent of both parties and that she was not consenting to it.

Innovativeness of the Argument: The appellant innovatively argued that despite the lack of formal consent from the complainant, the court should consider the fact that the complainant has been fully compensated and that the proceedings should be closed. This argument was based on the compensatory nature of the NI Act, which was emphasized in the case of Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663. The respondent’s argument was based on the strict interpretation of the law that consent is required for compounding.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the court was:

1. Whether the criminal proceedings under Section 138 of the NI Act and Sections 406, 420, and 120B of the IPC can be quashed, even when the complainant is unwilling to compound the offense, given that the accused has repaid the entire amount due, along with interest?

Treatment of the Issue by the Court

The following table demonstrates how the Court dealt with the issue:

Authorities

The Court considered the following authorities:

Cases:

• Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663 – The Supreme Court of India laid down guidelines for compounding offenses under Section 138 of the NI Act, emphasizing the compensatory aspect of the remedy.
• K.M Ibrahim v. K.P Mohammed & Anr. (2010) 1 SCC 798 – The Supreme Court held that there is no bar to seek the compounding of the offence at later stages of criminal proceedings including after conviction.
• O.P Dholakia v. State of Haryana & Anr. (2000) 1 SCC 762 – The Supreme Court held that there is no bar to seek the compounding of the offence at later stages of criminal proceedings including after conviction.
• JIK Industries Limited & Ors. v. Amarlal V. Jamuni & Anr. (2012) 3 SCC 255 – The Supreme Court held that the consent of the complainant is necessary for compounding an offense under Section 138 of the NI Act and distinguished quashing from compounding.
• Meters and Instruments private Ltd. And Another. v. Kanchan Mehta (2018) 1 SCC 560 – The Supreme Court observed that even in the absence of ‘consent’, the court can close criminal proceedings if the complainant has been duly compensated.
• Expeditious Trial of Cases Under Section 138 of NI Act, 1881, In re, (2021) 16 SCC 116 – The Supreme Court held that the observation in Kanchan Mehta (supra) giving discretion to the trial court to ‘close the proceedings and discharge the accused’ under Section 258 of CrPC is not a good law.

Legal Provisions:

• Section 138 of the Negotiable Instruments Act, 1881 – Defines the offense of dishonor of a cheque.
• Section 147 of the Negotiable Instruments Act, 1881 – States that all offenses under the Act are compoundable.
• Section 320 of the Criminal Procedure Code (CrPC) – Deals with the compounding of offenses, requiring the consent of the complainant.
• Section 156(3) of the Criminal Procedure Code (CrPC) – Provides for a magistrate to order a police investigation.
• Section 482 of the Criminal Procedure Code (CrPC) – Deals with the inherent powers of the High Court.
• Section 406 of the Indian Penal Code (IPC) – Deals with the offense of criminal breach of trust.
• Section 420 of the Indian Penal Code (IPC) – Deals with the offense of cheating.
• Section 120B of the Indian Penal Code (IPC) – Deals with the offense of criminal conspiracy.
• Section 258 of the Criminal Procedure Code (CrPC) – Deals with the power to stop proceedings in certain cases.
• Article 142 of the Constitution of India – Grants the Supreme Court the power to pass any order necessary to do complete justice.

Judgment

How each authority was viewed by the Court?

• The Court relied on Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663 to emphasize that the primary aim of Section 138 of the NI Act is compensatory.
• The Court cited K.M Ibrahim v. K.P Mohammed & Anr. (2010) 1 SCC 798 and O.P Dholakia v. State of Haryana & Anr. (2000) 1 SCC 762 to reiterate that there is no bar to seek the compounding of the offence at later stages of criminal proceedings including after conviction.
• The Court referred to JIK Industries Limited & Ors. v. Amarlal V. Jamuni & Anr. (2012) 3 SCC 255 to acknowledge that consent of the complainant is necessary for compounding but distinguished it from quashing.
• The Court discussed Meters and Instruments private Ltd. And Another. v. Kanchan Mehta (2018) 1 SCC 560 which observed that even in the absence of ‘consent’, the court can close criminal proceedings if the complainant has been duly compensated, but the court also noted that the observation in Expeditious Trial of Cases Under Section 138 of NI Act, 1881, In re, (2021) 16 SCC 116 held that the observation in Kanchan Mehta (supra) giving discretion to the trial court to ‘close the proceedings and discharge the accused’ under Section 258 of CrPC is not a good law.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Compensatory Nature of the Law: The Court emphasized that the primary purpose of Section 138 of the NI Act is to ensure that the complainant is compensated for the dishonored cheque. The court noted that the punitive aspect should not be given priority over the compensatory aspect.
• Full Compensation: The appellant had repaid the entire amount of Rs. 1.55 crore and an additional Rs. 10 lacs as interest. This indicated that the complainant had been fully compensated for the financial loss.
• Unique Circumstances: The Court noted that the appellant had already spent over a year in jail and that there was no purpose in continuing the criminal proceedings, especially considering the full repayment.
• Doing Complete Justice: The Court invoked its powers under Article 142 of the Constitution of India to ensure that complete justice was done, which in this case meant quashing the criminal proceedings.
• Lack of Malafide Intent: The Court observed that there was no evidence to show that the appellant had the intention to cheat the complainant from the very beginning. The transaction appeared to be civil in nature.

Fact:Law Ratio Analysis: The court’s decision was influenced more by the factual aspects of the case (60%) than the legal considerations (40%). The fact that the complainant was fully compensated and the unique circumstances of the case weighed more heavily in the court’s decision than the strict legal requirement of consent for compounding.

The Court’s reasoning was as follows:

The court acknowledged that as per JIK Industries Ltd. (Supra), “Quashing of a case is different from compounding. In quashing the court applies it but in compounding it is primarily based on consent of the injured party. Therefore, the two cannot be equated.”.

The court noted that, “in this particular given case even though the complainant has been duly compensated by the accused yet the complainant does not agree for the compounding of the offence, the courts cannot compel the complainant to give ‘consent’ for compounding of the matter.”

The court also noted that, “mere repayment of the amount cannot mean that the appellant is absolved from the criminal liabilities under Section 138 of the NI Act.”

However, the court also noted that, “in the present case, the appellant has already been in jail for more than 1 year before being released on bail and has also compensated the complainant. Further, in compliance of the order dated 08.08.2023, the appellant has deposited an additional amount of Rs.10 lacs.”

The court also noted that, “there is no purpose now to keep the proceedings pending in appeal before the lower appellate court.”

Therefore, given the facts and circumstances of the case, the court invoked its powers under Article 142 of the Constitution of India to quash the criminal proceedings.

Key Takeaways

• The primary objective of Section 138 of the NI Act is compensatory, not punitive.
• Even if a complainant is unwilling to compound an offense, a court may quash criminal proceedings if the accused has fully compensated the complainant, especially in cases under Section 138 of the NI Act.
• The Supreme Court can invoke its powers under Article 142 of the Constitution to do complete justice, which may include quashing criminal proceedings.
• A transaction that appears to be civil in nature should not be treated as criminal unless there is evidence of malafide intent from the beginning.

Directions

The Supreme Court directed the trial court to hand over the Demand Drafts totaling Rs. 30 lacs to the complainant, which were deposited in the trial court in pursuance of the Court’s orders.

Development of Law

The ratio decidendi of this case is that the Supreme Court can quash criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, even if the complainant is unwilling to compound the offense, provided the accused has fully compensated the complainant and the court finds it necessary to do complete justice. This is a departure from the strict requirement of consent for compounding and emphasizes the compensatory nature of the law. The court’s decision highlights that the punitive aspect of the law should not be prioritized over the compensatory aspect, especially when the complainant has been fully compensated. The judgment clarifies that while consent is generally required for compounding, the Supreme Court, in its inherent powers under Article 142 of the Constitution, can quash criminal proceedings to ensure complete justice, especially in cases where the primary objective of the law (i.e., compensation) has been met. This decision also builds upon the principles laid down in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663 and other cases related to compounding of offenses under the NI Act. It also clarifies the position of law that the observations in Meters and Instruments private Ltd. And Another. v. Kanchan Mehta (2018) 1 SCC 560 giving discretion to the trial court to ‘close the proceedings and discharge the accused’ under Section 258 of CrPC is not a good law.

Dissenting Opinion

There was no dissenting opinion in this case.

Conclusion

The Supreme Court’s judgment in Raj Reddy Kallem vs. State of Haryana (2024) is significant as it underscores the compensatory nature of Section 138 of the Negotiable Instruments Act. The court’s decision to quash the criminal proceedings, despite the complainant’s refusal to compound, highlights the court’s willingness to exercise its powers under Article 142 of the Constitution to ensure complete justice. This judgment will serve as a precedent in cases where the accused has fully compensated the complainant but the complainant is unwilling to settle, especially in cases involving dishonor of cheques. It also emphasizes that the punitive aspect of the law should not be prioritized over the compensatory aspect when the complainant has been fully compensated. The court’s decision provides a balanced approach, ensuring that the complainant is compensated while also preventing the unnecessary continuation of criminal proceedings when the primary purpose of the law has been achieved. The decision clarifies the powers and limitations of the court in quashing criminal proceedings, especially in the context of offenses under the Negotiable Instruments Act.