Damodar Prabhu Guidelines on Costs for S.138 NI Act Settlements Not Binding Precedent: Supreme Court

New Delhi: In a significant clarification on the compounding of cheque bounce cases, the Supreme Court has ruled that the guidelines laid down in its 2010 judgment, * Damodar S. Prabhu v. Sayed Babalal H. , which mandate imposing graded costs for delayed settlements, are not a binding precedent. A bench of Justices M.M. Sundresh and Satish Chandra Sharma * held that the directions were issued under Article 142 of the Constitution and cannot be treated as a rigid law, emphasizing that every case must be considered on its own unique facts.

The Court's decision came while allowing an appeal filed by Rajeev Khandelwal, who challenged the High Court's order directing him to pay costs to the State Legal Services Authority as a precondition for acquitting him in a case under Section 138 of the Negotiable Instruments Act, 1881.

Case Background

The appellant, Rajeev Khandelwal, was convicted for a cheque bounce offence under Section 138 of the NI Act. His conviction was upheld by the Sessions Court. Subsequently, he filed a revision petition before the High Court.

During the pendency of the revision petition, the appellant and the complainant (the private respondent) reached a mutual settlement. Based on this agreement, the High Court proceeded to acquit the appellant. However, citing the Supreme Court's decision in Damodar S. Prabhu , the High Court imposed a condition that the appellant must deposit a certain amount as costs with the State Legal Services Authority. The present appeal was filed challenging this specific direction.

Arguments Before the Supreme Court

The Senior Counsel appearing for the appellant argued that the directions in Damodar S. Prabhu were an exercise of the Supreme Court's power under Article 142 of the Constitution and, therefore, could not be treated as a binding law applicable to all cases.

It was further contended that treating these guidelines as mandatory law would discourage parties from settling disputes at the revisional stage. The appellant also highlighted his financial inability to pay the imposed costs and pointed out that the complainant had no objection to the acquittal and was not seeking any further payment.

The counsel for the respondents did not object to the appellant's submissions, allowing the Supreme Court to pass an appropriate order.

Court's Reasoning and Precedent Analysis

The Supreme Court found significant force in the appellant's arguments. The bench differentiated between a binding precedent established as law and directions issued under the unique powers of Article 142 to do "complete justice" in a particular case.

The judgment in Damodar S. Prabhu had laid down a framework of imposing graded costs (10% to 20% of the cheque amount) to be paid to the legal services authority when parties chose to compound a Section 138 offence at a later stage of litigation, aiming to discourage delays.

However, the current bench clarified the nature of these guidelines. It observed that compelling a party to pay costs, especially when the complainant has settled the matter without any further claims, cannot be sustained as a mandate of law.

Pivotal Excerpts from the Judgment

In its order, the Court explicitly stated:

> "The law laid down in the aforementioned judgment [ Damodar S. Prabhu ] cannot be regarded as a binding precedent, as every case must be considered on its own facts."

Addressing the specifics of the current case, the bench concluded:

> "In the present case, we are inclined to hold that the direction imposing costs on the appellant, to be paid to the Legal Services Authority cannot be sustained in the eye of law, particularly when the complainant does not want any further amount and the appellant has expressed his inability to comply with the same, which aspect is not in dispute."

Final Decision and Implications

Setting aside the High Court's direction, the Supreme Court disposed of the appeal, thereby acquitting the appellant without the condition of paying costs to the Legal Services Authority.

This ruling provides crucial flexibility to courts dealing with settlements in cheque bounce cases. It clarifies that while the Damodar Prabhu guidelines serve as a useful reference to encourage timely settlements, they are not an inflexible rule. Courts can now waive the imposition of costs based on the specific circumstances of a case, such as the financial condition of the accused and the consent of the complainant, ensuring that the primary goal of settlement between parties is not hindered by rigid procedural requirements.