Damodar S. Prabhu vs Sayed Babalal H.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2010 Supreme(Ori) 265

2010 (II) OLR (SC) — 336
K.G. BALAKRISHNAN, CJI AND P. SATHASIVAM AND J.M. PANCHAL, JJ.
Damodar S. Prabhu … Appellant
Versus
Sayed Babalal H. … Respondent
CRIMINAL APPEAL NO. 963 OF 2010
[Arising out of SLP (Crl.) No. 6369 of 2007]
WITH
CRIMINAL APPEAL NOS. 964-966 OF 2010
[Arising out of SLP (Crl.) Nos. 6370-6372 of 2007]
Decided on 3rd May, 2010.

Headnote:1. CONSTITUTION OF INDIA, 1950 - Arts. 136 and 142 - Guidelines issued by the Apex Court to discourage the litigants from unduly delaying the compounding of offence under Section 138 of the Negotiable Instruments Act, 1881 - No explicit guideline provided about the stage when compounding can be done under Section 147 - Legislative vacuum - Apex Court issued guidelines to do complete justice which is to be applied prospectively.
       (Paras - 24 and 25)
       2. CRIMINAL PROCEDURE CODE, 1973 - Sec. 320 - Compounding of offence under Sec. 138 of the N.I.Act, 1881 is controlled by Section 147 - Scheme contemplated by Sec. 320 Cr.P.C. will not strictly be applicable. (Paras - 10 to 12)
       3. NEGOTIABLE INSTRUMENTS ACT, 1881 - Sec. 138 - Punishment - Object of - Offence of dishonour of cheque - Remedial measure should preferably be compensatory than becoming punitive.
       (Para - 18)
       4. CRIMINAL PROCEDURE CODE, 1973 - Sec. 407 - Transfer of case - Complainant, not disclosing that earlier another complaint was made - High Court may direct transfer of the second complaint to the Court where it was made earlier after imposing heavy costs on the complainant for resorting to unhealthy practice.
       5. NEGOTIABLE INSTRUMENTS ACT, 1881 - Sec. 147 - Compounding of offence - Guidelines by the Apex Court directing that accused must be made to know through the summons that compounding may be allowed by the Court without imposing any cost on the accused; if he could make an application for compounding the offences at the first or second hearing of the case - At a subsequent stage, accused will be required to deposit 10% of the amount covered under the cheque before the Legal Services Authority as a pre-condition for compounding the offence - If application for compounding the offence is made in appeal or revision before the Sessions Court or High Court, it may be allowed in case accused pays 15% of the amount covered under the cheque towards costs and if such application is made in Supreme Court, the accused will be required to pay 20% of the amount covered under the cheque towards costs. (Para - 21)
       6. CRIMINAL PROCEDURE CODE, 1973 - Sec. 200 - Guidelines by the Apex Court - Complainant should disclose that no other complaint has been filed in any other Court in respect of the same transaction, by sworn affidavit to accompany the complaint - Guidelines are to be applied prospectively. (Para - 23)

Judgement Key Points

Certainly. Based on the provided legal document, here are the key points summarized:

The appeals involve offences under Section 138 of the Negotiable Instruments Act, 1881, and the parties have reached a settlement, leading to the compounding of the offence and the setting aside of the appellant’s conviction (!) (!) .
The purpose of the relevant provisions in the Act, particularly Section 138, is to promote trust in banking and negotiable instruments, with penalties designed to be both punitive and remedial, primarily aimed at ensuring payment rather than punishment (!) (!) .
The offence under Section 138 has been made more serious through amendments, increasing imprisonment terms and emphasizing the importance of the compensatory aspect over the punitive aspect, given the private nature of the offence and its impact on commercial transactions (!) (!) .
There is a significant backlog of cheque bounce cases, causing strain on the judicial system, which underscores the need for early resolution mechanisms like compounding (!) (!) .
The absence of explicit guidelines in the law about the stage at which offences can be compounded has led to parties delaying settlement until late in the litigation process, often seeking to do so at a very late stage, which hampers judicial efficiency (!) (!) .
The Court recognizes the importance of encouraging early settlement and proposes guidelines to discourage delayed compounding, including the imposition of costs at different stages of litigation, which should be deposited with appropriate legal aid authorities (!) (!) .
The Court emphasizes the need for parties to disclose, via sworn affidavit, whether any other complaints regarding the same transaction have been filed in other courts, to prevent vexatious and multiple filings, and to facilitate appropriate transfer of cases if multiple complaints are found (!) .
In the absence of detailed statutory guidance on the process of compounding under Section 147, the Court finds it appropriate to endorse the proposed guidelines, which aim to promote early settlement and reduce delays, thereby alleviating the burden on the judicial system (!) (!) .
The Court clarifies that the guidelines are meant to fill the legislative vacuum, encouraging early resolution through a graded scheme of costs, and emphasizes that these directions are to be applied prospectively (!) (!) .
The appeals are disposed of in accordance with these guidelines, reinforcing the importance of judicial intervention to promote justice and efficiency in cheque bounce cases (!) (!) .

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ORDER

1. Leave granted. The present appeals are in respect of litigation involving the offence enumerated by Section 138 of the Negotiable Instruments Act, 1881 [Hereinafter "the Act"]. It is not necessary for us to delve into the facts leading up to the institution of proceedings before this Court since the appellant and the respondent have arrived at a settlement and prayed for the compounding of the offence as contemplated by Section 147 of the Act. It would suffice to say that the parties were involved in commercial transactions and that disputes had arisen on account of the dishonour of five cheques issued by the appellant. Thereafter, the parties went through the several stages of litigation before their dispute reached this Court by way of special leave petitions.

2. With regard to the impugned judgments delivered by the High Court of Bombay at Goa, the appellant has prayed for the setting aside of his conviction in these matters by relying on the consent terms that have been arrived at between the parties. The respondent has not opposed this plea and, therefore, we allow the compounding of the offence and set aside the appellant’s conviction in each of the impugned judgments.

3. However, there are some larger issues which can be appropriately addressed in the context of the present case. It may be recalled that Chapter XVII comprising Sections 138 to 142 was inserted into the Act by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988). The object of bringing Section 138 into the statute was to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. It was to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficient arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. If the cheque is dishonoured for insufficiency of funds in the drawer’s account or if it exceeds the amount arranged to be paid from that account, the drawer is to be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.

4. It may be noted that when the offence was inserted in the statute in 1988, it carried the provision for imprisonment up to one year, which was revised to two years following the amendment to the Act in 2002. It is quite evident that the legislative intent was to provide a strong criminal remedy in order to deter the worryingly high incidence of dishonour of cheques. While the possibility of imprisonment up to two years provides a remedy of a punitive nature, the provision for imposing a ‘fine which may extent to twice the amount of the cheque’ serves a compensatory purpose. What must be remembered is that the dishonour of a cheque can be best described as a regulatory offence that has been created to serve the public interest in ensuring the reliability of these instruments. The impact of this offence is usually confined to the private parties involved in commercial transactions.

5. Invariably, the provision of a strong criminal remedy has encouraged the institution of a large number of cases that are relatable to the offence contemplated by Section 138 of the Act. So much so, that at present a disproportionately large number of cases involving the dishonour of cheques is choking our criminal justice system, especially at the level of Magistrates’ Courts. As per the 213th Report of the Law Commission of India, more than 38 lakh cheque bouncing cases were pending before various courts in the country as of October 2008. This is putting an unprecedented strain on our judicial system.

6. Mr. Goolam E. Vahanvati, Solicitor General (now Attorney-General for India) had appeared as amicus curiae in the present matter and referred to the facts herein as an illustration of how parties inv

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