All Cheque Dishonor Cases Must Be Referred To Mediation After Accused Is Served: Punjab & Haryana High Court
The Punjab and Haryana High Court has directed that in all cheque bounce cases under the Negotiable Instruments Act, 1881, trial courts must refer matters to mediation immediately after service of the accused, emphasising that such disputes are primarily compensatory and better resolved through negotiated settlement.The Court said that every trial court and sessions court dealing with NI...
The Punjab and Haryana High Court has directed that in all cheque bounce cases under the Negotiable Instruments Act, 1881, trial courts must refer matters to mediation immediately after service of the accused, emphasising that such disputes are primarily compensatory and better resolved through negotiated settlement.
The Court said that every trial court and sessions court dealing with NI Act cases must proactively send such disputes for mediation unless the parties decline the process before the mediator.
Justice Anoop Chitkara said, "in all NI Act matters, every Trial Court (CJM/JMFC) shall, immediately after the service of the accused in new cases and in cases not sent for Mediation, refer the matter to Mediation, and it shall be for the parties to decline Mediation before the mediator. Similarly, all Sessions Courts shall, immediately upon the service of the opposite party in all pending appeals and revisions, and in all pending matters not sent for Mediation, refer those for Mediation. Needless to say, the State cannot be made a party in the NI Act case, because it is a private dispute."
For a custody certificate and confinement, there is no need for the State to be arraigned as a party before the Sessions Court, and if it is, its name shall be deleted. This is required to avoid unnecessary delay of Mediation by impleading the State as a party in an NI Act matter, the Court added.
State Need Not Be Made Party in Cheque Bounce Cases
The Court also clarified that the State should not ordinarily be impleaded in cheque bounce proceedings as such disputes are essentially private in nature.
“Needless to say, the State cannot be made a party in the NI Act case, because it is a private dispute,” the Court observed, adding that if the State has been unnecessarily impleaded in such matters, its name should be deleted to prevent delays in mediation.
"When you are at the edge of a cliff, sometimes progress is a step backwards"
The Court emphasised that when the cheques are dishonored, the predominant objective is recovery and compensation, which the Mediation naturally furthers more efficiently than an adversarial trial. "Mediation enables parties to negotiate not only the principal cheque amount but also interest, additional compensation, or structured instalments, thereby directly addressing the erosion of money value caused by prolonged litigation and aligning outcomes with commercial realities."
Looking at the other side of the coin, one consequence of sending these cases to Mediation is that, while it may help clear the bottleneck plagued with waves of cheque bounce complaints, it is likely to reduce the Court's workload in some cases. When the case involves a failed settlement or a feigned Mediation by the accused, it can unnecessarily prolong the trials. Given that the primary goal is restoration rather than punishment of the wrongdoer, the risk of delay in failed Mediation is worth taking, despite black-swan failures, it added.
The Court opined that, In the continuous tsunami of criminal cases being filed against the dishonor of the cheque, the proverb, “When you are at the edge of a cliff, sometimes progress is a step backwards,” needs adherence.
Background
The Court was hearing a revision petition filed by the accused seeking to set aside an order of the Judicial Magistrate First Class, Ludhiana, which had rejected his application to examine a handwriting and fingerprint expert.
The underlying case arose from a complaint under Section 138 of the NI Act filed by the complainant alleging dishonour of a cheque amounting to ₹19,49,230 issued in connection with business dealings. The cheque had been returned unpaid after the drawer issued instructions to stop payment.
During the trial, the accused sought permission to examine a handwriting expert to compare the complainant's alleged signatures on a power of attorney with signatures appearing in the notary register.
The trial court rejected the request noting that the accused had already been granted 15 opportunities to lead defence evidence and that the application was filed at the final stage of the trial. It also noted that the accused had not raised any plea regarding forged signatures when his statement was recorded under Section 313 CrPC.
High Court Upholds Trial Court Order
After examining the record, the High Court found no illegality in the trial court's decision.
Justice Chitkara noted that the application appeared to be an attempt to delay the trial since it was filed at the final stage and sought comparison with a photocopy rather than the original document.
The Court therefore refused to interfere with the order and dismissed the revision petition.
State Truly Never A Looser
The Court pointed that whenever a product or service is sold, the government derives revenue in the form of tax at the point of sale. This tax has to be paid whether the seller ultimately makes a profit, incurs a loss, or even fails to recover the consideration. The sale of goods leads to consumption, which in turn stimulates manufacturing and supply chains, increases employment and production, generating multiple layers of direct and indirect taxation.
Thus, once a sale occurs, the State's revenue is secured in advance, independent of the commercial outcome for the parties. So, when a cheque fails, the government's revenue position remains unaffected, and the burden disproportionately falls on both the drawer and the holder. Taxes once paid are not refunded merely because the payment failed at the counter, it added.
In this scenario, the state is never truly a loser. Its primary concern is the continuous circulation of money within the economy. This explains the government's policy of pressing paddles on consumption cycles, whereby companies are encouraged to sell through easy credit, EMIs, advance payments, and post-dated instruments. Such mechanisms stimulate demand and ensure that transactions occur, even if the risk is quietly transferred to private parties.
Cheque Bounce Cases Quasi-Criminal in Nature
While dealing with the matter, the Court undertook a detailed discussion on the nature and purpose of proceedings under Section 138 of the NI Act.
The Court observed that cheque dishonour cases are essentially quasi-criminal proceedings intended primarily to secure compensation for the cheque holder rather than to punish the accused.
Referring to decisions of the Supreme Court of India, including Meters and Instruments Pvt. Ltd. v. Kanchan Mehta and R. Vijayan v. Baby, the Court noted that the object of introducing penal provisions for cheque dishonour was to enhance the credibility of commercial transactions and ensure that payments are honoured.
However, the Court noted that large volumes of such cases have flooded criminal courts, leading to delays and burdening the justice delivery system.
Discontinuation Of Cheque Overlooked In Digitalisation
The Court observed that, unfortunately, as India advances digitally, it has overlooked and undermined the humble paper cheque by not discontinuing it as has been done in majority of the countries. The massive success of the Unified Payments Interface (UPI) could have fully replaced the paper cheques had these been abolished. Further, there is a system in place to take care of violations of scheduled digital payments by the enactment of the Payments and Settlement Systems Act, 2007.
The reality is that cheque holders often turn Courts into recovery agents by paying minimal court fees, which in some states are as low as INR 2, it looked, the judge said.
"The goal of swift justice has been undermined by the large volume of §138 cases that have flooded criminal courts over time. The concern before this Court is a plethora of complaints pending before the Judicial Magistrates, a plenitude of appeals against conviction and acquittal pending before the Sessions Courts, and a copious number of criminal revisions that are filed and pending before the High Courts," said the bench.
Mediation a More Effective Solution
The Court emphasised that mediation offers a more practical and economically sound mechanism for resolving cheque dishonour disputes.
It noted that such cases generally arise from commercial relationships where parties may benefit from negotiated settlements rather than adversarial litigation.
"Calm talks lead to clear outcomes. In essence, it involves moving parties from a “me vs. you” approach and “I am right and you are wrong” attitude to a joint search for solutions to the dispute.13 Unlike adjudication, which focuses on determining guilt and imposing a sentence, Mediation provides a platform for dialogue, negotiation, and flexible settlement terms, shifting the focus from blame to resolution. It is also reflected in the legislative intent, vide the said amendment, which provides that the offences under the NI Act are compoundable, which are indicative of the aforesaid principle of prioritizing restitution over castigation,"it added.
Some Cases Best Addressed By Mediation
The Court said, "In business transactions, cheques serve as a convenient and reliable way of deferred payment, allowing trade and financial arrangements to continue smoothly; however, misuse of cheques can be devastating. When poor people or those with limited cash need funds for emergencies—such as school or college admissions, family deaths, medical emergencies, accidents, police cases, or essential needs like marriage, urgent travel, sowing, or religious and cultural events, they often find that banks or financial institutions are unable to help on short notice."
As a result, they are forced to turn to predatory money lenders who lend money at exorbitant interest rates and often keep blank cheques, which they manipulate by adding a high interest rate to the principal. The tragedy occurs when these individuals are unaware of the severe consequences of issuing a cheque, the Court added.
It further explained that these cases are best addressed through mediation because the money lenders advance the cash loan blinded by the veil of greed. When the cheque fails, the money lenders, who are holding such cheques launch prosecution against its drawer under Section 138 of Negotiable Instruments Act.
Although such kind of litigation would affect their reputation, and people would avoid taking loans from such unscrupulous money lenders, but in fact it does not affect the system. Even if poor and needy people stop borrowing from such ruthless lenders, still in a system riddled with black money and undeclared income, others are ready to mercilessly take over the dishonest operations of their predecessors, it added.
Directions on Mediation
In view of these considerations, the Court directed that trial courts must refer all NI Act cases to mediation immediately after service of the accused. Sessions courts must similarly refer pending appeals and revisions to mediation after service of the opposite party. If mediation fails, the trial or appellate proceedings may resume without prejudice.
In the present case, the Court requested the trial court to refer the dispute to mediation. However, considering the stage of the proceedings, the Court directed that if mediation does not succeed within 30 days, it shall be treated as unsuccessful.
Accordingly, while dismissing the revision petition on merits, the Court encouraged the parties to attempt settlement through mediation.
Mr. Amandeep Singh, Advocate for the petitioner.
Mr. Viren Sibal, Advocate
Mr. Divyanshu Goyal, Advocate and Mr. Himanshu, Advocate for the respondent.
Title: Sonu Kumar v. Kulbir Singh