NI Act | Deviation From Terms Of Settlement Arrived At During Appellate Stage To Result In Restoration Of Conviction: Karnataka High Court

The Karnataka High Court has directed that when a convict under the Negotiable Instruments Act offers himself for settlement of the dispute in appeal on the basis of which conviction is set aside, Courts shall mandatorily observe that deviation from the terms of compromise will automatically result in restoration of conviction order.

A single judge bench of Justice M Nagaprasanna said “Failing which, the accused who get away with conviction on compromise like in the case at hand, take advantage of the laborious rigmarole of procedure of getting the compromise decree executed.”

The court gave the direction while hearing a petition filed by one Hemachandra M Kuppalli who had approached the court seeking a direction to the execution court to expedite the hearing on his application and restoration of the order of conviction on the accused, Rakshit representing M/s R.B.Green Field Agro Infra Pvt Ltd.

The petitioner had initiated proceedings against the accused under Section 138 of the Act, the trial court convicted the accused. Following which he filed an appeal and pending decision a joint memo was filed for settlement. The session court referred the matter to the lok adalat where the conviction order was set aside and matter was disposed off as being settled. The accused had undertaken before the Lok Adalat to pay a sum of Rs.29,00,000 in instalments failing which the petitioner was at liberty to recover 30,00,000, with 12% interest from the date of the award.

The accused failed to make any payment following which the petitioner filed an execution petition in 2017. Later in 2023, the writ petition was preferred 6 years after filing of the execution case alleging that there is no progress in the execution case.

At the outset, the High Court referred to Damodar S. Prabhu v. Sayed Babalal H (2010) where the Apex Court has laid down guidelines with regard to the settlement of offence under Section 138 of the Act. One such direction is that if the application for compounding is made in revision or appeal, such compounding should be allowed only on a condition that the accused pays 15% of the cheque amount by way of costs. This would be for the reason that the accused demonstrates his bona fides in arriving at a settlement with the complainant. The Apex Court also held that it should be mandatory that the aforesaid amount is made a condition precedent for even considering the application for compounding of the offence.

Following which the court held, “If the finding of the Apex Court or the guidelines laid down therein are considered qua the facts obtaining in the case at hand, what would emerge is that the very reference of the case to the Lok Adalat is erroneous, as there is nothing recorded by the concerned Court that the accused has deposited 20% fine amount as a condition precedent for referring the matter to the Lok Adalat. The Court does not record any such deposit being made. Therefore, the very reference to the Lok Adalat runs counter to the judgment of the Apex Court supra. This is the first threshold of illegality in the reference being made to the Lok Adalat.”

It said that to enforce such compromise, the Court is empowered to issue a fine levy warrant or even arrest warrant to secure the presence of the accused for executing the compromise. All the above stages are over in the case at hand.

"Non-bailable warrant, fine levy warrant and arrest warrant have been issued for the last 6 years and nothing fruitful has happened. An accused who is convicted for an offence is moving free and the victim/complainant who holds a decree is struggling to get his money arising out of such a compromise. What is discernible from the aforesaid action of the accused after getting away with the conviction is that he had no intention to adhere to the terms of settlement, and settlement is arrived at before the Lok Adalat only to get the hanging sword of conviction on his head taken away. This would, on the face of it, amount to playing fraud on the Court, and if it is construed to be a fraud, the accused in getting the matter settled, it would unravel the settlement.”

It added “As it is trite law that “fraud unravels everything” and this Court in exercise of its jurisdiction under Article 226 of the Constitution of India, should step in to consider such cases, to be a case of obtaining a decree/order of compromise by playing fraud and pass necessary orders in accordance with law.”

Thus it quashed the award passed by the Lok Adalat and directed the proceedings before the Court of Sessions to be restored.

Appearance: Senior Advocate P.P.Hedge, for Advocate Sharadi S Shetty for Petitioner.

HCGP K.P Yashodha for R 3 to 5

Citation No: 2024 LiveLaw (Kar) 108

Case Title: Hemachandra M Kuppalli AND M/s R.B.Green Field & Others

Case No: WRIT PETITION No.12169 OF 2023

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