Cheque Dishonour | Civil Compromise Decree Doesn't Automatically Bar Section 138 NI Act Prosecution: Kerala High Court

The Kerala High Court recently clarified that existence of a compromise decree in a civil suit does not ipso facto render the criminal prosecution under Section 138 of the Negotiable Instruments Act non-maintainable.Justice C.S. Dias refused to quash the criminal proceedings initiated against the accused in a cheque dishonour case since only the civil court, and not the criminal court, recorded the settlement and passed decree.The complainant had initiated civil suit and criminal complaint against the petitioner following a cheque dishonour. Subsequently, the civil court had referred them for mediation and they settled the matter amicably. A decree was passed in the suit recording the settlement agreement entered into by them. However, the criminal complaint remained pending.As per the agreement, the petitioner had agreed to pay Rs. 9 lakhs within 3 years and the complainant had agreed to withdraw the criminal complaint. Relying on the compromise decree, the petitioner sought to quash the criminal complaint and contend that continuing the prosecution would be an abuse of process of law. The complainant opposed the plea and pointed out that the petitioner did not comply with the terms of the agreement since he failed to pay the amount within the agreed timeframe. He, however, was ready to withdraw the complaint if the amount was fully paid by the petitioner.The Court, after hearing the parties, referred to Section 89 of the Code of Civil Procedure and certain provisions of the Civil Procedure (Alternative Dispute Resolution) Rules, 2008 that deal with settlement agreement and passing of decree.Thereafter, the Court opined that since the parties were not referred for mediation by the criminal court and not settlement was recorded therein, the criminal proceedings would continue to subsist independently.“An offence under Section 138 of the NI Act is complete on the failure of the drawer to make payment within the statutory period after receipt of the demand notice. The mere existence of a compromise decree in a civil suit does not ipso facto render the criminal prosecution non-maintainable, particularly when the terms of settlement themselves contemplate withdrawal of the complaint only upon fulfilment of specified conditions. It is also to be remembered that a settlement agreement in a mediation proceeding does not have the effect of an award passed under the Legal Services Authorities Act, 1987,” it added.The Court was disinclined to exercise its powers under Section 528 of the Bharatiya Nagarik Suraksha Sanhita when the petitioner did not comply with his obligation as per the settlement terms.Thus, it dismissed the plea.Case No: Crl.MC. No. 10446 of 2025Case Title: Noushad v. State of Kerala and Anr. Citation: 2026 LiveLaw (Ker) 220Counsel for the petitioner: P.K. SajeevCounsel for the respondents: Saijo Hassan, Sangeeth Mohan, M.P. Prasanth – Public ProsecutorClick to Read/Download Order

Cheque Dishonour | Civil Compromise Decree Doesn't Automatically Bar Section 138 NI Act Prosecution: Kerala High Court

K. Salma Jennath

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Cheque Dishonour | Civil Compromise Decree Doesn't Automatically Bar Section 138 NI Act Prosecution: Kerala High Court

K. Salma Jennath

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