Section 138 NI Act: Complaint Cannot Be Proceeded With Once The Accused And Complainant Enter Into A Settlement Agreement: Supreme Court

The Supreme Court observed that a complaint under Section 138 of Negotiable Instruments Act cannot be proceeded with once the accused and the complainant enter into a settlement agreement.The bench headed by Justice DY Chandrachud observed that non-compliance of the terms of the settlement agreement or dishonour of cheques issued subsequent to it, would then give rise to a fresh cause of action attracting liability under Section 138 of the NI Act and other remedies under civil law and criminal law.A fresh cause of action accrues to the complainant under the terms of the settlement deed, the bench also comprising Justices Vikram Nath and BV Nagarathna observed.In this case, during the pendency of complaints filed under Section 138 NI Act, the complainant and accused entered into a deed of compromise. The cheques issued in pursuance of the deed of compromise were dishonoured, and therefore a second complaint was instituted under Section 138 of the NI Act. In a petition filed by the accused, the second complaint was quashed by the High Court.The issue raised before the Apex Court was whether parallel prosecutions arising from a single transaction under Section 138 of the NI Act can be sustained. In other words, whether the complainant can be allowed to pursue both the cases or whether one of them must be quashed and the consequences resulting from such quashing?The court made the following observations to hold that the original complaint must be quashed and parties must proceed with the remedies available in law under the settlement agreementThe settlement agreement subsumes the original complaint.38. When a complainant party enters into a compromise agreement with the accused, it may be for a multitude of reasons – higher compensation, faster recovery of money, uncertainty of trial and strength of the complaint, among others. A complainant enters into a settlement with open eyes and undertakes the risk of the accused failing to honour the cheques issued pursuant to the settlement, based on certain benefits that the settlement agreement postulates. Once parties have voluntarily entered into such an agreement and agree to abide by the consequences of non-compliance of the settlement agreement, they cannot be allowed to reverse the effects of the agreement by pursuing both the original complaint and the subsequent complaint arising from such non-compliance. The settlement agreement subsumes the original complaint. Non-compliance of the terms of the settlement agreement or dishonour of cheques issued subsequent to it, would then give rise to a fresh cause of action attracting liability under Section 138 of the NI Act and other remedies under civil law and criminal law. A contrary interpretation would discourage settlement of matters39. A contrary interpretation, which allows for the complainant to pursue both the original complaint and the consequences arising out of the settlement agreement, would lead to contradictory results. First, it would allow for the accused to be prosecuted and undergo trial for two different complaints, which in its essence arise out of one underlying legal liability. Second, the accused would then face criminal liability for not just the violation of the original agreement of the transaction which had resulted in issuance of the first set of cheques, but also the cheques issued pursuant to the compromise deed. Third, instead of reducing litigation and ensuring faster recovery of money, it would increase the burden of the criminal justice system where judicial time is being spent on adjudicating an offence which is essentially in the nature of a civil wrong affecting private parties – a problem noted in multiple judgements of this Court cited above. Most importantly, allowing the complainant to pursue parallel proceedings, one resulting from the original complaint and the second emanating from the terms of the settlement would make the settlement and issuance of fresh cheques or any other partial payment made towards the original liability meaningless. Such an interpretation would discourage settlement of matters since they do not have any effect on the status quo, and in fact increase the protracted litigation before the courtA complainant cannot pursue two parallel prosecutions for the same underlying transaction40. Thus, in our view, a complainant cannot pursue two parallel prosecutions for the same underlying transaction. Once a settlement agreement has been entered into by the parties, the proceedings in the original complaint cannot be sustained and a fresh cause of action accrues to the complainant under the terms of the settlement deedLiability arising from the settlement agreement46 Once a settlement agreement has been entered into between the parties, the parties are bound by the terms of the agreement and any violation of the same may result in consequential action in civil and criminal law.Regarding the second complaint, the court observed that the determination of whether a ...

Section 138 NI Act: Complaint Cannot Be Proceeded With Once The Accused And Complainant Enter Into A Settlement Agreement: Supreme Court

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