Limited & Ors. Vs. Amarlal V. Jumani and another
[Criminal Appeal No 263
of 2012 arising out of SLP (CRL.) No.4445/2009]
Crl.A. No.264/2012 @
SLP (Crl) No.4446/2009,
Crl.A. No 265/2012 @
SLP (Crl) No.4447/2009,
Crl.A. No.266/2012 @
SLP (Crl) No.4448/2009,
Crl.A. No.267/2012 @
SLP (Crl) No.4449/2009,
Crl.A. No.268/2012 @
SLP (Crl) No.4450/2009,
Crl.A. No.269/2012 @
SLP (Crl) No.4451/2009,
Crl.A. No.270/2012 @
SLP (Crl) No.4452/2009,
Crl. A.No.271/2012 @
SLP (Crl) No.4453/2009,
Crl.A. No.272/2012 @
SLP (Crl) No.4454/2009,
Crl.A. No.273/2012 @
SLP (Crl) No.4456/2009,
Crl.A. No.274/2012 @
SLP (Crl) No.4457/2009,
Crl.A. No. 275-294/2012
@ SLP (Crl) No.843-862/2010,
Crl.A. No. 295-303/2012
@ SLP (Crl) No.6643-6651/2010.
J U D G M E N T
group of appeals were heard together as they involve common questions of law. There
are some factual differences but the main argument by the appellant(s) in this matter
was advanced by Mr. Chander Uday Singh, Senior Advocate on behalf of the Sharp Industries
Limited in SLP (Crl.) No.6643-6651 of 2010 and the facts are taken mostly from
the said case.
learned counsel assailed the judgment of the High Court wherein by a detailed judgment
High Court dismissed several criminal writ petitions which were filed challenging
the processes which were issued by the learned Trial Judge on the complaint filed
by the respondents in proceedings under Section 138 read with Section 141 of Negotiable
Instruments Act, 1881 (hereinafter `N.I. Act'). By way of a detailed judgment, the
High Court after dismissing the writ petitions held that sanction of a scheme under
Section 391 of the Companies Act, 1956 (hereinafter `Companies Act') does not
amount to compounding of an offence under Section 138 read with Section 141 of the
The High Court also held
that sanction of a scheme under Section 391 of the Companies Act will not have the
effect of termination or dismissal of complaint proceedings under N.I. Act.
However, the learned Judge made it clear that the judgment of the High Court will
not prevent the petitioners from filing separate application invoking the provisions
of Section 482 Criminal Procedure Code, if they are so advised.
Assailing the said judgment
the learned counsel submitted that an unsecured creditor who does not oppose
the scheme of compromise or arrangement under Section 391 of the Companies Act must
be taken to have supported the scheme in its entirety once such a scheme is sanctioned
by the High Court, even a dissenting creditor cannot file a criminal complaint under
Section 138 of the N.I. Act for enforcement of a pre-compromise debt. Nor can
such a creditor oppose the compounding of criminal complaint which was filed
under Section 138 of the N.I. Act in respect of pre-compromise debt.
material facts of the case are that the appellant company on or about 12th May,
2005 came out with a scheme by which it was agreed that the appellant company
should be revived and thereafter payments will be made to the creditors. Pursuant
to such scheme the appellant company filed a petition under Section 391 of the
Companies Act to the High Court. The whole scheme was placed before the High Court
and according to the appellant(s), first order of the scheme came to be passed by
the Hon'ble High Court by its order dated 5th May, 2005 in Company Petition No.92
At the time the said company
petition was pending, a meeting was convened by the appellant company on 1.6.05
and the same was attended by several creditors including representative of the first
respondents and they opposed the scheme. Despite the said opposition, the appellant(s)
succeeded in getting the scheme approved by statutory majority as required under
the law. Thereafter, on 17.11.2005 another company petition with a fresh scheme
(Company petition No. 460 of 2005) was filed. After the said company petition
was filed all proceedings which were initiated by different companies against the
appellant(s) came to be stayed by the High Court.
In view of the
aforesaid scheme the appellant company filed application for compounding under Section
147 of the N.I. Act read with Section 320 of the Criminal Procedure Code (hereinafter,
`the Code') and Section 391 of the Companies Act. However, the respondents opposed
the said prayer of the petitioner and by an order dated 19th January, 2007, the
learned Chief Judicial Magistrate, Ahmednagar rejected the application filed by
the appellant for termination of the proceedings inter alia on the ground that
the learned Magistrate has no power to quash or terminate the proceedings.
aggrieved by the said order of the Magistrate, the appellants filed writ petitions
before the High court.
petitions were filed on 6.7.2009 by JIK Industries Limited and another. All those
petitioners were dismissed by the High court on 18.3.2010 in view of an order dated
14.8.2008 passed by the High Court in connection with the petitions filed by other
similarly placed companies (JIK Industries).
the background of the aforesaid facts the contentions raised by the appellant company
is that the scheme envisaged a compromise between the company and the secured creditors
on the one hand and its unsecured creditors on the other hand. Such scheme was framed
pursuant to the order of the Company Court dated 5th May, 2005 which directed meeting
of the different classes of creditors for consideration of the scheme.
Thereafter, meeting was
convened of unsecured creditors and the scheme was approved on 1st June, 2005
by the requisite majority of the shareholders and unsecured creditors. Then the
scheme was taken up for sanction by the Company Court. The Court considered the
objections of some of the unsecured creditors and workmen but ultimately by its
judgment dated 17th November, 2005 approved the scheme with a few minor modifications.
It was also urged that some of the secured and unsecured creditors have taken advantage
of the scheme and did not challenge the scheme.
However, the scheme was
challenged by the appellant(s) in respect of certain observations made therein by
the learned Company Judge and the said appeal is pending before the Bombay High
court. The learned counsel for the appellant(s) argued that the effect of a
scheme of compromise between the company and its creditors under Section 391 of
the Companies Act is binding upon all class of creditors whether they are assenting
or dissenting. The purpose of a scheme under Section 391 and 392 is restructure
and alteration of the old debts which were payable prior to the scheme so as to
make the debts payable in the manner and to the extent provided under the
so far as the case of JIK Industries is concerned, it has been urged that the scheme
in JIK is different that Sharp. The learned counsel for the appellant(s) urged that
the once the scheme is sanctioned, it relates back to the date of the meeting and
in support of the said contention reliance was placed on a judgment of the Privy
Council in the case of Raghubar Dayal vs. The Bank of Upper India Ltd. reported
in AIR 1919 P.C. 9. It was also urged that in a scheme under Section 491 a judgment
is in rem. The learned counsel further submitted that admittedly the respondents
objected to the scheme and is a dissenting creditor.
learned counsel for the respondents (in Sharp Industries case) on the other hand
submitted that in the petition which was filed before the Magistrate on behalf of
the Sharp Industries the prayer was only for quashing of the criminal proceedings
and there was no prayer for compounding of the offences. While the Magistrate refused
to quash the said proceeding then while challenging the same in the High Court the
prayer for compounding was made for the first time. The learned counsel for the
respondents (in the case of JIK Industries) has drawn the attention of this Court
to the order dated 3.10.2006 passed by the Metropolitan Magistrate, XII Court Bandra,
Mumbai whereby the learned Magistrate passed an order on the application of the
accused, the appellant, for compounding of offences under Section 138. By the said
order the learned Magistrate rejected the prayer for compounding made by the appellant(s)
under Section 147 of the N.I. Act.
was also pointed out by some of the respondents that after the High Court passed
the impugned order whereby the prayer for compounding by the appellant(s) was rejected
and the appellant(s) were given an opportunity to file a petition under Section
482 of the Criminal Procedure Code for quashing of the complaint, some of the appellant(s)
availing of that liberty also filed application for quashing of the proceedings.
They have also filed SLPs before this Court. This Court should, therefore,
dismiss the SLPs.
the aforesaid submissions of the rival parties, this Court finds that the effect
of approval of a scheme of compromise and arrangement under Section 391 of the Companies
Act is that it binds the dissenting minority, the company as also the
liquidator if the company is under winding up. Therefore, Section 391 of the Companies
Act gives very wide discretion to the Court to approve any set of arrangement between
the company and its shareholders.
counsel for the appellant(s) placed reliance on the decision of this Court in M/s.
J.K. (Bombay) Private Ltd. vs. M/s. New Kaiser-I- Hind Spinning and Weaving Co.,
Ltd., and others reported in AIR 1970 SC 1041 in support of his contention that
a scheme under Section 391 of the Companies Act is not a mere agreement but it
has a statutory force. The learned counsel also urged, relying on the said judgment
that the scheme is statutorily binding even on dissenting creditors and
shareholders. The effect of the scheme is that so long as it was carried out by
the company by regular payment in terms of the scheme, a creditor is bound by
it and cannot maintain even a winding- up petition.
if the aforesaid position is accepted the same does not have much effect on any
criminal proceedings initiated by the respondent creditors for non-payment of debts
of the company arising out of dishonour of cheques. Factually the allegation of
the respondent is that even payment under the scheme has not been made. However,
without going into those factual controversies, the legal position is that a scheme
under Section 391 of the Companies Act does not have the effect of creating new
debt. The scheme simply makes the original debt payable in a manner and to the
extent provided for in the scheme. In the instant appeal in most of the cases the
offence under the N.I. Act has been committed prior to the scheme. Therefore, the
offence which has already been committed prior to the scheme does not get
automatically compounded only as a result of the said scheme. Therefore, even by
relying on the ratio of the aforesaid judgment, this Court cannot accept the appellant's
contention that the scheme under Section 391 of the Companies Act will have the
effect of automatically compounding the offence under the N.I. Act.
learned counsel for the appellant(s) also relied on various other judgments to show
the effect of the scheme under Section 391 of the Companies Act. Reliance was also
placed on the decision of this Court in the case of S.K. Gupta and another vs. K.P.
Jain and another reported in 1979 (3) SCC 54. In the case of S.K. Gupta (supra)
also the ratio in the case of M/s. J.K. (Bombay) Private Ltd. (supra) was relied
upon and it was held that a scheme under Section 391 of the Companies Act has a
statutory force and is also binding on the dissenting creditor. Various other questions
were discussed in the said judgment with which we are not concerned in this
scheme under Section 391 of the Companies Act has been very elaborately dealt
with by this Court in the case of Miheer H. Mafatlal vs. Mafatlal Industries Ltd.
reported in AIR 1997 SC 506. From a perusal of the various principles laid down
in Mafatlal (supra), it is clear that the proposed scheme cannot be violative of
any provision of law, nor can it be contrary to public policy. (see paragraph 29
sub-paragraph 6 at page 602 of the report).
Hindustan Lever and another vs. State of Maharashtra and another reported in (2004)
9 SCC 438 it has been reiterated that a scheme under Section 391 of the
Companies Act is binding on all shareholders including those who oppose it from
being sanctioned. It has also been reiterated that the jurisdiction of the Company
Court while sanctioning the scheme is supervisory. This Court in Hindustan Lever
(supra) also accepted the principle laid down in sub-para 6 of para 29 in Mafatlal
(supra) discussed above and held that a scheme under Section 391 of the Companies
Act cannot be unfair or contrary to public policy, nor can it be unconscionable
or against the law (see para 18 page 451 of the report)
the case of Administrator of the Specified Undertaking of the Unit Trust of
India and another vs. Garware Polyester Ltd. reported in (2005) 10 SCC 682, this
Court held that a scheme under Section 391 of the Companies Act is a commercial
document and the principles laid down in the case of Mafatlal (supra) have been
relied upon and in para 32 at page 697 of the report it has been reiterated that
the scheme must be fair, just and reasonable and should not contravene public
policy or any statutory provision and in paragraph 33 at page 697 of the
report, sub-paragraph 6 of para 29 of Mafatlal (supra) has been expressly quoted
the main argument of the learned counsel for the appellant(s) that once a scheme
under Section 391 of the Companies Act is sanctioned by the Court the same operates
as compounding of offence under Section 138 read with Section 141 of the N.I. Act
cannot be accepted. Rather the principle which has been reiterated by this Court
repeatedly in the aforesaid judgments is that a scheme under Section 391 of the
Companies Act cannot be contrary to any law. From this consistent view of this Court
it clearly follows that a scheme under Section 391 of the Companies Act cannot
have the effect of overriding the requirement of any law. The compounding of an
offence is always controlled by statutory provision. There are various features
in the compounding of an offence and those features must be satisfied before it
can be claimed by the offender that the offence has been compounded. Thus,
compounding of an offence cannot be achieved indirectly by the sanctioning of a
scheme by the Company Court.
learned counsel also relied on a few other judgments in order to contend the scheme
of compromise operates a statutory consent and the same will have the effect of
restructuring legally enforceable debts or liabilities of the company. In support
of the said contention reliance was placed on the judgment of this Court in the
case of Balmer Lawrie Workers' Union, Bombay and another vs. Balmer Lawrie &
Co. Ltd. and others reported in 1984 (Supp.) SCC 663. That decision related to a
settlement reached in a proceeding under Industrial Disputes Act in which a representative
union was a party. The Court held that such a settlement is binding on all the workmen
of the undertaking. This Court fails to understand the application of this ratio
to the facts of the present case.
was also placed by the learned counsel for the appellant(s) on the decision of
this Court in the case of Shivanand Gaurishankar Baswanti vs. Laxmi Vishnu Textile
Mills and others reported in (2008) 13 SCC 323. In that case also the question of
an agreement under Section 18 of Industrial Disputes Act came up for consideration
by this Court. The wide sweep of an agreement under Section 18 of the Industrial
Disputes Act for the purpose of maintaining industrial peace is not in issue in
this case. Therefore, the decision in Shivanand (supra) does not have any relevance
to the question with which we are concerned in the facts and circumstances of
learned counsel for the appellant(s) then advanced his argument on the provisions
of N.I. Act and the nature of the offence under the N.I. Act. Reliance was
placed on explanation to Section 138 of the N.I. Act in order to show that for
the purposes of an offence under Section 138 of the N.I. Act, debt or other liability
must mean a legally enforceable debt or liability. The learned counsel urged that
even if a cheque is issued by the appellant company and which has been subsequently
dishonoured, the same is a cheque relating to the debt of the company in respect
of 1 which there is a sanctioned scheme. Therefore, the same is not a legally enforceable
debt in as much as after the sanctioning of the scheme the debt of the company can
only be enforced against the company by a creditor in accordance with the said scheme
and not otherwise. Reliance was also placed on Section 139 of the N.I. Act in
order to contend that the statutory presumption must be construed in favour of the
appellant company in as much as the cheque which has been received by the respondent
is not for the discharge of any debt of the company which is legally enforceable.
The learned counsel relied on several judgments of this Court on the question of
the nature of the offence under Section 138 of the N.I. Act.
was placed on the decision of this Court in the case of Kaushalya Devi Massand vs.
Roopkishore Khore reported in (2011) 4 SCC 593. The learned counsel relied on
the observation made in para 11, at page 595 of the report and 1 contended that
the gravity of a complaint under the N.I. Act cannot be equated with an offence
under the provisions of Indian Penal Code and further urged that this Court
held that a criminal offence under Section 138 of the N.I. Act is almost in the
nature of a civil wrong which has been given criminal overtones.
was also placed on the judgment of this Court in the case of Mandvi Cooperative
Bank Limited vs. Nimesh B. Thakore reported in (2010) 3 SCC 83. This Court in Mandvi
(supra) discussed the scope of N.I. Act including the first amendment to the Act
inserted under Chapter XVII in the Act. This Court looked into the Statement of
Objects and Reasons introducing the amendment and noted the rationale for introduction
of Section 147 of N.I. Act. Section 147 of N.I. Act made the offences under the
said Act compoundable. The Court noted that from the Statement and Objects and
Reasons it is clear that the Parliament became 2 aware of the fact that the
courts are not able to dispose of, in a time bound manner, large number of cases
coming under the said Act in view of the procedure in the Act. In order to deal
with such situation, several amendments were introduced and one of them is making
offences under the said Act compoundable. Section 147 of the N.I. Act is as follows:
"147. Offences to be compoundable. - Notwithstanding anything contained in
the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable
under this Act shall be compoundable.
This Court fails to understand the applicability of the principle laid down in Mandvi
(supra) to the facts of the present case. It is no doubt true that Section 147 of
the N.I. Act makes an offence under N.I. Act a compoundable one. But in order
to make the offence compoundable the mode and manner of compounding such offences
must be followed. No contrary view has been expressed by this Court in Mandvi
the nature of the offence under N.I. Act learned counsel for the appellant(s) also
placed reliance on a decision of this Court in the case of Damodar S. Prabhu
vs. Sayed Babalal H. reported in (2010) 5 SCC 663. In paragraph 4, this Court held
that the dishonour of a cheque can be best described as a regulatory offence which
has been created to serve the public interest in ensuring the reliability of
these instruments and the Court has further held that the impact of the offence
is confined to private parties involvement in commercial transactions.
The Court also noted the
situation that large number of cases involving dishonour of cheques are choking
the criminal justice system and putting an unprecedented strain on the judicial
functioning. In paragraph 7 of the judgment this Court noted the submissions of
the learned Attorney General to the extent that the Court should frame certain guidelines
so as to motivate the litigants from seeking compounding of the offence at an early
stage of litigation and 2 not at an unduly late stage. It was argued that if compounding
is early the pendency of arrears can be tackled.
paragraph 12 of Damodar (supra) this Court dealt with the provision of Section 147
of the N.I. Act and held that the same is an enabling provision for compounding
of the offence and is an exception to the general rule incorporated in sub- section
9 of Section 320 of the Code. This Court harmonised the provision of Section 320
of the Code along with Section 147 of N.I. Act by saying that an offence which is
not otherwise compoundable in view of the provisions of Section 320 sub-section
9 of the Code has become compoundable in view of Section 147 of N.I. Act and to
that extent Section 147 of N.I. Act will override Section 320 sub-section 9 of the
Code since Section 147 of N.I. Act carries a non- obstante clause.
This Court on the basis
of the submissions of the learned Attorney General framed 2certain guidelines for
compounding of offence under Section 138 of the N.I. Act. Those guidelines are
as follows: "THE GUIDELINES (i) In the circumstances, it is proposed as
follows:(a) That directions can be given that the writ of summons be suitably modified
making it clear to the accused that he could make an application for compounding
of the offences at the first or second hearing of the case and that if such an
application is made, compounding may be allowed by the court without imposing any
costs on the accused.(b) If the accused does not make an application for compounding
as aforesaid, then if an application for compounding is made before the
Magistrate at a subsequent stage, compounding can be allowed subject to the condition
that the accused will be required to pay 10% of the cheque amount to be deposited
as a condition for compounding with the Legal Services Authority, or such authority
as the court deems fit.(c) Similarly, if the application for compounding is made
before the Sessions Court or a High Court in revision or appeal, such
compounding may be allowed on the condition that the accused pays 15% of the
cheque amount by way of costs.(d) Finally, if the application for compounding is
made before the Supreme Court, the figure would increase to 20% of the cheque
Court held in paragraph 26 of Damodar (supra) that those guidelines have been issued
by this Court under Article 142 of the Constitution in order to fill-up legislative
vacuum which exists in Section 147 of the N.I. Act. The Court held that Section
147 of the N.I. Act does not carry any guidance on how to proceed with the compounding
of the offence under the N.I. Act and the Court felt that Section 320 of the
Code cannot be strictly followed in the compounding of offence under Section 147
of the N.I. Act. Those guidelines were given to fill up a legislative vacuum.
was also placed by the learned counsel for the appellant(s) on the judgment of
this Court in Central Bureau of Investigation, SPE, SIU (X), New Delh vs. Duncans
Agro Industries Ltd., Calcutta reported in (1996) 5 SCC 591. The decision of
this Court in Duncans Agro (supra) was on the question of quashing the complaint
under 2Section 482 of Criminal Procedure Code. In the facts of that case the learned
Judges held that the Bank filed suits for recovery of the dues on account of grant
of credit facility and the suits have been compromised on receiving the payments
from the company concerned.
The learned Court
held if an offence of cheating is prima facie constituted, such offence is a compoundable
offence and compromise decrees passed in the suits instituted by the Banks, for
all intents and purposes amount to compounding of the offence of cheating. In that
case the Court came to the conclusion since the claims of the Banks have been
satisfied and the suits instituted by the Banks have been compromised on receiving
payments, the Court felt that the complaint should not be perused any further
and, therefore, the Court felt "in the special facts of the case" the
decision of the High Court in quashing the complaint does not require any interference
under Article 136 of the Constitution.
of a case is different from compounding. In quashing the Court applies it but in
compounding it is primarily based on consent of injured party. Therefore, the two
cannot be equated.
is clear from the discussion made hereinabove that the said case was not one relating
to compounding of offence. Apart from that the Court found that the dues of the
Banks have been satisfied by receiving the money and the suits filed by the Bank
in the Civil Court have been compromised. The FIRs were filed in 1987-1988 and the
investigation had not been completed till 1991. On those facts the Court, rendering
the judgment in July, 1996, felt that having regard to the lapse of time and also
having regard to the fact that there is a compromise decree satisfying the Banks'
dues, there is no purpose in allowing the criminal prosecution to proceed. On those
consideration, this Court, in the `special facts 2 of the case', did not interfere
with the order of the High Court dated 23.12.1992 whereby the criminal
prosecution was quashed.
is, therefore, clear that no legal proposition has been laid down on the compounding
of offence in Duncans Agro (supra). This Court proceeded on the peculiar facts of
the case discussed above. Therefore, the said decision cannot be an authority
to contend that by mere sanctioning of a scheme, the offences committed by the appellant
company, prior to the scheme, stand automatically compounded.
was also placed on the decision of this Court in the case of Hira Lal Hari Lal Bhagwati
vs. CBI, New Delhi reported in (2003) 5 SCC 57. In that case reliance was placed
on the decision of this Court in Duncans Agro (supra). In Hira Lal (supra) this
Court was discussing the voluntary scheme namely, Kar Vivad Samadhan scheme 1998
2introduced by the Government of India. The Court found that the aforesaid scheme
being a voluntary scheme has provided that if the dispute and demand is settled
by the authority and pending proceedings were withdrawn by an importer the
balance demand against the importer shall be dropped and the importer shall be immune
from any penal proceedings under any law.
The Court also came
to the conclusion that under the Customs Act, 1962 the appellant(s) have been
discharged and the scheme granted them immunity from prosecution. On those
facts the Court held that the immunity which has been granted under the provisions
of Customs Act will also extend to such offences that may, prima facie, be made
out on identical allegation, namely, evasion of customs duty and violation of
any notification under the said Act. The Court also found, on a reading of the chargesheet
and the FIR that there was no allegation against the appellant(s) of any intentional
deception or of fraudulent or dishonest intention. On those facts the Court held
that once a civil case has been compromised and the alleged offence has been compounded,
the continuance of the criminal proceedings thereafter would be an abuse of the
fail to appreciate how the ratio in the case of Hira Lal (supra) rendered on completely
different facts has any application to the facts of the present case.
was also placed on the judgment of this Court in the case of Nikhil Merchant vs.
Central Bureau of Investigation and another reported in (2008) 9 SCC 677. In paragraphs
30 and 31 of the judgment this Court held that dispute between company and the Bank
have been set at rest on the basis of compromise arrived at between them. The Court
noted that Bank does not have any claim against the company. The Court poses the
question whether the power of quashing criminal proceeding which is there with
the Court should be exercised. (See para 30 at page 684 of the judgment)
Court answered the same in Nikhil Merchant (supra) by saying in para 31 that technicality
should not be allowed to stand in the way of quashing of the criminal proceedings
since in the view of the Court the continuance of the same after the compromise
could be a futile exercise. Therefore, the said decision in Nikhil Merchant (supra)
was rendered in the peculiar facts of the case and it was done in exercise of
quashing power by the Court. It was not a case of automatic compounding of an offence
on the sanctioning of a scheme under Section 391 of the Companies Act.
K. Parameshwar, learned counsel appearing for the respondent in special leave
petition Nos.4445- 4454/2009 argued that the impugned judgment of the High
Court is based on correct principles inasmuch as the effect of a Scheme under
Section 391 of the Companies Act can only be made applicable to a civil proceeding
and it cannot affect criminal liability. Learned counsel further submitted that
under the criminal law there is nothing known as deemed compounding. It was further
urged that under the very concept of compounding, it cannot take place without the
explicit consent of the complainant or the person aggrieved. It was also urged that
in the instant case the offence has been completed prior to the scheme under Section
391 of the Companies Act was sanctioned by the Court.
counsel distinguished between a Scheme under Section 391 and an act of compounding
by urging that a Scheme under section 391 can at most be a Scheme to forego a part
of a debt or to restructure the payment schedule of a debt but the act of compounding
an offence must proceed on the basis of the consent of the person compounding
and his consent cannot be assumed under any situation.
counsel further submitted that the impugned judgment of the High Court correctly
formulated the principle of compounding by holding that the act of compounding
involves an element of mutuality and it has to be bilateral and not unilateral.
Court finds lot of substance in the aforesaid submission.
of an offence is statutorily provided under Section 320 of the Code. If we look
at the list of offences which are specified in the Table attached to Section 320
of the Code, it would be clear that there are basically two categories of offences
under the provisions of Indian Penal Code which have been made compoundable.
is a category of offence for the compounding of which leave of the Court is required
and there is another category of offences where for compounding the leave of the
Court is not required. But all cases of compounding can take place at the instance
of persons mentioned in the Third Column of the Table. If the said Table is perused,
it will be clear that compounding can only be possible at the instance of the
person who is either a complainant or who has been injured or is aggrieved.
4(a) and 4(b) of Section 320 also reiterate the same principle that in case of compounding,
the person competent to compound, must be represented in a manner known to law.
If the person compounding is a minor or an idiot or a lunatic, the person competent
to contract on his behalf may, with the permission of the Court, compound the offence.
Legislature has, therefore, provided that if the aforesaid category of person 3
was suffering from some disability, a person to represent the aforesaid category
of persons is only competent to compound the offence and in such cases the permission
of the Court is statutory required.
320 (4) (b) also reiterates the same principle by providing that when a person who
is otherwise competent to compound an offence is dead, his legal representatives,
as defined under the Code of Civil Procedure may, with the consent of the
Court, compound such offence.
representation of the person compounding has been statutorily provided in all situations.
(9) of Section 320 which is relevant in this connection is set out below: "No
offence shall be compounded except as provided by this section."
147 of the Negotiable Instrument Act reads as follows: "147. Offences to
be compoundable. - Notwithstanding anything contained in the code of Criminal Procedure,
1973 (2 of 1974), every offence punishable under this Act shall be
Relying on the aforesaid non-obstante clause in Section 147 of the N.I. Act, learned
counsel for the appellant argued that a three-Judge Bench decision of this Court
in Damodar (supra), held that in view of non-obstante clause in Section 147 of N.I.
Act, which is a special statute, the requirement of consent of the person compounding
in Section 320 of the Code is not required in the case of compounding of an offence
under N.I. Act. This Court is unable to accept the aforesaid contention for
various reasons which are discussed below.
insertion of a non-obstante clause is a well known legislative device and in
olden times it had the effect of non obstante aliquo statuto in contrarium (notwithstanding
any statute to the contrary).
the Stuart reign in England the Judges then sitting in Westminster Hall accepted
that the statutes were overridden by the process but this device of judicial
surrender did not last long. On the device of non-obstante clause, William Blackstone
in his Commentaries on the Laws of England (Oxford: The Claredon Press, 1st
Edn. 1765- 1769) observed that the devise was "...effectually demolished by
the Bill of Rights at the revolution, and abdicated Westminster Hall when James
II abdicated the Kingdom" (See Bennion on Statutory Interpretation, 5th
Edition, Section 48).
the Scheme of modern legislation, non- obstante clause has a contextual and limited
impact of a `non-obstante clause' on the concerned act was considered by this
Court in many cases and it was held that the same must be kept measured by the legislative
policy and it has to be limited to the extent it is intended by the Parliament and
not beyond that. [See ICICI Bank Ltd. vs. Sidco Leathers Ltd. and Ors. - (2006)
10 SCC 452 para 37 at page 466]
the instant case the non-obstante clause used in Section 147 of N.I. Act does not
refer to any particular section of the Code of Criminal Procedure but refers to
the entire Code. When non-obstante clause is used in the aforesaid fashion the extent
of its impact has to be found out on the basis of consideration of the intent and
purpose of insertion of such a clause.
in this connection may be made to the Constitution Bench decision of this Court
in the case of Madhav Rao Scindia Bahadur, etc. vs. Union of India and Another reported
in (1971) 1 SCC 85, Chief Justice Hidayatullah delivering the majority opinion,
while construing the provision of Article 363, which also uses non-obstante clause
without reference to any Article in the Constitution, held that when non-obstante
clause is used in such a blanket fashion the Court has to determine the scope of
its use very strictly (see paragraph 68- 69 at page 138-139 of the report).
has been followed by a three-Judge Bench of this Court in Central Bank of India
vs. State of Kerala and others reported in (2009) 4 SCC 94, following the principles
as laid down in Madhav Rao (supra) this Court in Central Bank (supra) held as
follows:- 3 "...When the section containing the said clause does not refer
to any particular provisions which it intends to override but refers to the provisions
of the statute generally, it is not permissible to hold that it excludes the whole
Act and stands all alone by itself. `A search has, therefore, to be made with a
view to determining which provision answers the description and which does
147 in N.I. Act came by way of amendment. From the Statement of Objects and Reasons
of Negotiable Instrument (Amendment) Bill 2001, which ultimately became Act 55
of 2002, these amendments were introduced to deal with large number of cases which
were pending under the N.I. Act in various Courts in the country. Considering the
said pendency, a Working Group was constituted to review Section 138 of the N.I.
Act and make recommendations about changes to deal with such pendency.
to the recommendations of the Working Group, the aforesaid Bill was introduced in
Parliament and one of the amendments introduced was "to make offences
under the Act compoundable".
thereto Section 147 was inserted after Section 142 of the old Act under Chapter
II of Act 55 of 2002.
is clear from a perusal of the aforesaid Statement of Objects and Reasons that offence
under the N.I. Act, which was previously non- compoundable in view of Section 320
sub-Section 9 of the Code has now become compoundable. That does not mean that the
effect of Section 147 is to obliterate all statutory provisions of Section 320 of
the Code relating to the mode and manner of compounding of an offence. Section 147
will only override Section 320 (9) of the Code in so far as offence under Section
147 of N.I. Act is concerned. This is also the ratio in Damodar (supra), see para
12. Therefore, the submission of the learned counsel for the appellant to the contrary
cannot be accepted.
this connection, we may refer to the provisions of Section 4 of the Code. Section
4 of the Code, which is the governing statute in India for investigation, inquiry
and trial of offences has two parts.
4 sub-section (1) deals with offences under the Indian Penal Code. Section 4
sub-section (2) deals with offences under any other law which would obviously include
offences under the N.I. Act. (See 2007 Crl. Law Journal 3958)
the instant case no special procedure has been prescribed under the N.I. Act relating
to compounding of an offence. In the absence of special procedure relating to compounding,
the procedure relating to compounding under Section 4 320 shall automatically apply
in view of clear mandate of sub-section (2) of Section 4 of the Code.
(2) of Section 4 of the code is set out below:- "4(2) All offences under
any other law shall be investigated, inquired into, tried, and otherwise dealt with
according to the same provisions, but subject to any enactment for the time being
in force regulating the manner or place of investigating, inquiring into, trying
or otherwise dealing with such offences.
Interpreting the said Section, this Court in the case of Khatri and Ors. etc. Vs.
State of Bihar and Ors. - AIR 1981 SC 1068 held that the provisions of the Code
are applicable where an offence under the Indian Penal Code or under any other law
is being investigated, inquired into, tried or otherwise dealt with (See para 3
view of Section 4(2) of the Code, the basic procedure of compounding an offence
laid down in Section 320 of the Code will apply to compounding of an offence
under N.I. Act.
Vinay Devanna Nayak vs. Ryot Sewa Sahakari Bank Limited reported in (2008) 2 SCC
305, this Court also considered the object behind the insertion of Section 138 of
the N. I. Act by Banking Financial Institutions and Negotiable Instruments (Amendment)
Act 1988. This Court held:- "...The incorporation of the provision is designed
to safeguard the faith of the creditor in the drawer of the cheque, which is essential
to the economic life of a developing country like India. The provision has been
introduced with a view to curb cases of issuing cheques indiscriminately by making
stringent provisions and safeguarding interest of creditors." (para 16,
page 309 of the report)
Court also looked into the scope of Section 147 of the N.I. Act, and held after
considering the two sections, that there is no reason to 4 refuse compromise between
the parties. But the Court did not hold that in view of Section 147, the procedure
relating to compounding under Section 320 of the Code has to be given a go bye.
in the case of R. Rajeshwari vs. H. N. Jagadish reported in (2008) 4 SCC 82, another
Bench of this Court also construed the provisions of Section 147 of the N.I. Act,
as well as those of Section 320 of the Code. Here also it was not held that all
the requirements of Section 320 of the Code for compounding were to be given a go
these aforesaid decisions were referred to and approved in Damodar (supra). The
decision in Damodar (supra) was rendered by referring to Article 142 of the Constitution
insofar as guidelines were framed in relation to compounding for reducing pendency
of 138 cases. In doing so the Court held that attempts should be made for 4 compounding
the offence early. Therefore, the observations made in paragraph 24 of Damodar (supra),
that the scheme contemplated under Section 320 of the Code cannot be followed
`in the strict sense' does not and cannot mean that the fundamental provisions of
compounding under Section 320 of the Code stand obliterated by a side wind, as
is well settled that a judgment is always an authority for what it decides. It is
equally well settled that a judgment cannot be read as a statute. It has to be read
in the context of the facts discussed in it. Following the aforesaid well settled
principles, we hold that the basic mode and manner of effecting the compounding
of an offence under Section 320 of the Code cannot be said to be not attracted
in case of compounding of an offence under N.I. Act in view of Section 147 of
as codified in Section 320 of the Code has a historical background. In common law
compounding was considered a misdemeanour. In Kenny's `Outlines of Criminal Law'
(Nineteenth Edition, 1966) the concept of compounding has been traced as
follows:- "It is a misdemeanour at common law to `compound' a felony (and perhaps
also to compound a misdemeanour); i.e. to bargain, for value, to abstain from prosecuting
the offender who has committed a crime. You commit this offence if you promise a
thief not to prosecute him if only he will return the goods he stole from you; but
you may lawfully take them back if you make no such promise. You may show mercy,
but must not sell mercy. This offence of compounding is committed by the bare
act of agreement; even though the compounder afterwards breaks his agreement and
prosecutes the criminal. And inasmuch as the law permits not merely the person injured
by a crime, but also all other members of the community, to prosecute, it is
criminal for anyone to make such a composition; even though he suffered no
injury and indeed has no concern with the crime.
Russell on Crime (Twelfth Edition) also describes:- 4 "Agreements not to
prosecute or to stifle a prosecution for a criminal offence are in certain
cases criminal". (Chapter 22 - Compounding Offences, page 339)
on compounding was permitted in certain categories of cases where the rights of
the public in general are not affected but in all cases such compounding is
permissible with the consent of the injured party.
our country also when the Criminal Procedure Code, 1861 was enacted it was silent
about the compounding of offence. Subsequently, when the next Code of 1872 was introduced
it mentioned about compounding in Section 188 by providing the mode of compounding.
However, it did not contain any provision declaring what offences were compoundable.
The decision as to what offences were compoundable was governed by reference to
the exception to Section 214 of the Indian Penal Code. The subsequent Code of 1898
provided Section 345 indicating the offences which were compoundable but the said
Section was only made applicable to compounding of offences defined and permissible
under Indian Penal code.
The present Code, which
repealed the 1898 Code, contains Section 320 containing comprehensive provisions
for compounding. A perusal of Section 320 makes it clear that the provisions
contained in Section 320 and the various sub-sections is a Code by itself
relating to compounding of offence. It provides for the various parameters and procedures
and guidelines in the matter of compounding. If this Court upholds the
contention of the appellant that as a result of incorporation of Section 147 in
the N.I. Act, the entire gamut of procedure of Section 320 of the Code are made
inapplicable to compounding of an offence under the N.I.
Act, in that case the
compounding of offence under N.I. Act will be left totally unguided or
uncontrolled. Such an interpretation apart from being an absurd or unreasonable
one will also be contrary to the provisions of Section 4(2) of the Code, which has
4 been discussed above. There is no other statutory procedure for compounding of
offence under N.I. Act. Therefore, Section 147 of the N.I. Act must be reasonably
construed to mean that as a result of the said Section the offences under N.I. Act
are made compoundable, but the main principle of such compounding, namely, the consent
of the person aggrieved or the person injured or the complainant cannot be
wished away nor can the same be substituted by virtue of Section 147 of N.I. Act.
the reasons aforesaid, this Court is unable to accept the contentions of the learned
counsel for the appellant(s) that as a result of sanction of a scheme under
Section 391 of the Companies Act there is an automatic compounding of offences under
Section 138 of the N.I. Act even without the consent of the complainant.
appeals are dismissed. The judgment of the High Court is affirmed.
(ASOK KUMAR GANGULY)
(JAGDISH SINGH KHEHAR)