Damodar
S. Prabhu Vs. Sayed Babalal H. [2010] INSC 333 (3 May 2010)
Judgment
IN THE
SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 963
OF 2010 [Arising out of SLP (Crl.) No. 6369 of 2007] Damodar S. Prabhu ...
Appellant (s) Versus Sayed Babalal H. ... Respondent (s) WITH CRIMINAL APPEAL
NOS. 964-966 OF 2010 [Arising out of SLP (Crl.) Nos. 6370-6372 of 2007]
O R D E R
1. Leave
granted.
2. The
present appeals are in respect of litigation involving the offence enumerated
by Section 138 of the Negotiable Instruments Act, 1881 [Hereinafter `Act']. It
is not necessary for us to delve into the facts leading up to the institution
of proceedings before this Court since the appellant and the respondent have
arrived at a settlement and prayed for the 1 compounding of the offence as
contemplated by Section 147 of the Act. It would suffice to say that the
parties were involved in commercial transactions and that disputes had arisen
on account of the dishonour of five cheques issued by the appellant.
Thereafter, the parties went through the several stages of litigation before
their dispute reached this Court by way of special leave petitions. With regard
to the impugned judgments delivered by the High Court of Bombay at Goa, the
appellant has prayed for the setting aside of his conviction in these matters
by relying on the consent terms that have been arrived at between the parties.
The respondent has not opposed this plea and, therefore, we allow the
compounding of the offence and set aside the appellant's conviction in each of
the impugned judgments.
3.
However, there are some larger issues which can be appropriately addressed in
the context of the present case. It may be recalled that Chapter XVII
comprising sections 138 to 142 was inserted into the Act by the Banking, Public
Financial Institutions and Negotiable Instruments Laws (Amendment) 2 Act, 1988
(66 of 1988). The object of bringing Section 138 into the statute was to
inculcate faith in the efficacy of banking operations and credibility in
transacting business on negotiable instruments. It was to enhance the acceptability
of cheques in settlement of liabilities by making the drawer liable for
penalties in case of bouncing of cheques due to insufficient arrangements made
by the drawer, with adequate safeguards to prevent harassment of honest
drawers. If the cheque is dishonoured for insufficiency of funds in the
drawer's account or if it exceeds the amount arranged to be paid from that
account, the drawer is to be punished with imprisonment for a term which may
extend to two years, or with fine which may extend to twice the amount of the
cheque, or with both. It may be noted that when the offence was inserted in the
statute in 1988, it carried the provision for imprisonment up to one year,
which was revised to two years following the amendment to the Act in 2002. It
is quite evident that the legislative intent was to provide a strong criminal
remedy in order to deter the worryingly high incidence of dishonour of cheques.
While the possibility of imprisonment up to two years provides a remedy 3 of a
punitive nature, the provision for imposing a `fine which may extent to twice
the amount of the cheque' serves a compensatory purpose. What must be
remembered is that the dishonour of a cheque can be best described as a
regulatory offence that has been created to serve the public interest in
ensuring the reliability of these instruments. The impact of this offence is
usually confined to the private parties involved in commercial transactions.
4.
Invariably, the provision of a strong criminal remedy has encouraged the institution
of a large number of cases that are relatable to the offence contemplated by
Section 138 of the Act. So much so, that at present a disproportionately large
number of cases involving the dishonour of cheques is choking our criminal
justice system, especially at the level of Magistrates' Courts. As per the
213th Report of the Law Commission of India, more than 38 lakh cheque bouncing
cases were pending before various courts in the country as of October 2008.
This is putting an unprecedented strain on our judicial system.
5. Mr.
Goolam E. Vahanvati, Solicitor General (now Attorney- General for India) had
appeared as amicus curiae in the present matter and referred to the facts
herein as an illustration of how parties involved in cheque bounce cases usually
seek the compounding of the offence at a very late stage. The interests of
justice would indeed be better served if parties resorted to compounding as a
method to resolve their disputes at an early stage instead of engaging in
protracted litigation before several forums, thereby causing undue delay,
expenditure and strain on part of the judicial system. This is clearly a
situation that is causing some concern, since Section 147 of the Act does not
prescribe as to what stage is appropriate for compounding the offence and
whether the same can be done at the instance of the complainant or with the
leave of the court. The learned Attorney General stressed on the importance of
using compounding as an expedient method to hasten the disposal of cases. In this
regard, the learned Attorney General has proposed that this Court should frame
some guidelines to disincentivise litigants from seeking 5 the compounding of
the offence at an unduly late stage of litigation. In other words, judicial
directions have been sought to nudge litigants in cheque bounce cases to opt
for compounding during the early stages of litigation, thereby bringing down
the arrears.
6. Before
examining the guidelines proposed by the learned Attorney General, it would be
useful to clarify the position relating to the compounding of offences under
the Negotiable Instruments Act, 1881. Even before the insertion of Section 147
in the Act (by way of an amendment in 2002) some High Courts had permitted the
compounding of the offence contemplated by Section 138 during the later stages
of litigation. In fact in O.P. Dholakia v. State of Haryana, (2000) 1 SCC 672,
a division bench of this Court had permitted the compounding of the offence
even though the petitioner's conviction had been upheld by all the three
designated forums. After noting that the petitioner had already entered into a
compromise with the complainant, the bench had rejected the State's argument
that this Court need not 6 interfere with the conviction and sentence since it
was open to the parties to enter into a compromise at an earlier stage and that
they had not done so. The bench had observed:- "... Taking into
consideration the nature of the offence in question and the fact that the
complainant and the accused have already entered into a compromise, we think it
appropriate to grant permission in the peculiar facts and circumstances of the
present case, to compound."
7.
Similar reliefs were granted in orders reported as Sivasankaran v. State of
Kerala & Anr., (2002) 8 SCC 164, Kishore Kumar v. J.K. Corporation Ltd.,
(2004) 12 SCC 494 and Sailesh Shyam Parsekar v. Baban, (2005) 4 SCC 162, among
other cases. As mentioned above, the Negotiable Instruments Act, 1881 was
amended by the Negotiable Instruments (Amendment and Miscellaneous Provisions)
Act, 2002 which inserted a specific provision, i.e. Section 147 `to make the
offences under the Act compoundable'. We can refer to the following extract
from the Statement of Objects and 7 Reasons attached to the 2002 amendment
which is self- explanatory:- "Prefatory Note - Statement of Objects and
Reasons. - The Negotiable
Instruments Act, 1881 was amended by the Banking,
Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act,
1988 wherein a new Chapter XVII was incorporated for penalties in case of
dishonour of cheques due to insufficiency of funds in the account of the drawer
of the cheque. These provisions were incorporated with a view to encourage the
culture of use of cheques and enhancing the credibility of the instrument. The
existing provisions in the Negotiable Instruments Act, 1881, namely, Sections
138 to 142 in Chapter XVII have been found deficient in dealing with dishonour
of cheques. Not only the punishment provided in the Act has proved to be
inadequate, the procedure prescribed for the courts to deal with such matters
has been found to be cumbersome.
The
courts are unable to dispose of such cases expeditiously in a time bound manner
in view of the procedure contained in the Act. ..."
(emphasis
supplied) In order to address the deficiencies referred to above, Section 10 of
the 2002 amendment inserted Sections 143, 144, 145, 146 and 147 into the Act,
which deal with aspects such as the power of the Court to try cases summarily
(Section 143), Mode of service of summons (Section 144), Evidence on affidavit
8 (Section 145), Bank's slip to be considered as prima facie evidence of
certain facts (Section 146) and Offences under the Act to be compoundable
(Section 147). At present, we are of course concerned with Section 147 of the
Act, which 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 compoundable."
8. At
this point, it would be apt to clarify that in view of the non-obstante clause,
the compounding of offences under the Negotiable Instruments Act, 1881 is controlled by Section 147 and the scheme contemplated
by Section 320 of the Code of Criminal Procedure [Hereinafter `CrPC'] will not
be applicable in the strict sense since the latter is meant for the specified
offences under the Indian Penal Code. So far as the CrPC is concerned, Section
320 deals with offences which are compoundable, either by the parties without
the leave of the court or by the parties but only with the leave of the Court.
Sub-section
(1) of Section 320 enumerates the offences which 9 are compoundable without the
leave of the Court, while sub- section (2) of the said section specifies the
offences which are compoundable with the leave of the Court. Section 147 of the
Negotiable
Instruments Act, 1881 is in the nature of an enabling
provision which provides for the compounding of offences prescribed under the
same Act, thereby serving as an exception to the general rule incorporated in
sub-section (9) of Section 320 of the CrPC which states that `No offence shall
be compounded except as provided by this Section'. A bare reading of this
provision would lead us to the inference that offences punishable under laws
other than the Indian Penal Code also cannot be compounded. However, since
Section 147 was inserted by way of an amendment to a special law, the same will
override the effect of Section 320(9) of the CrPC, especially keeping in mind
that Section 147 carries a non- obstante clause
9. In
Vinay Devanna Nayak v. Ryot Sewa Sahakari Bank Ltd., (2008) 2 SCC 305, this
Court had examined `whether an offence punishable under Section 138 of the Act
which is a 10 special law can be compounded'. After taking note of a divergence
of views in past decisions, this Court took the following position (C.K.
Thakker, J. at Para. 17):- " ... This provision is intended to prevent
dishonesty on the part of the drawer of negotiable instruments in issuing
cheques without sufficient funds or with a view to inducing the payee or holder
in due course to act upon it. It thus seeks to promote the efficacy of bank
operations and ensures credibility in transacting business through cheques. In
such matters, therefore, normally compounding of offences should not be denied.
Presumably, Parliament also realised this aspect and inserted Section 147 by
the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002
(Act 55 of 2002). ..."
In the
same decision, the court had also noted (Para. 11):- "... Certain offences
are very serious in which compromise or settlement is not permissible. Some
other offences, on the other hand, are not so serious and the law may allow the
parties to settle them by entering into a compromise. The compounding of an
offence signifies that the person against whom an offence has been committed
has received some gratification to an act as an inducement for his abstaining
from proceeding further with the case."
11
10. It
would also be pertinent to refer to this Court's decision in R. Rajeshwari v.
H.N. Jagadish, (2008) 4 SCC 82, wherein the following observations were made
(S.B. Sinha, J. at Para. 12):- "Negotiable Instruments Act is a special Act. Section 147 provides for a non obstante
clause, stating:
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.
Indisputably,
the provisions of the Code of Criminal Procedure, 1973 would be applicable to
the proceedings pending before the courts for trial of offences under the said
Act. Stricto sensu, however, the table appended to Section 320 of the Code of
Criminal Procedure is not attracted as the provisions mentioned therein refer
only to provisions of the Penal Code and none other."
11. The
compounding of the offence at later stages of litigation in cheque bouncing
cases has also been held to be permissible in a recent decision of this Court,
reported as K.M. Ibrahim v.
K.P.
Mohammed & Anr., 2009 (14) SCALE 262, wherein Kabir, J. has noted (at
Paras. 11, 12):- 12 "11. As far as the non-obstante clause included in
Section 147 of the 1881 Act is concerned, the 1881 Act being a special statute,
the provisions of Section 147 will have an overriding effect over the
provisions of the Code relating to compounding of offences. ...
12. It is
true that the application under Section 147 of the Negotiable
Instruments Act was made by the parties after the
proceedings had been concluded before the Appellate Forum. However, Section 147
of the aforesaid Act does not bar the parties from compounding an offence under
Section 138 even at the appellate stage of the proceedings. Accordingly, we
find no reason to reject the application under Section 147 of the aforesaid Act
even in a proceeding under Article 136 of the Constitution."
12. It is
evident that the permissibility of the compounding of an offence is linked to
the perceived seriousness of the offence and the nature of the remedy provided.
On this point we can refer to the following extracts from an academic
commentary [Cited from: K.N.C. Pillai, R.V. Kelkar's Criminal Procedure, 5th
edn. (Lucknow: Eastern Book Company, 2008) at p. 444]:- "A crime is
essentially a wrong against the society and the State. Therefore, any
compromise between the accused person and the individual victim of the crime
should not absolve the accused from criminal responsibility. However, where the
offences are essentially of a private nature and relatively not quite serious,
the Code considers it expedient to 13 recognize some of them as compoundable
offences and some others as compoundable only with the permission of the court.
..."
In a
recently published commentary, the following observations have been made with
regard to the offence punishable under Section 138 of the Act [Cited from: Arun
Mohan, Some thoughts towards law reforms on the topic of Section 138, Negotiable
Instruments Act - Tackling an avalanche of cases (New
Delhi: Universal Law Publishing Co.
Pvt.
Ltd., 2009) at p. 5] "... Unlike that for other forms of crime, the
punishment here (in so far as the complainant is concerned) is not a means of
seeking retribution, but is more a means to ensure payment of money.
The
complainant's interest lies primarily in recovering the money rather than
seeing the drawer of the cheque in jail. The threat of jail is only a mode to
ensure recovery. As against the accused who is willing to undergo a jail term,
there is little available as remedy for the holder of the cheque.
If we
were to examine the number of complaints filed which were `compromised' or
`settled' before the final judgment on one side and the cases which proceeded
to judgment and conviction on the other, we will find that the bulk was settled
and only a miniscule number continued."
13. It is
quite obvious that with respect to the offence of dishonour of cheques, it is
the compensatory aspect of the remedy which should be given priority over the
punitive aspect. There is also some support for the apprehensions raised by the
learned Attorney General that a majority of cheque bounce cases are indeed
being compromised or settled by way of compounding, albeit during the later
stages of litigation thereby contributing to undue delay in justice- delivery.
The problem herein is with the tendency of litigants to belatedly choose
compounding as a means to resolve their dispute. Furthermore, the written
submissions filed on behalf of the learned Attorney General have stressed on
the fact that unlike Section 320 of the CrPC, Section 147 of the Negotiable
Instruments Act provides no explicit guidance as to what stage compounding can
or cannot be done and whether compounding can be done at the instance of the
complainant or with the leave of the court. As mentioned earlier, the learned
Attorney General's submission is that in the absence of statutory guidance,
parties are choosing compounding as a method of last resort instead of opting
for it as soon as the 15 Magistrates take cognizance of the complaints. One explanation
for such behaviour could be that the accused persons are willing to take the
chance of progressing through the various stages of litigation and then choose
the route of settlement only when no other route remains. While such behaviour
may be viewed as rational from the viewpoint of litigants, the hard facts are
that the undue delay in opting for compounding contributes to the arrears
pending before the courts at various levels. If the accused is willing to
settle or compromise by way of compounding of the offence at a later stage of
litigation, it is generally indicative of some merit in the complainant's case.
In such cases it would be desirable if parties choose compounding during the
earlier stages of litigation. If however, the accused has a valid defence such
as a mistake, forgery or coercion among other grounds, then the matter can be
litigated through the specified forums.
14. It
may be noted here that Section 143 of the Act makes an offence under Section
138 triable by a Judicial Magistrate First Class (JMFC). After trial, the
progression of further legal 16 proceedings would depend on whether there has
been a conviction or an acquittal.
7 In the
case of conviction, an appeal would lie to the Court of Sessions under Section
374(3)(a) of the CrPC;
thereafter
a Revision to the High Court under Section 397/401 of the CrPC and finally a
petition before the Supreme Court, seeking special leave to appeal under 136 of
the Constitution of India. Thus, in case of conviction there will be four levels
of litigation.
7 In the
case of acquittal by the JMFC, the complainant could appeal to the High Court
under Section 378(4) of the CrPC, and thereafter for special leave to appeal to
the Supreme Court under Article 136. In such an instance, therefore, there will
be three levels of proceedings.
15. With
regard to the progression of litigation in cheque bouncing cases, the learned
Attorney General has urged this Court to frame guidelines for a graded scheme
of imposing costs on parties who unduly delay compounding of the offence.
It was
submitted that the requirement of deposit of the costs 17 will act as a
deterrent for delayed composition, since at present, free and easy compounding
of offences at any stage, however belated, gives an incentive to the drawer of
the cheque to delay settling the cases for years. An application for
compounding made after several years not only results in the system being
burdened but the complainant is also deprived of effective justice. In view of
this submission, we direct that the following guidelines be followed:- 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.
18 (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 amount.
19 Let it
also be clarified that any costs imposed in accordance with these guidelines
should be deposited with the Legal Services Authority operating at the level of
the Court before which compounding takes place. For instance, in case of
compounding during the pendency of proceedings before a Magistrate's Court or a
Court of Sessions, such costs should be deposited with the District Legal
Services Authority.
Likewise,
costs imposed in connection with composition before the High Court should be
deposited with the State Legal Services Authority and those imposed in
connection with composition before the Supreme Court should be deposited with
the National Legal Services Authority.
16. We
are also in agreement with the Learned Attorney General's suggestions for
controlling the filing of multiple complaints that are relatable to the same
transaction. It was submitted that complaints are being increasingly filed in
multiple jurisdictions in a vexatious manner which causes tremendous harassment
and prejudice to the drawers of the 20 cheque. For instance, in the same
transaction pertaining to a loan taken on an installment basis to be repaid in
equated monthly installments, several cheques are taken which are dated for
each monthly installment and upon the dishonor of each of such cheques, different
complaints are being filed in different courts which may also have jurisdiction
in relation to the complaint. In light of this submission, we direct that it
should be mandatory for the complainant to disclose that no other complaint has
been filed in any other court in respect of the same transaction. Such a
disclosure should be made on a sworn affidavit which should accompany the
complaint filed under Section 200 of the CrPC. If it is found that such
multiple complaints have been filed, orders for transfer of the complaint to
the first court should be given, generally speaking, by the High Court after
imposing heavy costs on the complainant for resorting to such a practice. These
directions should be given effect prospectively.
17. We
are also conscious of the view that the judicial endorsement of the above
quoted guidelines could be seen as 21 an act of judicial law-making and
therefore an intrusion into the legislative domain. It must be kept in mind
that Section 147 of the Act does not carry any guidance on how to proceed with
the compounding of offences under the Act. We have already explained that the
scheme contemplated under Section 320 of the CrPC cannot be followed in the
strict sense.
In view
of the legislative vacuum, we see no hurdle to the endorsement of some
suggestions which have been designed to discourage litigants from unduly
delaying the composition of the offence in cases involving Section 138 of the
Act. The graded scheme for imposing costs is a means to encourage compounding
at an early stage of litigation. In the status quo, valuable time of the Court
is spent on the trial of these cases and the parties are not liable to pay any
Court fee since the proceedings are governed by the Code of Criminal Procedure,
even though the impact of the offence is largely confined to the private
parties. Even though the imposition of costs by the competent court is a matter
of discretion, the scale of costs has been suggested in the interest of
uniformity. The competent Court can of course reduce the costs with regard to
22 the specific facts and circumstances of a case, while recording reasons in
writing for such variance. Bona fide litigants should of course contest the
proceedings to their logical end. Even in the past, this Court has used its power
to do complete justice under Article 142 of the Constitution to frame
guidelines in relation to subject-matter where there was a legislative vacuum.
18. The
present set of appeals are disposed of accordingly.
.............................. CJI (K.G. BALAKRISHNAN)
............................... J. (P. SATHASIVAM)
............................... J.
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