A complaint cannot be led under Section 138 of the NI Act, once the Accused and Complainant entered into a settlement agreement between them.
In a bid to curb the worrying trend of parallel proceedings for complaints under Section 138 of the NI Act, the bench of Dr DY Chandrachud, Vikram Natha and BV Nagarathna, JJ has held that 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 deed.”
The bench headed by Justice DY Chandrachud observed that non-compliance with 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.
In the case of Gimpex Private Limited vs Manoj Goel LL 2021 SC 553, a set of cheques were dishonoured, leading to the filing of the first complaint under Section 138 of the NI Act. The parties thereafter entered into a deed of compromise to settle the matter. While the first complaint was pending, the cheques issued pursuant to the compromise deed were also dishonoured leading to the second complaint under Section 138 of the NI Act. Both proceedings were pending simultaneously and hence, the issue before the Supreme Court was to decide whether the complainant can be allowed to pursue both 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 agreement.
The settlement agreement includes the original complaint.
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, the 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 with 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 with 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 the settlement of matters :
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 the 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 the settlement of matters since they do not have any effect on the status quo, and in fact, increase the protracted litigation before the court.
A complainant cannot pursue two parallel prosecutions for the same underlying transaction :
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 deed.
Liability arising from the settlement agreement :
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 cheque pursuant to a settlement agreement arises out of legal liability would be dependent on various factors, such as the underlying settlement agreement, the nature of the original transaction and whether an adjudication on the finding of liability was arrived at in the original complaint, the defence raised by the accused, etc.
“The Single Judge was in error in proceeding to quash the criminal complaint on a priori reasoning that the second set of cheques issued in pursuance of the deed of compromise was not in discharge of liability and on that basis proceeding to quash the proceedings under Section 482 CrPC. The mere fact that a suit has been instituted before the Madras High Court challenging the deed of compromise would furnish no justification for exercising the jurisdiction under Section 482. The deed of compromise would continue to be valid until a decree of the appropriate court setting it aside is passed. The High Court, as we have explained above, has failed to notice the true meaning and import of the presumption under Section 139 which can only be displaced on the basis of evidence adduced at the trial.”, the court observed.
The court also rejected the contention that in the event the second complaint is found to be non-maintainable and the compromise deed is held to be invalid, they would be left remediless and thus, the first trial should be allowed to continue.
“We do not find any merit in this submission. In the event that the compromise deed is found to be void ab initio on account of coercion, the very basis for quashing of the first complaint is removed since the settlement agreement is deemed to have never existed and hence it had no effect on the liability subsisting under the first complaint. The appellants may then approach the competent court for reinstatement of the original complaint and the trial can proceed on that basis”,
– the bench added.
Reference : Case name and Citation: Gimpex Private Limited vs Manoj Goel LL 2021 SC 553, Case no. and Date: CrA 1068 of 2021, dt. 8 October 2021, Coram: Justices DY Chandrachud, Vikram Nath and BV Nagarathna, Counsel: Sr. Adv V Giri with Adv Liz Mathew for appellants, Sr. Adv Jayant Bhushan for respondents.
