In a significant decision, the Madras High Court has ruled that an offence under Section 138 of the Negotiable Instruments Act (N.I. Act) can be compounded at any stage, including after the dismissal of appeals or revisions, provided the parties reach a settlement. This judgment came in response to a criminal revision petition filed by M. Selvaraj (Crl.R.C.No.446 of 2022), challenging his conviction for cheque dishonor, upheld by both the trial and appellate courts.
Case Background
The case originated from a complaint filed by R. Kandasamy, an authorized dealer for TVS mopeds and motorcycles, against M. Selvaraj, a sub-dealer, for cheque dishonor. Selvaraj had issued a cheque worth ₹5,41,000 to Kandasamy, which was dishonored due to insufficient funds. Following the statutory notice, Kandasamy filed a complaint under Section 138 of the N.I. Act. The trial court convicted Selvaraj, sentencing him to six months of simple imprisonment and directing him to pay the cheque amount as compensation.
Selvaraj’s appeal to the IV Additional District and Sessions Court, Coimbatore, was dismissed, upholding the trial court’s decision. Subsequently, he filed a revision petition before the Madras High Court.
Legal Issues
The core legal issues addressed by the High Court were:
1. Whether the offence under Section 138 of the N.I. Act can be compounded post-dismissal of an appeal.
2. Whether the inherent powers of the High Court can be invoked to facilitate settlement at this stage.
3. The interplay between Section 320 of the Criminal Procedure Code (Cr.P.C.), which governs compounding of offences, and Section 147 of the N.I. Act, which allows compounding of offences under this special law.
Arguments by the Parties
– Petitioner’s Counsel (Mr. K.S. Karthik Raja): Argued that Section 147 of the N.I. Act permits compounding at any stage, overriding procedural limitations imposed by Section 320 of the Cr.P.C. He relied on precedents, including Damodar S. Prabhu v. Sayed Babalal H (2010) and Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2017), emphasizing the compensatory nature of Section 138 offences.
– Respondent’s Counsel (Mr. T.R. Sundaram): Confirmed the receipt of the settlement amount and expressed no objection to compounding the offence.
– State Counsel (Mr. A. Gopinath): Initially resisted, arguing that the conviction upheld by the appellate court could not be nullified through compromise at the revision stage.
Court’s Observations
The court, presided over by Justice Shamim Ahmed, acknowledged the memorandum of compromise reached between Selvaraj and Kandasamy, under which the entire cheque amount of ₹5,41,000 had been paid. Emphasizing the compensatory intent of Section 138, the judge observed:
“The punitive element is secondary to the compensatory aspect, as the primary object of Section 138 is to ensure recovery of the amount due rather than to seek retribution.”
The court further ruled:
“Offences under the N.I. Act, being quasi-criminal and essentially of a private nature, can be compounded even at the revision stage, provided it meets the ends of justice and no other statutory remedy is available.”
In line with the settlement, the High Court annulled Selvaraj’s conviction and directed his acquittal. It also ordered the trial court to refund 50% of the cheque amount that had been deposited by Selvaraj during the revision proceedings.
