Can a Cheque Bounce Case Close Without Consent?

Kanchan Mehta filed a complaint on July 15, 2016. She said M/s. Meters and Instruments Private Limited and another appellant were to pay her a monthly amount under an agreement. A cheque dated March 31, 2016 for Rs. 29,319 was given in discharge of that liability, but the bank returned it unpaid for want of sufficient funds. She served a legal notice, and the amount still remained unpaid.

The Magistrate considered the complaint and the preliminary evidence on August 24, 2016 and summoned the company and its director. On November 9, 2016, the Magistrate observed that the case could not be tried summarily because a sentence of more than one year may have to be passed. The case was therefore treated as a summons case, and notice of accusation was served under Section 251 of the CrPC.

The director of the company said he was ready to pay the cheque amount. Mehta declined to accept the demand draft. The case was adjourned for evidence.

The company then filed an application under Section 147 of the NI Act on January 12, 2017. It relied on the Supreme Court's judgment in Damodar S. Prabhu v. Sayed Babalal H. The Magistrate dismissed the application in view of the Supreme Court's judgment in JIK Industries Ltd. versus Amarlal versus Jumani, which required the complainant's consent for compounding. The High Court of Punjab and Haryana at Chandigarh, by its order dated April 21, 2017, found no ground to interfere with the Magistrate's order. It rejected the prayer for compounding on payment of the cheque amount and the alternative prayer for exemption from personal appearance.

Section 138 and the other provisions of Chapter XVII were introduced in 1988 to make cheques more acceptable in settling liabilities. The 2002 amendment simplified the procedure, including service of summons by Speed Post or courier, summary trial and making the offence compoundable. The Supreme Court described the offence as primarily a civil wrong. The burden lies on the accused because of the presumption under Section 139, but the standard of proof is only "preponderance of probabilities."

The deadlock was this. The offence is compoundable, and compounding involves the consent of the complainant. Earlier rulings held that compounding could not be permitted merely by unilateral payment, without the consent of both parties. Section 143 of the NI Act, however, contemplates the application of summary trial provisions, as far as possible. Damodar S. Prabhu and later judgments encouraged early compounding and gave priority to compensation over punishment. Section 357(1)(b) of the CrPC allows compensation out of a fine. Where no fine is imposed, Section 357(3) allows compensation, enforced by a default sentence under Section 64 of the IPC and by recovery under Section 431 CrPC.

The pressure on courts was enormous. The Law Commission in its 213th Report, submitted on November 24, 2008, noted that about 38 lakh of the then roughly 1.8 crore pending cases related to Section 138. The Court had to answer one question. If the accused is willing to deposit the cheque amount, can the proceedings be closed, or can the accused at least be excused from personal appearance?

The Bench held that the court has to balance the rights of the complainant and the accused and also enhance access to justice. The basic object of the law is to make cheque transactions more credible by giving the complainant a speedy remedy. It is not meant to punish a drawer whose conduct is reasonable, or where compensation meets the ends of justice. An appropriate order can be passed under the inherent power in Section 143 of the NI Act, which is different from compounding by consent of parties. Because the CrPC applies "so far as may be", the principle of Section 258 CrPC can be applied to a complaint case under Section 143, with such deviation as may be necessary for speedy trial.

In paragraph 18, the Bench recorded that compounding requires the consent of both parties. It added that, even without such consent, the court may close the proceedings and discharge the accused in the interests of justice, if it is satisfied that the complainant has been duly compensated. In paragraph 19, it gave its holding:

The Court closed the loophole in two ways:

• It separated payment from compounding. A drawer can pay the assessed cheque amount plus interest and cost by the specified date. Closure still depends on the court being satisfied that the complainant has been duly compensated and that there is no reason to proceed with the punitive aspect.
• It made summary procedure the normal rule. The summons trial procedure is reserved for cases where a sentence exceeding one year may be necessary. That is so only where compensation under Section 357(3) CrPC with a sentence of less than one year will not be adequate, having regard to the amount of the cheque, the conduct of the accused and other circumstances.

The appeals were disposed of. The company and its director were left free to move the Trial Court afresh for any further order in the light of this judgment.

• Gather the paper trail first. The payee should keep the original dishonoured cheque, the bank's return slip or memo, the legal notice and the agreement creating the liability. The Supreme Court said a complaint is to be accompanied by the dishonoured cheque, the bank's slip and the affidavit. It treated the bank's slip as prima facie evidence of dishonour and allowed the complainant's evidence to be given on affidavit.
• Use the court-assessed deposit route. In this case a demand draft offered to the complainant was declined and the case moved on to evidence. The judgment describes a different route. The summons can indicate that the accused may deposit the amount assessed by the court, with interest and cost, by a specified date and inform the court and the complainant by email. The matter is before the Magistrate's court where the Section 138 complaint is pending.
• Expect the court to hear the complainant's objection. The court can ascertain the complainant's objection, if any, and close the proceedings unless it becomes necessary to proceed with the case. If the case proceeds, the accused must disclose a specific defence, and the trial can run day to day with an endeavour to conclude within six months.
• Avoid the biggest mistake. Do not treat readiness to pay, or a payee's refusal to accept payment, as automatic closure. Closure comes only through a court order after the court is satisfied that the complainant has been duly compensated. Otherwise appearance, disclosure of defence and trial may follow.