Bombay HC Allows Compounding of S.138 NI Act Offence Without Complainant’s Consent

LI Network

Published on: December 1, 2023 at 13:05 IST

The Bombay High Court has ruled that courts can compound offenses in check bounce cases under Section 138 of the Negotiable Instruments Act without the complainant’s consent, provided the accused apply for compounding at the initial stages of the case and adequately compensate the complainant.

Justice Anil Pansare of the Nagpur bench quashed a cheque bounce case against six out of twelve accused, subject to the condition that they deposit the cheque amount, along with interest and litigation costs, as compensation to the complainant.

The court emphasized that when the application for compounding offenses under Section 138 of the NI Act is made at the initial stage and the complainant is duly compensated, the trial court is fully justified in compounding the offense without the complainant’s consent.

The ruling came in response to an application by six individuals seeking compounding, which was initially rejected by the Additional Chief Judicial Magistrate in Nagpur.

The court stated that a piecemeal compromise and compounding of offenses concerning only some of the accused would be valid in appropriate cases.

The judgment was stayed for six weeks upon the complainant’s request, expressing the intention to challenge the order before the Supreme Court.

The case involved twelve entities accused of dishonoring a cheque amounting to Rs. 15 lakhs. The complainant alleged that the accused, including the applicants, issued a cheque to settle part of their liability for goods supplied.

However, the cheque bounced due to insufficient funds, leading to legal proceedings. The accused directors approached the High Court after the trial court refused to compound the offense.

The court rejected the complainant’s argument that adequate compensation should consider not just the value of the cheque but the entire dispute of alleged dues of Rs. 3 crores.

The court noted that the accused company is undergoing Corporate Insolvency Resolution Process, and the complainant has initiated recovery proceedings under the Insolvency & Bankruptcy Code, 2016. Withholding consent for compounding in such a case on the ground of owed dues amounts to an abuse of process of law, according to the court.

The compounding of offenses was granted with the condition that the applicants deposit Rs. 15,00,000 along with interest and additional litigation costs.

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