HC: There is no bar in settling Section 138, NI Act cases by utilizing Alternate Dispute Mechanisms, Read Judgment

21 Oct 2017

October 21,2017:

HC expounded that,“Party attempting to breach settlement and undertaking cannot be permitted to avoid making payment.”

Delhi HC has delivered a landmark judgment in relation to legal permissibility of referring the cases under Section 138, Negotiable Instrument Act for the amicable settlement through the mediation, procedure to be followed for the settlement and legal implications of the breach of such a settlement.

Delhi HC Bench of Acting Chief Justice of Delhi Gita Mittal and Justice Anu Malhotra, highlighted statutory provisions applicable to the cases under Section 138, NI Act and expounded that,

“There is thus no bar to utilizing Alternate Dispute Mechanisms including the arbitration, mediation, conciliation (which is recognized under the Section 89 of CPC) for purposes of settling the disputes which are subject matter of offences covered under the Section 320, Cr.P.C................there is no legal prohibition upon a court, seized of a complaint under NI Act, to encourage dispute resolution by recourse to the alternate dispute resolution methods including mediation”

Bench further enunciated that proceedings under the Section 138, NI Act have a special character. They arise from a civil dispute relating to the dishonouring to a cheque but may result in a criminal consequence. Even though statute is punitive in nature, however, its spirit, intent and object is to provide the compensation and ensure restitution as well which aspects must receive priority over the punishment.

High Court was hearing a matter between Dayawati who had filed a complaint under Section 138 against Yogesh Kumar Gosain who allegedly had a liability of Rs. 55,99,600 towards her.

Matter was referred to Delhi HC Mediation and Conciliation Centre, where both parties reached a settlement. However, accused failed to comply with terms of agreement and argued that settlement was not binding.

Metropolitan Magistrate Bharat Chugh had then referred matter to Delhi HC.

Court stated that,"In event that a criminal court passes order accepting mediated settlement between parties and directs the accused to make payment in terms thereof, settlement amount becomes payable under the order of the court. Such order having been passed in proceedings under Section 138 of the NI Act, would be an order under Section 147 of the NI Act and Section 320 of the Cr.P.C".

Court has also laid down exact procedure which is to be followed in the cases under the Section 138,NI Act wherein the mediation and mutual settlement are involved.

Bench concluded as under:

''In the event of default or non-compliance or breach of the settlement agreement by the accused person, the magistrate would pass an order under Section 431 read with Section 421 of the Cr.P.C. to recover the amount agreed to be paid by the accused in the same manner as a fine would be recovered.

Additionally, for breach of the undertaking given to the magistrate/court, the court would take appropriate action permissible in law to enforce compliance with the undertaking as well as the orders of the court based thereon, including proceeding under Section 2(b) of the Contempt of Courts Act, 1971 for violation thereof.

The settlement reached in mediation arising out of a criminal case does not tantamount to a decree by a civil court and cannot be executed in a civil court.

However, a settlement in mediation arising out of referral in a civil case by a civil court, can result in a decree upon compliance with the procedure under Order XXIII of the C.P.C. This can never be so in a mediation settlement arising out of a criminal case''.