Home / Latest News / Mediation in Cheque Bounce Cases: A critical analysis of DB Judgment on Sec.138 NI Act Cases

Mediation in Cheque Bounce Cases: A critical analysis of DB Judgment on Sec.138 NI Act Cases

October 22, 2017:

Dayawati vs Yogesh Kumar Gosain Judgement of Delhi High Court dt 17.10.2017, it has the potential to diminish the value of cheque transaction instead of enhancement.

Issue of Cheque Dishonour
Issue of Cheque Dishonour

In Delhi the courts were facing difficulties due to innovative techniques adopted by the persons accused of offence of cheque dishonour. One of the Magistrates taken upon himself to raise the issue before appropriate forum and therefore apparently sent a reference under Section-395 CrPC to the Delhi High Court.

Recently, a division bench has decided the said reference and come to certain conclusion. The website of Delhi High Court is showing the case as Dayawati vs Yogesh Kumar Gosain Crl.Ref. No.-1 of 2016. The date of decision is 17.10.2017.

One of the issues taken and concluded in the said judgment is the question as to whether a criminal compoundable case could be sent for mediation. Mediation in Delhi is governed by the Mediation and Conciliation Rules, 2004 as notified by the Delhi High Court.

This provides as “The Rules will apply to all mediation and conciliation connected with any suit or other proceeding pending in the High Court of Delhi or in any other subordinate to the High Court of Delhi”.

One can at a bare glance say that the mediation procedure applies not only to a suit but also to “other proceeding” as indicated in the rules. Division bench has also held the same thing. Before however accepting the proposition as correct, one should look into the powers which were invoked for framing the Mediation and Conciliation Rules, 2004. Reason is obvious. If the powers invoked had no concern with the criminal proceedings, the term “other proceeding” will not include any criminal case at all.

The Rules indicates the powers invoked as “In exercise of the rule making power under Part X of the Code of Civil Procedure, 1908 (5 of 1908) and clause (d) of sub-section (2) of Section 89 of the said Code and all other powers enabling it in this behalf, the High Court of Delhi hereby makes the following rules”.

What becomes immediately clear is that the mentioned powers relate to the Civil Procedure Code. Therefore, the same cannot apply to criminal cases. However, the Delhi High Court has relied heavily upon the expression “all other powers enabling it in this behalf”. Division bench apparently referred to Section-477 of CrPC and Article-227 of the Constitution to indicate that High Court were having powers to make rules even for the purposes of criminal cases.

The apparent inference is that the division bench wanted to base its conclusion on the point that the “all other powers enabling it in this behalf” can be treated as referring to Section-477 of CrPC and Article-227 of Constitution and therefore, the Mediation Rules should be treated as having made also within the powers referable to Section-477 of CrPC and Article-227 of Constitution and as such, the Mediation Rules were applicable to criminal cases.

It is then at this stage, we have to look into these provisions carefully.

Section-477 CrPC reads as “Section 477 CrPC. Power of High Court to make rules.—

(1) Every High Court may, with the previous approval of the State Government, make rules-

(a) as to the persons who may be permitted to act as petition-writers in the Criminal Courts subordinate to it;

(b) regulating the issue of licences to such persons, the conduct of business by them, and the scale of fees to be charged by them;

(c) providing a penalty for a contravention of any of the rules so made and determining the authority by which such contravention may be investigated and the penalties imposed;

(d) any other matter which is required to be, or may be, prescribed.

(2) All rules made under this section shall be published in the Official Gazette”.

No doubt, Clause-(d) indicates that rules may be made for any matter on which rules are required to be made. Further, Section-477 clearly gives power to the High Court to frame rules under this section. What is however significant is that the power can be exercised by the High Court only with the previous approval of the state government. This is very significant.

Similarly, Article-227 of the Constitution reads as “Article 227. Power of superintendence over all courts by the High Court.-

(1) Every High Court shall have superintendence over all courts and tribunals throughout the territories in relation to which it exercises jurisdiction.

(2) Without prejudice to the generality of the foregoing provision, the High Court may-

(a) call for returns from such courts;

(b) make and issue general rules and prescribe forms for regulating the practice and proceedings of such courts; and

(c) prescribe forms in which books, entries and accounts shall be kept by the officers of any such courts.

(3) The High Court may also settle tables of fees to be allowed to the sheriff and all clerks and officers of such courts and to attorneys, advocates and pleaders practising therein: Provided that any rules made, forms prescribed or tables settled under clause(2) or clause (3) shall not be inconsistent with the provision of any law for the time being in force, and shall require the previous approval of the Governor.

(4) Nothing in this article shall be deemed to confer on a High Court powers of superintendence over any court or tribunal constituted by or under any law relating to the Armed Forces”.

Again it is clear that sub-clause-(b) empowers the High Court to issue general rules regulating the practice and proceedings of all subordinate courts. However, significantly, the proviso clarifies that the Rules shall be made only with the previous approval of the Governor.

The aforesaid clearly shows that for making any rule under Section-477 of CrPC or Article-227 of the Constitution, the High Court could have acted only after approval of the State Government or the Governor as the case may be. Entire, Mediation Rules nowhere say that the same were made after previous approval of State Government or the Governor.

However, even for a moment it is assumed that the Rules were made with the previous approval, one has to seriously look into the question as to whether the approval was specific or not and attention of approving authority was drawn to the fact that he was giving approval vis a vis Section-477 of CrPC or Article-227 of the Constitution or in respect of any other provision of law.

If the previous approval is referable to any other provision of the law, the same cannot be treated as being given vis a vis Section-477 of CrPC or Article-227 of the Constitution and as such, the Rules so made cannot fall within the ambit of having been made under Section-477 of CrPC or Article-227 of the Constitution only because in the Rules an expression “all other powers enabling it in this behalf” is mentioned though the substantive power invoked therein relates to some other pro vision of law.

CrPC otherwise does not prescribe any mode or manner in which a settlement between parties can be arrived at for the purposes of compounding. Since legislation is silent, the rules may supplement. The mode and manner of settlement for compounding may be required and therefore the same may be prescribed also.

Section-2(t) of CrPC provides the meaning of prescribed as “means prescribed by rules made under this Code”. Therefore, rules may be made to prescribe the mode and manner of settlement which is required. This mode and manner can certainly include a system which may facilitate the parties in arriving at a settlement and such system may be anything including mediation.

Needless to say that unless there are some contrary statutory provisions for compounding for offenes under statutes other than IPC, the provisions of CrPC have to be followed in terms of Section-4 CrPC. Similarly, Article-227 may also be invoked to frame such general Rules for mode and manner of compounding.

It is hard to find compoundable offences for which any statutory provisions exist for the mode & manner of settlement. As such, the above proposed rules may also apply to all compoundable offences including the offence of cheque dishonor punishable under Section-138 NI Act.

Presently, unless the DB judgment is treated as a judicial legislation, it would be hard to accept that a criminal case can be sent for mediation.

So far the path laid down by the division bench is concerned, it has the potential to diminish the value of cheque transaction instead of enhancement for which the Section-138 NI Act was enacted.

It has completely changed a criminal offence to a civil wrong though has used a nomenclature of quasi-civil in respect of the offence. In terms of General Clauses Act, 1897 everything which is punishable is an offence. There is no doubt that Section-138 provides for punishment and therefore it will become an offence and in the absence of any contrary proposition, it will have to be dealt with as an offence under CrPC. Neither General Clauses Act nor the CrPC anywhere talks about quasi nature of anything which is punishable in law.

Be that as it may. It is one thing to say that the primary concern of cheque bounce cases is the compensatory aspect but it is entirely a different thing to say that on account of that reason the activity does not remain an offence or becomes something called quasi-civil thing contrary to what is prescribed in the General Clauses Act.

Comparison with petition under Section-125 CrPC is completely fallacious. Section-125 CrPC does not provide for punishment in a manner to bring it within the definition of offence under General Clauses Act unlike Section-138 NI Act which so provides. There cannot be any comparison between these two provisions at all.

The DB judgment has given another tool in the hands of smart accused to frustrate the purpose of the law. It has held that once mediation settlement gets the nod of the court through the process as explained in the judgment, the court shall pronounce an acquittal and the settlement amount will become a money payable on the order of the court and therefore, in the event of breach it will be recoverable under Section-431 CrPC.

We will deal with following situations to understand the repercussion:

Situation-1:– The smart accused settles the matter for an amount to be paid in 4 installments. Court follows the procedure as explained in the judgment and thereafter acquits the accused on compounding. Court now becomes functuous officio for that matter. Accused however now chooses to defy his commitment and does not pay any amount to the complainant. The complainant comes before the court and applies for action.

Now, in terms of DB judgment only two options are available. First, it may direct recovery of amount by virtue of Section-431 CrPC or may send a reference for civil contempt to the High Court. Be it noted that once acquitted, the concerned person could not be treated as an accused and therefore any coercive process can hardly be issued against him for securing his appearance.

Now anyone can say that in Delhi, recovery of money through a warrant of attachment is one of the most difficult things and it hardly succeeds. So far as contempt is concerned, the maximum the High Court can do is to impose a fine of Rs.2,000/- or to send the person in civil prison for a maximum period of 6 months. Anyone can say that sentencing in contempt jurisdiction is rare. Apart from this, the sentencing for civil contempt will never be treated as sufficient in these cases. The complainant will have nothing really to gain. That apart, the High court will be flooded with contempt references for cheque bounce cases. The situation will lead to increase in pendency without having any fruitful result for the complainant.

Situation-2:- Accused is a company and is represented through an authorized representative. Matter settled, process followed, accused acquitted, money not paid. Again both the aforesaid situation. Present situation will be more glaring. In contempt jurisdiction, the High Court can only impose a fine of Rs.2,000/- on the company. There is nothing for the complainant. Recovery of money through attachment in respect of company is more difficult than recovery from an individual.

Situation-3:- Accused is a company and is represented through an authorized representative. One director is also an accused. Since the liability of cheque was primarily of the company, it taken on itself to pay the amount. Matter settled, process followed, accused acquitted, money not paid.

Here, individual accused director cannot be treated as liable for anything and now he has already been acquitted. Only proceeding for contempt and recovery can be done against the company. We have already dealt with the situation in respect of the company. There is again nothing for the complainant.

Situation-4:- There is a smart complainant. Matter settled, process followed, accused acquitted, money paid. However, the complainant comes to the court and files an application that money was not paid completely and action be taken. The accused now has to fight despite having paid the amount.

Though the division bench judgment has not talked about but one may think of another way by saying that since the amount has become payable under Section-431 CrPC, in the event of non-recovery thereof even through warrant of attachment, a default sentence can be imposed on the line of compensation.

This may or may not be done. But even if it is done, the person concerned will not be liable for default imprisonment of more than 6 months. Further, a default imprisonment is not akin to substantive imprisonment. This will hardly be satisfactory.

The judgment has the potential to lead to disastrous result and will diminish the value of cheque transaction instead of enhancing it which was the sole basis for enacting Section-138 in the statute book.

Team Latest Laws

Read Judgment @ Latest Laws:

Judgement on Mediation in Cheque Bounce Cases under Section 138 NI Act (Downloadable PDF)

Judgement on Mediation in Cheque Bounce Cases Under Section 138 NI Act by Latest Laws Team on Scribd

Realted News-

21.10.2017 – HC: There is no bar in settling Section 138, NI Act cases by utilizing Alternate Dispute Mechanisms, Read Judgment

3.11.2016 – Mediation in Cheque Dishonour Cases: Legality and Binding effect by Bharat Chugh

Law Commission Report No. 213- Fast Track Magisterial Courts for Dishonoured Cheque Cases

18.9.2015 – Even though dishonoured Cheque was for Security purpose, there is no escape from Criminal Liability

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