Cannot confirm conviction under Section 138 NI Act overriding agreement between parties to compound offence: Supreme Court

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The Supreme Court on Wednesday held that when parties to a litigation have entered into an agreement to compound an offence, the High Court cannot override such an agreement and impose its will on parties [BV Seshiah v. State of Telangana and Another].

A division bench of Justices Krishna Murari and V Ramasubramanian was hearing an appeal against a decision of the Telangana High Court which had confirmed the conviction of the appellant in a cheque dishonor case under Section 138 of the Negotiable Instruments Act, thereby, overriding the agreement between the parties to compound the offence.

“When such a step (of compounding) has been taken by the parties, and the law very clearly allows them to do the same, the High Court then cannot override such compounding and impose its will,” the top court held

As per the facts of the case, proceedings under Section 138 were initiated against the appellants. The accusation against the appellant was that under the guise of making investments, the appellant took money from respondent and made wrongful gain for profits.

The appellant was convicted by the trial court and a revision petition was filed before the High Court. However, during the pendency of the revision plea, the parties to litigation entered into a Memorandum of Understanding to settle the dispute among themselves.

Clause 8 of the memorandum stated that the dispute was to be settled amicably, and in the event of the dispute still not being amicably resolved, it must be first referred to a sole arbitrator.

However, as per the terms of the agreement, the respondent was bound to file a compromise petition before the High Court but he failed to do so.

Due to the same, the High Court dismissed the revision petition and confirmed the conviction of the appellant.

Disapproving such an approach by the High Court convicting the appellant, the Supreme Court observed:

“In our view, the terms and conditions of the settlement entered into by the parties binds them to settle the dispute amicably, or through an arbitration as has been stated in clause 8 of the Memorandum Of Understanding. In such a circumstance, the Appellants cannot be convicted on the basis of the orders passed by the courts below, as the settlement is nothing but a compounding of the offence.”

The Court also placed reliance on its decision in M/S Meters and Instruments Private Limited & Another v. Kanchan Mehta (2018), to hold that the nature of offence under Section 138 is primarily related to a civil wrong and has been specifically made a compoundable offence.

Therefore, the Court was of the view that this was a clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation.

“It must also be noted that the Respondent No.2 was duty bound to file a compromise petition before the High Court, and by not doing the same has withdrawn key information from the High Court, which has led to an unwarranted confirmation of the Appellants’ conviction,” the apex court said.

Therefore, the Court allowed the appeal and set aside the conviction of the appellant.

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