SUPREME COURT: CONVICTION UNDER SECTION 138 NI ACT NOT VALID ONCE PARTIES REACH SETTLEMENT:

The Supreme Court has recently held that once a complainant acknowledges receipt of the entire settlement amount by signing a compromise deed, a conviction under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) cannot be sustained. The Court accordingly set aside an order of the High Court that had refused to alter the conviction of the accused, despite a subsequent settlement having been reached between the parties.

The case arose after the accused had been convicted under Section 138 of the NI Act for dishonour of a cheque. His conviction was upheld in appeal and later in revision by the High Court. Following the dismissal of his revision petition, the accused filed an application before the High Court seeking modification of the conviction order on the basis of a compromise deed subsequently entered into with the complainant. Under the deed, the complainant had accepted payment in full and final settlement of the defaulted sum. However, the High Court rejected the application on the ground of non-maintainability.

Aggrieved, the accused approached the Supreme Court. A Bench comprising Justices Aravind Kumar and Sandeep Mehta heard the matter, which revolved around the issue of whether the offence under Section 138 could be compounded after the conviction had already attained finality, provided the parties voluntarily entered into a settlement.

The Court observed that once the complainant had, of his own free will and without coercion, signed a compromise deed accepting the entire amount in full and final settlement, the continuation of proceedings under Section 138 of the NI Act would be futile. In such circumstances, the concurrent findings of conviction rendered by the lower courts could not stand and were liable to be set aside.

In support of its reasoning, the Supreme Court relied upon the precedent laid down in *M/s. Gimpex Private Limited v. Manoj Goel* (2021). In that case, it had been held that when parties voluntarily enter into a settlement and agree to abide by its terms, they cannot subsequently seek to reverse its effects by pursuing both the original complaint and a subsequent complaint arising out of non-compliance with the settlement. The Court emphasised that the principle equally applies in cases where the accused has already been convicted, provided that the complainant has acknowledged settlement in unequivocal terms.

The Bench also drew attention to Section 147 of the NI Act, which makes offences under the Act compoundable in nature. It underscored that the object of introducing this provision was to promote settlement and resolution of cheque dishonour disputes rather than perpetuating criminal proceedings where the parties themselves have resolved the matter. The compounding of offences, being a beneficial provision, must be given full effect in cases where both parties have mutually settled their disputes.

Considering that the complainant had voluntarily accepted the settlement amount in full satisfaction of his claim, the Court held that the conviction under Section 138 NI Act was unsustainable. Accordingly, the Supreme Court allowed the appeal, set aside the High Court’s refusal to alter the conviction, and acquitted the appellant-accused.

This decision reinforces the principle that in cheque dishonour cases, the settlement between the complainant and accused takes precedence, and once a compromise is validly entered into, criminal proceedings lose their purpose.