Section 138 NI Act: Supreme Court Clarifies That Courts Cannot Compel Complainant to Compromise, Mere Repayment Not Enough to Absolve Accused

The Supreme Court of India has once again reinforced the legal position under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) regarding cheque bounce cases. In a significant ruling, the Court has held that mere repayment of the cheque amount does not automatically absolve the accused, nor can courts force the complainant to consent to the compounding of the offense.

Understanding Section 138 of the NI Act

Section 138 of the NI Act makes dishonor of a cheque for insufficient funds a criminal offense. The provision is aimed at ensuring the credibility of cheque transactions and penalizing those who issue cheques without maintaining adequate funds. If a cheque bounces and the drawer (accused) fails to make the payment within 15 days of receiving a legal notice, the complainant can initiate legal proceedings.

The punishment under Section 138 includes:

• Imprisonment for up to two years, or

• Fine up to twice the cheque amount, or

• Both imprisonment and fine.

Supreme Court’s Ruling: Repayment Alone Won’t Quash the Case

In a recent judgment, the Supreme Court clarified that an accused in a cheque bounce case cannot escape liability merely by repaying the amount to the complainant. The Court observed that:

1. Criminal liability under Section 138 is independent of repayment:

• The offense of cheque dishonor is complete when the cheque is returned unpaid due to insufficient funds.

• Repayment after legal proceedings have started does not automatically wipe out the offense.

2. Compounding of the offense requires complainant’s voluntary consent:

• Under Section 147 of the NI Act, an offense under Section 138 is compoundable, meaning the parties can settle the matter and close the case.

• However, the complainant cannot be compelled by the court to agree to such a settlement.

3. Courts cannot act as recovery agents:

• The Supreme Court has reiterated that criminal courts are not debt recovery forums.

• The primary objective of Section 138 is deterrence—ensuring the credibility of cheques, rather than merely facilitating recovery of money.

Implications of the Judgment

This ruling has far-reaching consequences for both complainants and accused persons in cheque bounce cases:

• For complainants: The judgment empowers them by affirming that they are not obligated to accept settlements or withdraw the case if they do not wish to.

• For accused persons: Simply making the payment after the case is filed does not entitle them to an automatic acquittal.

• For courts: They must ensure that compounding is voluntary and not imposed upon the complainant.

Conclusion

The Supreme Court’s ruling reinforces that Section 138 NI Act cases are not just civil recovery disputes but also involve criminal liability. While settlement is encouraged, it must be done voluntarily, and the complainant cannot be forced into an agreement. Accused persons should not assume that they can escape punishment by merely repaying the cheque amount after proceedings begin.

This landmark judgment serves as a reminder that cheque bounce cases are meant to uphold financial discipline and credibility in commercial transactions, rather than merely acting as a tool for monetary recovery.