Conditional compromise cheque does not extinguish Section 138 liability when settlement remains unfructified.

A cheque issued during an unfructified compromise did not, by itself, create a fresh discharge of debt or liability so as to justify dismissal of a pending complaint under Section 138 of the Negotiable Instruments Act. The record showed that the compromise had not been concluded, the complainant's acceptance of the cheque was conditional on encashment and later approval of the compromise deed, and the earlier order itself noted that settlement had failed. The Delhi HC held that the complaint remained maintainable and that dismissal on the footing of a completed compromise was unsustainable; the matter was directed to proceed before the competent court.

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Issues: Whether the complaint under Section 138 of the Negotiable Instruments Act could be dismissed on the footing that a complete compromise had been arrived at between the parties and that the cheque issued during the proceedings created a fresh cause of action.

Analysis: The dismissal of the complaint could not rest on a supposed settlement when the record showed that the compromise had not fructified. The complainant's acceptance of the cheque was conditional, tied to encashment and further approval of the compromise deed after consultation, and the order dated 1.11.2003 itself recorded that the matter could not be compromised. A cheque issued in terms of an uncompleted compromise does not, by itself, create a new liability or convert the dispute into a concluded settlement attracting dismissal of the pending complaint. In such circumstances, the complaint under Section 138 remained maintainable.

Conclusion: The dismissal of the complaint was unsustainable. The appeal was allowed and the complaint was directed to be placed before the competent court for further proceedings.

Ratio Decidendi: A cheque issued conditionally in the course of an unfructified compromise does not create a fresh discharge of debt or liability so as to warrant dismissal of a pending complaint under Section 138 of the Negotiable Instruments Act.

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