Settlement-bound cheque dishonour complaint quashed where replacement cheque was honoured and withdrawal was agreed

Proceedings under Section 138 of the Negotiable Instruments Act were quashed where the dishonoured security cheques were covered by a settlement, replaced by a fresh cheque against the same liability, and the complainant had agreed to withdraw the complaint. The fresh cheque was honoured, and the complainant's attempt to continue the prosecution on the basis that the amount was adjusted towards other dues was inconsistent with the settlement terms. Continuation of the complaint and summons in these circumstances was treated as an abuse of the process of court, and all proceedings arising from the complaint were quashed.

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Issues: Whether the complaint under Section 138 of the Negotiable Instruments Act, 1881 and the summons issued thereon could be quashed in exercise of inherent powers when the cheque amount had been received under a settlement and the complainant had agreed to withdraw the complaint.

Analysis: The Memorandum of Agreement showed that the two dishonoured security cheques were replaced by a fresh cheque for Rs. 50 lakhs, issued against the same liability, and the complainant had agreed to withdraw the pending complaint. The fresh cheque was honoured, and the complainant's attempt to continue the cheque dishonour proceedings on the plea that the amount was adjusted towards other dues was inconsistent with the settlement. Since the complaint concerned dishonour of the two security cheques covered by the agreement, continuation of the proceedings in these circumstances amounted to abuse of the process of court.

Conclusion: The complaint, the summons order, and all proceedings emanating therefrom were quashed in favour of the petitioners.

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