2020 (1) TMI 412 - SC - Indian Laws

Dishonored Cheque from Lok Adalat Settlement Sparks Fresh Action Under Negotiable Instruments Act.

The SC set aside the HC's judgment that quashed proceedings under Section 138 of the Negotiable Instruments Act. The SC held that the dishonored cheque, ... Dishonor of Cheque - section 138 of NI Act - cheque was issued in discharge of any debt or liability of the company or not - HELD THAT:- In the instant case, the respondent clearly had a liability. As observed above, there was an earlier adjudication which led to the conviction of the respondent accused. Thus there was adjudication of liability of the respondent accused. While the appeal was pending, the matter was settled in the Lok Adalat in acknowledgment of liability of the accused respondent to the appellant complainant - The cheque issued pursuant to the order of the Lok Adalat, was also dishonoured. This clearly gave rise to afresh cause of action under Section 138 of the Negotiable Instruments Act. Every award of the Lok Adalat is, as held in K.N. Govindan Kutty Menon's case [2011 (11) TMI 783 - SUPREME COURT], deemed to be decree of a civil court and executable as a legally enforceable debt. The dishonour of the cheque gave rise to a cause of action under Section 138 of the Negotiable Instruments Act. The impugned judgment and order is misconceived. Appeal allowed - decided in favor of appellant. Issues:Appeal against order allowing application to dismiss complaint under Section 138 of Negotiable Instruments Act - Interpretation of settlement in Lok Adalat - Quashing of proceedings under Section 482 of CrPC.Analysis:The case involved an appeal against an order passed by the High Court allowing the accused respondent's application to dismiss a complaint under Section 138 of the Negotiable Instruments Act. The accused respondent had been convicted earlier in a similar case and a fine was imposed. However, a settlement was reached in a Lok Adalat, where the accused respondent issued a post-dated cheque which got dishonored, leading to a fresh complaint. The High Court quashed the proceedings, stating that the cheque was issued as part of a settlement and not to discharge any debt or liability. The Supreme Court disagreed, citing Lalit Kumar Sharma's case, which outlined the essential ingredients of Section 138 of the Act - a legally enforceable debt, issuance of the cheque for debt discharge, and cheque return due to insufficient funds. The Court distinguished Lalit Kumar Sharma's case from the present one, emphasizing that the accused respondent had a liability, as evidenced by the earlier conviction and settlement in Lok Adalat.The Supreme Court further referred to the case of K.N. Govindan Kutty Menon v. C.D. Shaji, where it was held that every award of the Lok Adalat is deemed to be a decree of a civil court and executable as a legally enforceable debt. The dishonour of the cheque in this case constituted a fresh cause of action under Section 138 of the Negotiable Instruments Act. The Court concluded that the High Court's judgment was misconceived and allowed the appeal, setting aside the impugned judgment and order.