Lok Adalat settlement cheques can trigger Section 138 liability when issued against an existing enforceable debt and dishonoured.

A cheque issued pursuant to a Lok Adalat settlement in acknowledgment of an existing liability can attract Section 138 of the Negotiable Instruments Act if dishonoured. The Court noted that the settlement was entered into after an earlier conviction, so the cheque was not a mere settlement instrument divorced from liability. Because a Lok Adalat award is deemed to be a decree, it creates a legally enforceable obligation. The earlier authority cited was distinguishable on its facts, as the cheque there was not issued in discharge of an existing debt. Accordingly, the complaint was maintainable and quashing of the proceedings was unsustainable.

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Issues: Whether a cheque issued in pursuance of a Lok Adalat settlement, when dishonoured, gives rise to a fresh cause of action under Section 138 of the Negotiable Instruments Act.

Analysis: The complaint was not founded on a mere settlement cheque divorced from liability. There had been an earlier adjudication resulting in conviction of the accused, and the compromise before the Lok Adalat was entered into in acknowledgment of that liability. An award of the Lok Adalat is deemed to be a decree and, therefore, supports a legally enforceable obligation. Once the cheque issued pursuant to that settlement was dishonoured, the ingredients of Section 138 stood attracted. The earlier decision relied upon was distinguishable because, on its facts, the cheque there was not issued in discharge of an existing liability.

Conclusion: The complaint under Section 138 was maintainable and the quashing of the proceedings was unsustainable.

Ratio Decidendi: A cheque issued pursuant to a Lok Adalat settlement in acknowledgment of an existing liability, if dishonoured, can found a fresh prosecution under Section 138 of the Negotiable Instruments Act because the settlement award constitutes a legally enforceable debt.

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