Bombay HC allows compounding of cheque dishonour offence under Section 482 CrPC despite creditor objections

The Bombay HC allowed compounding of a cheque dishonour offence despite objections from a non-applicant creditor. The Court found that six out of twelve accused could seek compounding at the third hearing, which was still considered an initial stage. The non-applicant's refusal to consent based on separate dues of Rs. 3 crores was deemed an abuse of process, as recovery matters would be addressed through IBC proceedings before the IRP. The Court exercised jurisdiction under Section 482 CrPC, noting its wider scope than Section 320 CrPC, and allowed the criminal application considering the peculiar circumstances.

---

---

Issues Involved:
1. Validity of the rejection of the application for compounding the offence under Section 138 of the Negotiable Instruments Act, 1881.
2. Interpretation and application of the guidelines laid down by the Supreme Court in Damodar S. Prabhu vs. Sayed Babalal and Meters and Instruments Private Limited vs. Kanchan Mehta.
3. The impact of insolvency proceedings on the compounding of offences under the NI Act.
4. The permissibility of piecemeal compounding of offences.

Summary:

Issue 1: Validity of the rejection of the application for compounding the offence under Section 138 of the NI Act

The applicants were aggrieved by the order dated 03.11.2022, passed by the Magistrate, which rejected their application for compounding the offence upon full payment of the cheque amount. The Magistrate's decision was based on the non-applicant no.2's refusal to compound the offence, relying on the judgment in JIK Industries Limited vs. Amarlal V. Jumani.

Issue 2: Interpretation and application of the guidelines laid down by the Supreme Court

The applicants contended that the Magistrate's order did not consider the Supreme Court's guidelines in Damodar S. Prabhu vs. Sayed Babalal, which allow compounding at any stage without the complainant's consent if the accused compensates the complainant adequately. The Supreme Court's guidelines in Damodar's case were intended to reduce the pendency of Section 138 cases by encouraging early compounding. The Court noted that the guidelines should be followed to encourage settlement, especially at the initial stages of litigation.

Issue 3: Impact of insolvency proceedings on the compounding of offences under the NI Act

The applicants argued that the non-applicant no.2 had already filed its claim before the Interim Resolution Professional (IRP) under the Insolvency and Bankruptcy Code (IBC), and the Resolution Plan had been accepted. Therefore, the liability under the cheque had been satisfied through the Corporate Insolvency Resolution Process (CIRP). The Court found that the non-applicant no.2's refusal to consent to the compounding on the grounds of pending dues was an abuse of the process of law.

Issue 4: Permissibility of piecemeal compounding of offences

The Court referred to various judgments, including the Allahabad High Court's decision in Gaganpal Singh Ahuja vs. State of U.P., which recognized piecemeal compounding in appropriate cases. The Court concluded that in the present case, the non-applicant no.2 was adequately compensated by the applicants' offer to pay the cheque amount along with interest and litigation costs. Therefore, the compounding of the offence was permissible even without the complainant's consent.

Order:

The Court allowed the Criminal Application No.566/2023, set aside the impugned order dated 03.11.2022, and compounded the offence under Section 138 of the NI Act, subject to the applicants depositing the cheque amount with interest and litigation costs within fifteen working days. The applicants would be discharged upon depositing the demand draft in the trial Court. The request for a stay of the judgment's effect was granted for six weeks to allow the respondent no.2 to challenge the order before the Supreme Court.

---