Cheque Bounce Case Settled: Supreme Court Sets Aside Conviction Under Negotiable Instruments Act

The case of M/S Bhangu Trading Company & Anr. vs. Surjit Singh (Dead) Through LRS is a significant ruling concerning the Negotiable Instruments Act, 1881, particularly Section 138, which deals with cheque dishonor cases. The Supreme Court was asked to decide whether a conviction under Section 138 could be set aside when both parties reached a settlement after the High Court’s ruling.

Background of the Case

The dispute arose when a cheque issued by the appellants, M/S Bhangu Trading Company & Anr., was dishonored due to insufficient funds. The respondent, Surjit Singh, filed a complaint under Section 138 of the Negotiable Instruments Act, which makes cheque dishonor a criminal offense if the drawer fails to make payment within 15 days of receiving notice.

The trial court convicted the appellants and imposed a sentence, which was upheld by the High Court. However, during the pendency of the appeal before the Supreme Court, both parties reached a settlement, and the complainant confirmed that the cheque amount had been received.

Legal Issues Raised

1. Can a Conviction Under Section 138 Be Set Aside After Settlement?

Does the Supreme Court have the authority to quash a conviction under Section 138 when both parties reach a compromise?

2. Scope of Judicial Discretion Under Article 142

Should the Court exercise its special powers to do complete justice in cases where the complainant no longer wishes to pursue the matter?

3. Role of Settlement in Criminal Cases

Should a financial dispute leading to criminal proceedings under the Negotiable Instruments Act be allowed to conclude through settlement?

Arguments by the Parties

Arguments by the Appellants (M/S Bhangu Trading Company & Anr.)

• The matter had been amicably resolved, and the complainant had received the entire cheque amount.
• Since the complainant no longer wanted to pursue the case, the conviction and sentence should be set aside.
• The Supreme Court had previously exercised its powers under Article 142 of the Constitution to quash criminal proceedings in cases where the parties settled the dispute.

Arguments by the Respondent (Surjit Singh Through Legal Representatives)

• The complainant had received the full amount, and there was no longer any grievance against the appellants.
• The objective of Section 138 is to ensure the drawer of the dishonored cheque fulfills their financial obligations, which had already been done.
• Given the settlement, there was no purpose in continuing the criminal conviction.

Supreme Court’s Observations

1. Settlement Ends the Dispute

The Supreme Court acknowledged that the complainant had received the cheque amount and stated:

“In the peculiar facts and circumstances, we are of the view that since the parties have settled the disputes, to do complete justice, the disputes should be given a quietus, subject to appropriate terms.”

2. Setting Aside Conviction

The Court ruled that since the dispute was purely financial and had been resolved, the conviction and sentence should be set aside. The judgment stated:

“Accordingly, these appeals are allowed, and the conviction and sentence imposed on the appellant(s) is set aside.”

3. Imposing Costs for Closure

The Supreme Court imposed a cost of Rs. 10,000 on the appellants, payable to the State Legal Services Authority, as a condition for setting aside the conviction:

“The appellant(s) are directed to pay an amount of Rs.10,000/- (Rupees Ten Thousand) as costs to the State Legal Services Authority, within a period of three weeks from today.”

Final Judgment

The Supreme Court disposed of the case with the following orders:

• The conviction and sentence under Section 138 of the Negotiable Instruments Act were set aside.
• The appellants were required to pay Rs. 10,000 as costs.
• All pending applications were disposed of.

Implications of the Judgment

This ruling has significant implications for cheque dishonor cases and financial dispute resolution:

• Encourages Settlements: Reinforces that disputes under Section 138 can be amicably resolved.
• Reduces Unnecessary Criminal Proceedings: Allows courts to quash convictions when complainants no longer wish to pursue the case.
• Ensures Compliance with Financial Obligations: Prioritizes payment of dues over punitive measures.
• Clarifies Judicial Discretion: Affirms the Supreme Court’s power to grant relief under Article 142.

Conclusion

The case of M/S Bhangu Trading Company & Anr. vs. Surjit Singh (Dead) Through LRS highlights the Supreme Court’s pragmatic approach in cheque dishonor cases. By setting aside the conviction after settlement, the Court reinforced the principle that the primary objective of Section 138 is to ensure financial obligations are met, rather than impose criminal liability. This ruling serves as an important precedent for future cases where financial disputes can be resolved through compromise.

Petitioner Name: M/S Bhangu Trading Company & Anr..
Respondent Name: Surjit Singh (Dead) Through LRS.
Judgment By: Justice Kurian Joseph, Justice Sanjay Kishan Kaul.
Place Of Incident: India.
Judgment Date: 02-07-2018.

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