Negotiable Instruments Act,1881 under sections 138 to 142 deals with offence and prosecution for dishonour cheques which were brought into force with effect from 1st April 1989 by Section 4 of the Banking Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988. The key purpose of the Act was to encourage use and credibility of cheques and to discourage issuance of cheques without providing for its encashment.

When certain insufficiency was found in dealing with cases of dishonour of cheques, some significant amendments were made to the NI Act effective from 6th February 2003. New Sections 143 to 147 were inserted empowering the Magistrate to adopt a summary trial for expeditious disposal within 6 months, to levy fine double the amount of cheque. More specifically Section 147 permits parties to compound the offence.

Section 147 of the Act deals with the compounding of offences in which a complainant, in exchange for monetary consideration, comes to an agreement as to not to prosecute the accused. There are minor as well as serious offences. In case of serious offences, compounding of such offences are possible by the victim of the offence only with the permission and exercise of the revisional powers of the High Courts and Sessions Court. Compounding is an act in which a complainant agrees not to prosecute the accused in exchange for money or other consideration. The net result is that the accused is relieved of the likely punishment.

According to section 147, Notwithstanding anything contained in the Code of Criminal Procedure, 1973, every offense punishable under this Act shall be compoundable. It would be apparent from the non-obstante clause, the provisions of the Code of Criminal Procedure, 1973 does not apply to compounding of an offence under the NI Act.

Before the insertion of Section 147 of the NI Act, for compounding the offence under NI Act, provisions of Section 320 of CrPC were applicable. The offences mentioned therein can be grouped into two categories namely serious and minor offenses. In the case of serious offences, compounding is permitted by the victim only with the permission of court. The high court or court of Sessions exercising its revisional powers may permit compounding of the offence in the manner as provided by that section.

In the case of an offence under Section 138 of NI Act, the legislature thought it fit to allow compounding without the leave of the court as usually dishonour of cheque arises out of commercial transactions between private parties. For this cause, only Section 147 starts with a non-obstante clause to bring it out of the purview of section 320 of CrPC.

Compounding as a Right

A doubt may emerge whether compounding is a right conferred on the Accused or such right is subject to the consent of the complainant. This matter has come up for consideration by Delhi High court in the case of Ranjita Mittal & Ors Vs State of Delhi. In this case, the accused filed a petition under section 482 of Cr. PC before the Delhi high court for quashing the proceedings of the lower court which convicted him. The Lower court dismissed the Petitioner’s prayer for compounding of the offense even though he had tendered the amount of the cheque due to objection from the complainant for compounding. The complainant submitted to the court that the accused is liable to pay more sum than the tendered amount. Hence the complainant is not inclined to give his consent form for compromise.

Award of Compensation

An issue arose whether Cheque dishonor cases are meant to punish the accused or meant to recover the cheque amount. This matter was considered in detail by the Apex court in the case R VijayanVs Baby and Anr., reported in AIR,2012SC528.

The apex court observed as follows:

The obvious intention is to make sure that not only the offender is punished, but also to make sure that the complainant invariably receives the amount of the cheque by way of compensation under section 357(1)(b) of the Code. However a complaint under section 138 of the Act is in regard to criminal liability for the offense of dishonoring the cheque and not for the recovery of the cheque amount,(which has to be enforced by a civil suit), in practice once the criminal complaint is lodged under section 138 of the Act, a Civil suit is seldom filed to recover the amount of the cheque.

Case Laws

Damodar S Prabhu Vs Sayed Babalal H reported in 2010(5) SCC 663 

The Hon’ble Supreme court, in this case, observed that section 147 does not carry any guidance as to how to proceed with the compounding of offences. Furthermore, the provisions of Section 320 of CrPC also cannot be applied. The Hon’ble Apex Court by exercising its power under Article 142 of the constitution laid down guidelines for encouraging compounding at the earliest stage. According to the guidelines, payment of costs as per laid downscale has been made a pre-condition for enabling compounding of the offence. The scale laid down is the following as under

1. If the application is made before the Magistrate at the first or second hearing of the case, compounding may be allowed without fine. However if the application is made at a later stage, compounding may be permitted by imposing costs up to 10% of the cheque amount.
2. 15% of cheque amount if compounding is preferred in appeal either before high court or sessions court
3. 20% of the cheque amount if compounding is sought before the Apex court for wasting the precious time of the courts

HitekIndustries Ltd. & Ors. Vs State of Delhi & Anr 173(2010) DLT 712,

In this case, it was upheld that the word compromise itself signifies an agreement between the two parties to compound the offence. If the parties do not agree to compound the offence, the court has to proceed with the complaint.

Conclusion 

So it can be concluded that fraudulent drawers must be made to pay for not only the cheque amount, but also compensation for the extended litigation and also that compounding is possible only when both the parties agree to it.