Conviction under Section 138 of the NI Act cannot be confirmed overriding an agreement between parties to compound offence, the Supreme Court ruled recently. The division bench of Justices Krishna Murari and V Ramasubramanian (Case Title: BV Seshiah v. State of Telangana and Another), setting aside the High Court’s decision while placing reliance on its earlier decision in M/S Meters and Instruments Private Limited & Another v. Kanchan Mehta (2018), held that the nature of offence under Section 138 is primarily related to a civil wrong and has been specifically made a compoundable offence.
In this particular case, the Telangana High Court had confirmed the conviction of the appellant in a cheque dishonor case under Section 138 of the Negotiable Instruments Act, thereby, overriding the agreement between the parties to compound the offence. “In our view, the terms and conditions of the settlement entered into by the parties binds them to settle the dispute amicably, or through an arbitration as has been stated in clause 8 of the Memorandum Of Understanding. In such a circumstance, the Appellants cannot be convicted on the basis of the orders passed by the courts below, as the settlement is nothing but a compounding of the offence.
This is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation. When such a step has been taken by the parties, and the law very clearly allows them to do the same, the High Court then cannot override such compounding and impose its will,” the bench ruled setting aside the order of conviction passed by the trial court.