Section 138 Of The NI Act: Balancing The Civil & Criminal Intents

The object of introducing Section 138 in the Negotiable Instruments Act, 1881 (hereinafter referred to as "NI Act") is to enhance the acceptability of cheques in the settlement of liabilities. The drawer of cheque is made liable to prosecution on dishonor of cheque with safeguards to prevent harassment to honest cheque bearers. The object of the provision is to facilitate smooth functioning of any transaction between the drawer and the bearer. The provision proves out to be very helpful and indeed necessary as there were several cases of frauds and it was high time that people were made to realize the seriousness of issuing a cheque as a financial instrument. Dishonor of cheque not only causes incalculable loss, injury and inconvenience to the payee but also brings a huge setback to the credibility of business transactions involved therein.

A Division Bench of the Hon'ble Delhi High Court (hereinafter referred to as the "HC") in its recent judgment delivered on October 17, 2017, in a matter titled as "Dayawati vs. Yogesh Kumar Gosain", passed in a Criminal Reference No. 1 of 2016, has laid down the law relating to the legal permissibility of referring a complaint case under Section 138 of NI Act for amicable settlement through mediation, procedure to be followed upon settlement and the legal implications of breach of the mediation settlement. The HC has held that it is legal to refer a criminal compoundable case as one under Section 138 of the NI Act to mediation.

Reference to HC:

A Metropolitan Magistrate of the Ld. Tis Hazari Court (hereinafter referred to as the "MM") while hearing a Complaint Case Nos. 519662/64 of 2016 under Section 138 of the NI Act referred the following questions for the consideration of the HC:

What is the legality of referral of a criminal compoundable case (such as one under Section 138 of NI Act) to mediation? Can the Mediation and Conciliation Rules, 2004 formulated in exercise of powers under the CPC, be imported and applied in criminal cases? If not, how to fill the legal vacuum? Is there a need for separate rules framed in this regard [possibly u/s 477 of the Code of Criminal Procedure (hereinafter referred as "CrPC")]? In cases where the dispute has already been referred to mediation - what is the procedure to be followed thereafter? Is the matter to be disposed of taking the very mediated settlement agreement to be evidence of compounding of the case and dispose of the case, or the same is to be kept pending, awaiting compliance thereof (for example, when the payments are spread over a long period of time, as is usually the case in such settlement agreements)? If the settlement in Mediation is not complied with - is the court required to proceed with the case for a trial on merits, or hold such a settlement agreement to be executable as a decree? If the Mediated Settlement Agreement, by itself, is taken to be tantamount to a decree, then, how the same is to be executed? Is the complainant to be relegated to file an application for execution in a civil court? If yes, what should be the appropriate orders with respect to the criminal complaint case at hand? What would be the effect of such a mediated settlement vis-à-vis the complaint case? Factual Matrix

Smt. Dayawati (hereinafter referred to as the "Complainant") filed a complaint under Section 138 of the NI Act, complaining that Shri Yogesh Kumar Gosain (hereinafter referred as the "Respondent") had a liability of...