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Court norms for compounding in cheque bounce cases

J. Venkatesan


Compounding may be allowed at the first or second hearing without costs

Varying percentages for this option at different stages of appeal


NEW DELHI: The Supreme Court has formulated guidelines to nudge litigants in cheque bounce cases to opt for compounding of offences during the early stages of the dispute without imposing costs on the accused.

The court said varying percentages of costs would be imposed on the accused if compounding of offences was opted for at different stages of appeal.

Under the Negotiable Instruments Act, if a cheque is dishonoured for insufficiency of funds in the drawer's account or if it exceeds the amount arranged to be paid from that account, the drawer will be punished with imprisonment for a term which may extend to two years, or with a fine which may extend to twice the cheque amount or with both.

A Bench of Chief Justice K.G. Balakrishnan and Justices P. Sathasivam and J.M. Panchal, disposing of a batch of appeals, said compounding of offences might be allowed by the court at the first or second hearing without imposing costs on the accused.

If the accused made an application before the magistrate concerned at a subsequent stage, compounding could be allowed on condition that he deposited 10 per cent of the cheque amount with the Legal Services Authority.

If the application was made before the Sessions or High Court in revision or appeal, compounding might be allowed on the accused paying 15 per cent of the cheque amount. If the application was made in the Supreme Court, the amount payable would increase to 20 per cent. The Bench — quoting a Law Commission report — said more than 38 lakh cheque bounce cases had been pending before various courts as of October 2008, putting an unprecedented strain on the judicial system.

Attorney-General G.E. Vahanvati, who appeared as amicus curiae, said the interests of justice would indeed be better served if the parties resorted to compounding to resolve their disputes at an early stage instead of protracting their litigation on several forums, thereby causing undue delay.

The Bench also made it mandatory for the complainant to disclose that no complaint had been filed in any other court on the same transaction.

The Bench said: “We are also conscious of the view that judicial endorsement of the guidelines [suggested by the Attorney-General] could be seen as an act of judicial law-making and therefore an intrusion into the legislative domain. It must be kept in mind that Section 147 of the NI Act does not carry any guidance on how to proceed with compounding of offences under the Act.”

In view of the legislative vacuum, the Bench saw no hurdle to endorsement of the suggestions designed to discourage litigants from unduly delaying compounding of offences.

“Even in the past, this court used its power to do complete justice under Article 142 of the Constitution to frame guidelines in relation to the subject matter where there was a legislative vacuum.

The Bench said: “The graded scheme for imposing costs is a means to encourage compounding at an early stage of litigation. Even though imposition of costs by the competent court is a matter of discretion, the scale of costs has been suggested in the interest of uniformity.”

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