Compromise In Commercial Disputes Warrants Closure Of 138 NI Act Proceedings: Punjab & Haryana High Court

The Punjab and Haryana High Court has compounded an offence under Section 138 of the Negotiable Instruments Act in a matter between Sunil Kumar and Mukesh Sharma after finding that the parties had voluntarily settled their dispute and the complainant had received the entire settlement amount in full and final satisfaction of his claim.

A Bench of Justice Subhas Mehla held that continuation of proceedings in such commercial disputes serves no useful purpose once the settlement is acted upon and compounded the offence, modified the sentence to the period already undergone, and directed issuance of release warrants. It observed:

“Where the dispute is overwhelmingly civil or commercial in character and the victim has willingly entered into settlement, the proceedings ought to be put to an end by accepting the compromise, so as to promote peace, harmony and finality in litigation. The ultimate guiding factor remains advancement of justice and prevention of abuse of the process of law.”

Sunil Kumar had filed a cheque dishonour complaint under Section 138 of the NI Act against Mukesh Sharma. The Trial Court convicted Sharma, and the Additional Sessions Judge dismissed his appeal against conviction in 2019.

The parties later entered into a compromise on 27 February 2023, under which Sharma paid the entire settlement amount to the complainant. The complainant also withdrew execution proceedings initiated for recovery of the amount.

Sharma then moved the High Court seeking compounding of the offence under Section 147 of the NI Act, quashing of the complaint and consequential proceedings, and modification of the sentence to the period already undergone.

The Court noted that Section 147 of the NI Act permits compounding of offences and reiterated that proceedings under Section 138 remain compensatory in nature, arising from commercial transactions, as held by the Supreme Court in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. It observed:

“Thus, the very substratum of the dispute no longer survives. There is nothing on record to suggest that the compromise is tainted by coercion, fraud or undue influence. Rather, the conduct of the parties unequivocally demonstrates their intention to put a quietus to the dispute and restore cordiality.”

The Bench further held that no purpose would be served by continuing the proceedings once the complainant had accepted the settlement amount in full and final satisfaction of his claim. It observed that compelling the petitioner to face further prosecution or incarceration would defeat the object of Section 147 of the NI Act, which allows compounding at any stage.

Accordingly, the High Court compounded the offence under Section 138 of the NI Act, modified the sentence to the period already undergone, and directed the release of the petitioner.

For Petitioner: Advocate Sandeep Yadav

For Respondent: Advocate Surender Singh Pannu, Addl A.G