Absence Of Prior Decree Does Not By Itself Negate Cheque Liability: Delhi High Court

The Delhi High Court has ruled that the absence of a prior decree or adjudication quantifying damages does not, by itself, establish at the stage of issuance of process that a cheque was not issued towards a legally enforceable liability.

“A settlement is, by its very nature, an agreement between parties to resolve their existing disputes and claims on mutually agreed terms. The legal effect of the settlement, including the consideration for the promise to pay the agreed amount, would have to be examined in the factual and contractual context in which the settlement was executed. The mere absence of a prior decree or adjudication quantifying damages does not, by itself, establish at the stage of issuance of process that the cheque was not issued towards a legally enforceable liability,” Justice Madhu Jain observed.

The court dismissed petitions seeking to quash proceedings arising from complaints over dishonoured cheques, along with the orders summoning the petitioners to face the cases.

The dispute arose from the affairs of Shree Narsingh Education Consulting Private Limited, in which the respondent and petitioners were stated to be shareholders and directors. Criminal proceedings were initiated in relation to the affairs of the company, leading to an FIR alleging criminal breach of trust, cheating, forgery, use of forged documents, and criminal conspiracy.

The cheque dishonour complaints subsequently arose from settlement arrangements entered into between the parties in connection with disputes and proceedings arising from the FIR.

A settlement agreement entered into in June 2024 recorded ₹2 crore towards the respondent's claims. It contemplated an initial payment of ₹5 lakh, with the balance to be paid through specified modes, including four post-dated cheques of ₹48.75 lakh each

A separate memorandum of settlement was executed between another shareholder and the respondent on July 31, 2024. It covered disputes and differences arising from pending criminal, civil and company law proceedings. Under the agreement, Neeraj Jaju undertook to pay ₹2 crore towards full and final settlement of the claims and issued six post-dated cheques towards the settlement amount.

The memorandum also contemplated the respondent's cooperation in proceedings for quashing the FIR or charge-sheet upon fulfilment of the stipulated payment obligations. It further provided that if the FIR was not quashed, the settlement amount actually received by the respondent would be refunded within the stipulated period.

Disputes later arose over the implementation of the settlement arrangements. The petitioners contended that there was no subsisting liability on the date the cheques were issued. They also argued that the liability under the memorandum was contingent upon the outcome of the proceedings arising from the FIR.

They further contended that no statement of account, balance sheet, computation of damages or other document independently demonstrated the alleged liability.

The court observed that these matters may constitute a defence to the complaints. Whether these circumstances were sufficient to rebut the statutory presumption under the Negotiable Instruments Act, however, could not be conclusively determined at this stage.

“These are matters which may constitute a defence to the complaints. However, whether these circumstances are sufficient to rebut the statutory presumption under Section 139 of the Negotiable Instruments Act is a matter which cannot be conclusively determined in the present proceedings,” the court observed.

The court noted that the memorandum dated July 31, 2024 recorded the ₹2 crore amount payable by Neeraj Jaju towards full and final settlement of the claims and the issuance of six post-dated cheques towards that amount.

It observed that the petitioners could rely during trial on the clauses concerning the proposed quashing of the FIR and refund of the settlement amount if the FIR was not quashed. The effect and interpretation of those clauses, read with the other terms of the memorandum and the surrounding circumstances, required consideration of evidence.

The court also held that the absence of a statement of account, balance sheet, computation of damages or other document establishing the liability could not justify quashing the proceedings at this stage. The respondent's case was founded on the settlement agreements and the cheques issued pursuant to them.

Whether the settlement amount constituted a legally enforceable liability and whether the petitioners could rebut the statutory presumption were matters to be tested during trial, the court held.

The respective trial courts had considered the complaints, settlement documents, cheques and other material before finding sufficient grounds to proceed, the court noted. It observed that no material of such sterling and unimpeachable character had been produced before it that completely ruled out the respondent's case.

The documents relied upon by both sides demonstrated the existence of a settlement, agreed monetary obligations and the issuance of cheques pursuant to the settlement, the court observed.

Finding no perversity, patent illegality or jurisdictional infirmity in the summoning orders, the court dismissed the petitions.

For Applicants: Advocate Chirag Khurana

For Respondent: Advocate Abhishek Gupta