Supreme Court Encourages Compounding in Cheque Bounce Cases | Key Ruling on Settlements 

Introduction 

In a significant ruling, the Supreme Court of India has reinforced the importance of encouraging settlements in cheque bounce cases under the Negotiable Instruments Act, 1881 (NI Act). The Court emphasized that the compensatory aspect of these cases should take precedence over punitive measures. This judgment aims to reduce the judicial burden while maintaining the credibility of cheques as reliable financial instruments.  

Case Overview  

The case involved M/s New Win Export and its partner, P. Kumarasamy, who were convicted in a cheque bounce matter. The complainant, A. Subramaniam, had filed a case after a cheque for ₹5,25,000 issued by Kumarasamy was dishonoured due to insufficient funds.  

.The Trial Court convicted the accused, sentencing them to one year of simple imprisonment.  

.The Appellate Court initially acquitted them, but the High Court later reinstated the conviction.  

Settlement and Supreme Court Ruling  

Before approaching the Supreme Court, both parties reached a settlement, where Kumarasamy paid the full cheque amount. The complainant confirmed receiving the payment and agreed that the conviction should be set aside. 

The Supreme Court examined Section 147 of the NI Act, which allows for compounding of offences, and Section 320(5) of the CrPC, which requires court approval for compounding after conviction.  

Since the complainant submitted an affidavit confirming the settlement and raising no objection to setting aside the conviction, the Court found no reason to uphold the conviction. Recognizing the genuineness of the settlement, the Supreme Court allowed the appeal and set aside the High Court and Trial Court orders.  

Key Observations by the Supreme Court  

1. Cheque Bounce as a Regulatory Offence—Cheque dishonour is not purely a criminal offence but a regulatory mechanism to ensure cheque reliability in commercial transactions.  

2. Compensation Over Punishment – The Court reiterated that the primary objective of the NI Act is to compensate the complainant rather than punish the accused.  

3. Encouraging Compounding—Courts should actively encourage settlements in cheque bounce cases when both parties agree, as this serves both compensatory and regulatory objectives.  

4. Legal Framework –  

   - Section 147 of the NI Act allows compounding of cheque bounce offences.  

   - Section 320(5) of the CrPC mandates court approval for compounding after conviction. 

Significance of the Judgment  

This ruling serves as a landmark precedent, reinforcing that courts should prioritize settlements in cheque bounce cases to:  

·      Reduce the burden on the judiciary  

·      Ensure faster resolution of disputes  

·      Maintain cheque reliability as a financial instrument  

By prioritizing compensation over punishment, the Supreme Court promotes a pragmatic and settlement-oriented approach, benefiting both businesses and individuals while preserving the sanctity of financial transactions.  

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