While setting the record straight, the Supreme Court has in a latest, learned, laudable and landmark judgment titled BV Seshaiah vs State of Telangana & B Vamsi Krishna vs State of Telangana in Criminal Appeal No. of 2023 (Arising out of Special Leave Petition (Crl) No. 7099/2018 & 7100/2018) that was pronounced as recently as on February 1, 2023 held in no uncertain terms that when parties to a litigation proceeding have entered into an agreement to compound a compoundable offence, High Courts cannot override such compounding and impose their will on the parties.

This was held so while setting aside an order of the Telangana High Court which confirmed the conviction in a cheque dishonour case overriding the agreement between the parties to compound the offence. We thus see in this leading case that the Apex Court allowed the appeals and resultantly set aside the order of conviction passed by the Trial Court. It must also be mentioned that this petition arose out of impugned final judgment and order dated 17-04-2018 in CRLR No. 1678/2014 passed by the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh.

At the very outset, it must be stated that this recent, remarkable, refreshing and rational judgment authored by Hon’ble Mr Justice Krishna Murari for a Bench of the Apex Court comprising of himself and Hon’ble Mr Justice V Ramasubramanian sets the ball in motion by first and foremost putting forth succinctly in para 2 that, “The present Appeals have been filed by the Appellants herein against the impugned order and judgment dated 17.04.2018 passed by the High Court Of Judicature at Hyderabad in Criminal Revision Case Nos. 1678/2014 and 1679/2014.”

To put things in perspective, the Bench then envisages in para 3 that, “For the purpose of these Appeals, briefly, the facts of the present case are that on a private complaint initiated by the Respondent No.2, proceedings under Section 138 of the Negotiable Instruments Act, 1881 were initiated against the Appellants herein. These proceedings led to the conviction of the Appellants by the trial court.”

Further, the Bench then discloses in para 4 that, “It is alleged that the Appellants, under the guise of making investments took money from Respondent No.2 and made wrongful gain for their profits.”

As it turned out, the Bench then points out in para 5 that, “After the Appellants’ conviction, A revision was preferred by them in the High Court It is important to note that during the course of the revision filed by the Appellants, the parties entered into a Memorandum of Understanding to settle the dispute within themselves.”

For sake of esteemed readers information, it must be mentioned here that the Bench then encapsulates in para 6 stating that, “Clause 8 of the Memorandum of Understanding stated that the dispute was to be settled amicably, and in the event of the dispute still not being amicably resolved, it must be first referred to a sole Arbitrator. Clause 8 of the said Memorandum of Understanding is as under:-

“That any dispute under this document shall be resolved amicably. In the event the dispute is not resolved amicably, the matter shall be referred to the sole arbitration of Shri Jonnalagadda Srinivasa Rao S/o Venkaiah whose decision shall be final and binding on all the parties. On entering reference, the sole arbitrator shall hear the parties and pass award. The provisions of arbitration and conciliation act shall apply to the arbitration proceedings. The place of arbitration shall be Ongole only.”

It is noteworthy that the Bench then notes in para 7 that, “It is also to be noted that as per the terms of the agreement, the Respondent No.2 was bound to file a compromise petition before the High Court, however he failed to do so. The lack of filing of such a compromise petition, as agreed upon by the Respondent No.2, has now led to the High Court dismissing the Revision and confirming the Conviction of the Appellants.”

What’s more, the Bench then minces just no words to underscore in para 8 mentioning that, “In our view, the terms and conditions of the settlement entered into by the parties binds them to settle the dispute amicably, or through an arbitration as has been stated in clause 8 of the Memorandum of Understanding.”

Do note, the Bench then very rightly holds in para 9 that, “In such a circumstance, the Appellants cannot be convicted on the basis of the orders passed by the courts below, as the settlement is nothing but a compounding of the offence.”

While citing a recent and relevant case law, the Bench then lays bare in para 10 stating that, “In the case of M/S Meters and Instruments Private Limited & Anr. Vs Kanchan Mehta (2018) 1 SCC 560, this court held that the nature of offence under section 138 of the N.I Act is primarily related to a civil wrong and has been specifically made a compoundable offence. The relevant paragraph of the judgment has been extracted herein:

“This Court has noted that the object of the statute was to facilitate smooth functioning of business transactions. The provision is necessary as in many transactions’ cheques were issued merely as a device to defraud the creditors. Dishonor of cheque causes incalculable loss, injury and inconvenience to the Vide the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 payee and credibility of business transactions suffers a setback. At the same time, it was also noted that nature of offence under Section 138 primarily related to a civil wrong and the 2002 amendment specifically made it compoundable.””

Most significantly, the Bench then minces just no words to state clearly, cogently and quite convincingly in para 11 that, “This is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation. When such a step has been taken by the parties, and the law very clearly allows them to do the same, the High Court then cannot override such compounding and impose its will.”

Most remarkably, the Bench then also notes aptly in para 12 stating that, “It must also be noted that the Respondent No.2 was duty bound to file a compromise petition before the High Court, and by not doing the same has withdrawn key information from the High Court, which has led to an unwarranted confirmation of the Appellants’ conviction.”

Finally, the Bench then concludes by holding in para 13 that, “We, therefore, allow these Appeals and set aside the order of conviction passed by the trial court. It is, however, kept open to the parties to settle their dispute as per the terms of the Memorandum of Understanding.”

To be sure,, it can well be said that the Apex Court has very rightly held that, “Conviction cannot be confirmed overriding the agreement between the parties to compound the offence.” It was also made clear by the Apex Court that the terms and conditions of the settlement entered into by the parties binds them to settle the dispute amicably, or through an arbitration as has been stated in clause 8 of the Memorandum of Understanding. In such a circumstance, the Appellants cannot be convicted on the basis of the orders passed by the courts below, as the settlement is nothing but a compounding of the offence.

Truth be told, it must be conceded graciously that this is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation. When such a step has been taken by the parties, and the law very clearly allows them to do the same, the High Court then cannot override such compounding and impose its will. (Para 8, 9, 11). It also deserves mentioning that the Appellants cannot be convicted on the basis of the orders passed by the courts below, as the settlement is nothing but a compounding of the offence. The Bench also made it clear that this is a very clear case of the parties entering into an agreement and compounding the offence to save themselves from the process of litigation.

In conclusion, we thus see very clearly for ourselves that the Apex Court Bench while setting aside the conviction order of the Telangana High Court has also very clearly specified that when such a step has been taken by the parties as mentioned hereinabove of entering into an agreement by which offence is compounded and the law very clearly allows them to do the same, then definitely the High Court cannot override such compounding and impose its will as has been mentioned in paras 8, 9, 11. The Bench also has most unequivocally pointed out that the nature of offence under section 138 of the N.I Act is primarily related to a civil wrong and is a compoundable offence. It thus therefore certainly merits no reiteration that all the lower courts and so also the High Courts must definitely pay heed to what the Apex Court has held so very clearly, cogently and convincingly in this leading case and comply with accordingly! No denying it!

Sanjeev Sirohi, Advocate,
s/o Col (Retd) BPS Sirohi, A 82, Defence Enclave,
Sardhana Road, Kankerkhera, Meerut - 250001, Uttar Pradesh