On October 8, 2021, in the case of M/s Gimpex Private Limited vs. Manoj Goel1, the Supreme Court of India has held that a cheque issued pursuant to a deed of settlement between parties will be presumed to have been issued towards discharge of a debt or liability under Section 138 of the Negotiable Instruments Act (“NI Act“), which fastens criminal liability in cheque bounce cases.

In this case, M/s Gimpex Private Limited (“Appellant“) entered into three high seas sale agreements with Aanchal Cement Limited (“ACL“). On the request of ACL, the Appellant paid an amount of Rs. 6.96 crores as customs duty and Rs. 8.04 crores as wharfage charges in order to clear the goods on behalf of ACL which was alleged to have promised to repay the amount with interest.

It was alleged that though the Appellant supplied the goods, ACL failed to make payments. On August 6, 2012, ACL issued 18 cheques dated August 8, 2012, each in the amount of Rs. 50 lakhs, for a total value of Rs. 9 crores in favour of the Appellant in part payment of the outstanding liability. On August 21, 2012, the 18 cheques were dishonoured upon presentation with an endorsement. ‘payments stopped by drawer/insufficient funds.’ A complaint was lodged by the Appellant on September 10, 2012 against ACL and its directors under the Indian Penal Code, 1860 (“IPC“). The Appellant also filed criminal complaints under Section 138 of the NI Act, in respect of dishonour of the cheques. Mukesh Goel, a director of ACL was arrested on March 3, 2013 and a bail application was filed by him on March 5th. During the pendency of the bail application, ACL approached the Appellant to settle the matter and arrive at a compromise. Pursuant to the settlement, Rs. 3 crores was paid by a demand draft in favour of the Appellant, basis which bail was granted to Mukesh Goel. The balance amount of Rs. 7 crores was agreed to be paid by ACL within 3 months via 3 equal instalments and cheques were issued by ACL in favour of the Appellant towards the compliance of the settlement. The cheques issued in pursuance of the deed of compromise were however, dishonoured, leading to a second complaint by the Appellant under Section 138 of the NI Act.

ACL and its directors instituted proceedings for quashing the proceedings pending against them under Section 138 of the NI Act under the first as well as second set of complaints. The second set of proceedings was quashed by the High Court, with the Appellant agreeing to proceed with the trial against the respondent, Manoj Goel, who was the signatory of the cheques in question. It was held that since the proceedings under the NI Act for the dishonour of the first set of cheques was pending, the second set of cheques issued only on the basis of the deed of compromise could not be construed as being towards the discharge of a liability. The Court also relied upon the fact that the validity of the deed of compromise had been challenged in a suit pending before the High Court.

The issue raised before the Apex Court in M/s Gimpex Private Limited vs. Manoj Goel was whether parallel prosecutions arising from a single transaction under Section 138 of the NI Act can be sustained. In other words, whether the Appellant can be allowed to pursue both the cases or whether one of them must be quashed and the consequences resulting from such quashing. The Court held that the original complaint must be quashed and parties must proceed with the remedies available in law under the settlement agreement. The Apex Court also made the following observations: “When a complainant party enters into a compromise agreement with the accused, it may be for a multitude of reasons – higher compensation, faster recovery of money, uncertainty of trial and strength of the complaint, among others. A complainant enters into a settlement with open eyes and undertakes the risk of the accused failing to honour the cheques issued pursuant to the settlement, based on certain benefits that the settlement agreement postulates. Once parties have voluntarily entered into such an agreement and agree to abide by the consequences of non-compliance of the settlement agreement, they cannot be allowed to reverse the effects of the agreement by pursuing both the original complaint and the subsequent complaint arising from such non-compliance. The settlement agreement subsumes the original complaint. Non-compliance of the terms of the settlement agreement or dishonour of cheques issued subsequent to it, would then give rise to a fresh cause of action attracting liability under Section 138 of the NI Act and other remedies under civil law and criminal law.”

The Court also held that any interpretation contrary to the above, which allows for the complainant to pursue both the original complaint and the consequences arising out of the settlement agreement, would lead to contradictory results. First, it would allow for the accused to be prosecuted and undergo trial for two different complaints, which in its essence arise out of one underlying legal liability. Second, the accused would then face criminal liability for not just the violation of the original agreement of the transaction which had resulted in issuance of the first set of cheques, but also the cheques issued pursuant to the compromise deed. Third, instead of reducing litigation and ensuring faster recovery of money, it would increase the burden of the criminal justice system where judicial time is being spent on adjudicating an offence which is essentially in the nature of a civil wrong affecting private parties. Most importantly, allowing the complainant to pursue parallel proceedings, one resulting from the original complaint and the second emanating from the terms of the settlement would make the settlement and issuance of fresh cheques or any other partial payment made towards the original liability meaningless. Such an interpretation would discourage settlement of matters since they do not have any effect on the status quo, and in fact increase the protracted litigation before the Court.

In light of the above, it was held that a complainant cannot pursue two parallel prosecutions for the same underlying transaction. Once a settlement agreement has been entered into by the parties, the proceedings in the original complaint cannot be sustained and a fresh cause of action accrues to the complainant under the terms of the settlement deed.

Regarding the second complaint, the Court observed that the determination of whether a cheque pursuant to a settlement agreement arises out of a legal liability would be dependent on various factors, such as the underlying settlement agreement, the nature of the original transaction and whether an adjudication on the finding of liability was arrived at in the original complaint, the defence raised by the accused etc.

1 Criminal Appeal No. 1068 of 2021.