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CHEQUE BOUNS CASE

LEGAL ISSUES whether the sections 29 and 357 of the Criminal Procedure Code and section 138 of the Act should be read harmoniously and complementary to each other; and if so done, compensation could be awarded in cases under section 138 of the Act to meet the loss sustained by the dishonour and that if compensation could not be awarded for any reason, fine could be levied upto twice the cheque amount ?

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 Reportable

 IN THE SUPREME COURT OF INDIA

 CRIMINAL APPELLATE JURISDICTION

 CRIMINAL APPEAL NO. 1902 OF 2011

 (Arising out of SLP (Crl.) No.2586 of 2007)

R.Vijayan ... Appellant

Vs.

Baby & Anr. ... Respondents

 J U D G M E N T

R.V.RAVEENDRAN, J.

 Leave granted. Heard.

2. The complainant in a complaint under section 138 of the Negotiable 

Instruments Act, 1881 (`Act' for short) is the appellant in this appeal by 

special leave. A cheque dated 31.3.1995 for Rs.20,000/- issued by the first 

respondent drawn in favour of the complainant, towards alleged repayment 

of a loan was dishonoured when presented for payment. The appellant sent a 

notice dated 20.4.1995 demanding payment. According to the complainant, 

the notice was served on the first respondent but the payment was not made. 

Therefore on 25.5.1995 the appellant lodged a complaint against the first 

 2

respondent, under section 138 of the Act before the First Class Magistrate 

-IV, (Mobile), Thiruvananthapuram. After trial, the learned Magistrate by 

judgment dated 30.11.1996 found the accused guilty under section 138 of 

the Act and sentenced her to pay a fine of Rs.2000/- and in default to 

undergo imprisonment for one month. He also directed the accused to pay 

Rs.20,000/- as compensation to the complainant and in default to undergo 

simple imprisonment for three months.

3. The first respondent challenged the said judgment and the criminal 

appeal filed by her was allowed by the First Additional Sessions Judge, 

Thiruvananthapuram by judgment dated 26.11.2001. The conviction and 

sentence imposed on the first respondent was set aside and the appellant was 

acquitted. The first appellate court held that the accused having denied her 

signature in the postal acknowledgement relating to the notice dated 

20.4.1995, the appellant ought to have examined the postman who served 

the notice; and as the appellant did not do so, the court held that the 

complainant had not discharged the burden to prove that the notice was duly 

served on the first respondent. The appellant filed criminal appeal before the 

High Court. The High Court allowed the appeal in part. It held that the 

service of notice was duly proved. As a consequence it restored the 

conviction entered by the learned Magistrate in reversal of the judgment of 

 3

the first appellate court. However the High Court held that it could only 

restore the fine of Rs.2000/- imposed by the Magistrate with the default 

sentence but not the direction for payment of compensation under section 

357(3) of the Code, as it could not co-exist with the imposition of fine. 

Therefore, the direction for payment of compensation was not restored. The 

said judgment is challenged in this appeal by special leave.

4. The appellant contends that sections 29 and 357 of the Code and 

section 138 of the Act should be read harmoniously and complementary to 

each other; and if so done, compensation could be awarded in cases under 

section 138 of the Act to meet the loss sustained by the dishonour and that if 

compensation could not be awarded for any reason, fine could be levied upto 

twice the cheque amount; and therefore the High Court ought to have 

restored the direction for payment of Rs.20,000/- to the appellant either by 

way of compensation under section 357(3) or from the fine under section 

357(1)(b) of the Code, by increasing the fine.

5. Section 138 of the Act provided that where a cheque is dishonoured, 

the person drawing the cheque shall be deemed to have committed an 

offence and shall, without prejudice to any other provision of the Act, be 

punished with imprisonment for a term which may extend to one year or 

 4

with fine which may extend to twice the amount of the cheque or with both. 

It may be mentioned that subsequent to the judgment of the learned 

Magistrate, the said Section 138 was amended (with effect from 6.2.2003) 

increasing and the period of imprisonment imposable to two years.

6. Section 357 relates to Order to pay compensation. 

 "357. Order to pay compensation.--(1) When a Court imposes a 

 sentence of fine or a sentence (including a sentence of death) of which fine 

 forms a part, the Court may, when passing judgment order the whole or 

 any part of the fine recovered to be applied ---

 (a) in defraying the expenses properly incurred in the prosecution;

 (b) in the payment to any person of compensation for any loss or injury 

 caused by the offence, when compensation is, in the opinion of the Court, 

 recoverable by such person in a Civil Court;

 (c) & (d) x x x x (not relevant)

 (2) x x x x x (not relevant)

 (3) When a Court imposes a sentence, of which fine does not form a part, 

 the Court may, when passing judgment order the accused person to pay, 

 by way of compensation such amount as may be specified in the order to 

 the person who has suffered any loss or injury by reason of the act for 

 which the accused person has been so sentenced." 

 (4) An order under this section may also be made by an Appellate 

 Court or by the High Court or Court of sessions when exercising 

 its power of revision.

 (5) At the time of awarding compensation in any subsequent civil suit 

 relating to the same matter, the court shall take into account any sum paid 

 or recovered as compensation under this section.

 5

7. Sub-section (3) of section 357, is categorical that the compensation 

can be awarded only where fine does not form part of the sentence. Section 

357(3) has been the subject-matter of judicial interpretation by this Court in 

several decisions. In State of Punjab vs. Gurmej Singh [2002 (6) SCC 663], 

this Court held : 

 "A reading of sub-section (3) of Section 357 would show that the question 

 of award of compensation would arise where the court imposes a sentence 

 of which fine does not form a part."

This Court also held that section 357(3) will not apply where a sentence of 

fine has been imposed.

8. In Sivasuriyan vs. Thangavelu [2004 (13) SCC 795], this Court held :

 "In view of the submissions made, the only question that arises for 

 consideration is whether the court can direct payment of compensation in 

 exercise of power under sub-section (3) of Section 357 in a case where 

 fine already forms a part of the sentence. Apart from sub-section (3) of 

 Section 357 there is no other provision under the Code whereunder the 

 court can exercise such power:"

After extracting section 357(3) of the Code, the Court proceeded to hold 

thus:

 "On a plain reading of the aforesaid provision, it is crystal clear that the 

 power can be exercised only when the court imposes sentence by which 

 fine does not form a part. In the case in hand, a court having sentenced to 

 imprisonment, as also fine, the power under sub-section (3) of Section 357 

 could not have been exercised. In that view of the matter, the impugned 

 6

 direction of the High Court directing payment of compensation to the tune 

 of Rs. one lakh by the appellant is set aside."

9. It is evident from Sub-Section (3) of section 357 of the Code, that 

where the sentence imposed does not include a fine, that is, where the 

sentence relates to only imprisonment, the court, when passing judgment, 

can direct the accused to pay, by way of compensation, such amount as may 

be specified in the order to the person who has suffered any loss or injury by 

reason of the act for which the accused person has been so sentenced. The 

reason for this is obvious. Sub-section (1) of section 357 provides that where 

the court imposes a sentence of fine or a sentence of which fine forms a part, 

the Court may direct the fine amount to be applied in the payment to any 

person of compensation for any loss or injury caused by the offence, when 

compensation is, in the opinion of the court, recoverable by such person in a 

Civil Court. Thus, if compensation could be paid from out of the fine, there 

is no need to award separate compensation. Only where the sentence does 

not include fine but only imprisonment and the court finds that the person 

who has suffered any loss or injury by reason of the act of the accused 

person, requires to be compensated, it is permitted to award compensation 

under compensation under section 357(3). 

 7

10. The difficulty arises in this case because of two circumstances. The 

fine levied is only Rs.2000/-. The compensation required to cover the 

loss/injury on account of the dishonour of the cheque is Rs.20,000/-. The 

learned Magistrate having levied fine of Rs.2,000/-, it is impermissible to 

levy any compensation having regard to section 357(3) of the Code. The 

question is whether the fine can be increased to cover the sum of Rs. 

20,000/- which was the loss suffered by the complainant, so that the said 

amount could be paid as compensation under section 357(1)(b) of the Code. 

As noticed above, section 138 of the Act authorizes the learned Magistrate to 

impose by way of fine, an amount which may extend to twice the amount of 

the cheque, with or without imprisonment. Section 29 of the Code deals with 

the sentences which Magistrates may pass. The Chief Judicial Magistrate is 

empowered to pass any sentence authorized by law (except sentence of death 

or imprisonment for life or imprisonment for a term exceeding seven years). 

On the other hand, sub-section (2) of Section 29 empowers a court of a 

Magistrate of First Class to pass a sentence of imprisonment for a term not 

exceeding three years or fine not exceeding Rs.5,000/- or of both. (Note : By 

Act No.25 of 2005, sub-section (2) of Section 29 was amended with effect 

from 23.6.2006 and the maximum fine that could be levied by the Magistrate 

of First Class, was increased to Rs.10,000/-). At the relevant point of time, 

the maximum fine that the First Class Magistrate could impose was 

 8

Rs.5,000/-. Therefore, it is also not possible to increase the fine to 

Rs.22,000/- so that Rs.20,000/- could be awarded as compensation, from the 

amount recovered as fine.

11. The first respondent was a widow and police woman. On the facts 

and circumstances the learned Magistrate thought fit to impose only a fine 

and not imprisonment. When the conviction was set aside, the appellant filed 

a revision, challenging the non-grant of compensation of Rs.20,000/-. He did 

not however challenge the non-imposition of sentence of imprisonment. The 

High Court was, therefore, justified in holding that once the sentence 

consists of only fine, the power under Section 357(3) could not be invoked 

for directing payment of compensation. The High Court was also justified in 

not converting the sentence from fine to imprisonment, so enable itself to 

award compensation, as the facts and circumstances of the case did not 

warrant imprisonment. Therefore, we are of the view that the order of High 

Court does not call for interference.

12. It is of some interest to note, though may not be of any assistance in 

this case, that the difficulty caused by the ceiling imposed by section 29(2) 

of the Code has been subsequently solved by insertion of section 143 in the 

Act (by Amendment Act No.55 of 2002) with effect from 6.2.2003. Section 

 9

143(1) provides that notwithstanding anything contained in the Code, all 

offences under Chapter XVII of the Act should be tried by a Judicial 

Magistrate of the First Class or by a Metropolitan Magistrate and the 

provisions of sections 262 to 265 of the Code (relating to summary trials) 

shall, as far as may be, apply to such trials. The proviso thereto provides that 

it shall be lawful for the Magistrate to pass a sentence of imprisonment for a 

term extending one year and an amount of fine exceeding Rs.5,000/-, in case 

of conviction in a summary trial under that section. In view of conferment of 

such special power and jurisdiction upon the First Class Magistrate, the 

ceiling as to the amount of fine stipulated in section 29(2) of the Code is 

removed. Consequently, in regard to any prosecution for offences punishable 

under section 138 of the Act, a First Class Magistrate may impose a fine 

exceeding Rs.5000/-, the ceiling being twice the amount of the cheque. 

13. This case relates to dishonour of cheque in the year 1995. Though the 

complainant-appellant has succeeded in obtaining a conviction, he has 

virtually lost in the sense he did not get compensation to recover the amount 

of the dishonoured cheque. As the limitation for filing a civil suit expired 

during the pendency of the appeal before the sessions court, the appellant 

has also lost the opportunity of recovering the amount by way of civil suit. 

In view of this peculiar position, we requested Dr. Rajiv Dhavan, senior 

 1

counsel, to assist us as an Amicus Curiae to suggest methods to improve the 

disposal of cases under section 138 of the Act and also improve the relief 

that could be granted in such cases. In the meantime a three Judge Bench of 

this Court in Damodar S.Prabhu vs. Sayed Babalal H. [2010 (5) SCC 663], 

addressed the question of reluctance of offenders to compound the cases at 

earlier stages of the case prosecution leading to a huge pendency of cheque 

dishonour cases, and issued the following guidelines proposing levy of `a 

graded scale of fine' to encourage compounding at earlier stages of the case : 

 "(a) That directions can be given that the Writ of Summons be suitably 

 modified making it clear to the accused that he could make an application 

 for compounding of the offences at the first or second hearing of the case 

 and that if such an application is made, compounding may be allowed by 

 the court without imposing any costs on the accused.

 (b) If the accused does not make an application for compounding as 

 aforesaid, then if an application for compounding is made before the 

 Magistrate at a subsequent stage, compounding can be allowed subject to 

 the condition that the accused will be required to pay 10% of the cheque 

 amount to be deposited as a condition for compounding with the Legal 

 Services Authority, or such authority as the Court deems fit.

 (c) Similarly, if the application for compounding is made before the 

 Sessions Court or a High Court in revision or appeal, such compounding 

 may be allowed on the condition that the accused pays 15% of the cheque 

 amount by way of costs.

 (d) Finally, if the application for compounding is made before the 

 Supreme Court, the figure would increase to 20% of the cheque amount.

 x x x x x

 The graded scheme for imposing costs is a means to encourage 

 compounding at an early stage of litigation. In the status quo, valuable 

 time of the Court is spent on the trial of these cases and the parties are not 

 liable to pay any Court fee since the proceedings are governed by the 

 Code of Criminal Procedure, even though the impact of the offence is 

 1

 largely confined to the private parties. Even though the imposition of costs 

 by the competent court is a matter of discretion, the scale of costs has been 

 suggested in the interest of uniformity. The competent Court can of course 

 reduce the costs with regard to the specific facts and circumstances of a 

 case, while recording reasons in writing for such variance. Bona fide 

 litigants should of course contest the proceedings to their logical end." 

14. We propose to address an aspect of the cases under section 138 of the 

Act, which is not dealt with in Damodar S. Prabhu. It is sometimes said that 

cases arising under section 138 of the Act are really civil cases 

masquerading as criminal cases. The avowed object of Chapter XVII of the 

Act is to "encourage the culture of use of cheques and enhance the 

credibility of the instrument". In effect, its object appears to be both punitive 

as also compensatory and restitutive, in regard to cheque dishonour cases. 

Chapter XVII of the Act is an unique exercise which blurs the dividing line 

between civil and criminal jurisdictions. It provides a single forum and 

single proceeding, for enforcement of criminal liability (for dishonouring the 

cheque) and for enforcement of the civil liability (for realization of the 

cheque amount) thereby obviating the need for the creditor to move two 

different fora for relief. This is evident from the following provisions of 

Chapter XVII of the Act. 

(i) The provision for levy of fine which is linked to the cheque amount 

and may extend to twice the amount of the cheque (section 138) thereby 

rendering section 357(3) virtually infructuous in so far as cheque dishonour 

cases. 

 1

(ii) The provision enabling a First Class Magistrate to levy fine exceeding 

Rs.5,000/- (Section 143) notwithstanding the ceiling to the fine, as 

Rs.5,000/- imposed by section 29(2) of the Code;

(iii) The provision relating to mode of service of summons (section 144) 

as contrasted from the mode prescribed for criminal cases in section 62 of 

the Code; 

(iv) The provision for taking evidence of the complainant by affidavit 

(section 145) which is more prevalent in civil proceedings, as contrasted 

from the procedure for recording evidence in the Code; 

(v) The provision making all offences punishable under section 138 of the 

Act compoundable. 

15. The apparent intention is to ensure that not only the offender is 

punished, but also ensure that the complainant invariably receives the 

amount of the cheque by way of compensation under section 357(1)(b) of 

the Code. Though a complaint under section 138 of the Act is in regard to 

criminal liability for the offence of dishonouring the cheque and not for the 

recovery of the cheque amount, (which strictly speaking, has to be enforced 

by a civil suit), in practice once the criminal complaint is lodged under 

section 138 of the Act, a civil suit is seldom filed to recover the amount of 

the cheque. This is because of the provision enabling the court to levy a fine 

linked to the cheque amount and the usual direction in such cases is for 

payment as compensation, the cheque amount, as loss incurred by the 

complainant on account of dishonour of cheque, under section 357 (1)(b) of 

 1

the Code and the provision for compounding the offences under section 138 

of the Act. Most of the cases (except those where liability is denied) get 

compounded at one stage or the other by payment of the cheque amount with 

or without interest. Even where the offence is not compounded, the courts 

tend to direct payment of compensation equal to the cheque amount (or even 

something more towards interest) by levying a fine commensurate with the 

cheque amount. A stage has reached when most of the complainants, in 

particular the financing institutions (particularly private financiers) view the 

proceedings under section 138 of the Act, as a proceeding for the recovery 

of the cheque amount, the punishment of the drawer of the cheque for the 

offence of dishonour, becoming secondary. 

16. Having reached that stage, if some Magistrates go by the traditional 

view that the criminal proceedings are for imposing punishment on the 

accused, either imprisonment or fine or both, and there is no need to 

compensate the complainant, particularly if the complainant is not a `victim' 

in the real sense, but is a well-to-do financier or financing institution, 

difficulties and complications arise. In those cases where the discretion to 

direct payment of compensation is not exercised, it causes considerable 

difficulty to the complainant, as invariably, by the time the criminal case is 

decided, the limitation for filing civil cases would have expired. As the 

 1

provisions of Chapter XVII of the Act strongly lean towards grant of 

reimbursement of the loss by way of compensation, the courts should, unless 

there are special circumstances, in all cases of conviction, uniformly 

exercise the power to levy fine upto twice the cheque amount (keeping in 

view the cheque amount and the simple interest thereon at 9% per annum as 

the reasonable quantum of loss) and direct payment of such amount as 

compensation. Direction to pay compensation by way of restitution in regard 

to the loss on account of dishonour of the cheque should be practical and 

realistic, which would mean not only the payment of the cheque amount but 

interest thereon at a reasonable rate. Uniformity and consistency in deciding 

similar cases by different courts, not only increase the credibility of cheque 

as a negotiable instrument, but also the credibility of courts of justice. 

17. We are conscious of the fact that proceedings under section 138 of the 

Act cannot be treated as civil suits for recovery of the cheque amount with 

interest. We are also conscious of the fact that compensation awarded under 

section 357(1)(b) is not intended to be an elaborate exercise taking note of 

interest etc. Our observations are necessitated due to the need to have 

uniformity and consistency in decision making. In same type of cheque 

dishonour cases, after convicting the accused, if some courts grant 

compensation and if some other courts do not grant compensation, the 

 1

inconsistency, though perfectly acceptable in the eye of law, will give rise to 

certain amount of uncertainty in the minds of litigants about the functioning 

of courts. Citizens will not be able to arrange or regulate their affairs in a 

proper manner as they will not know whether they should simultaneously 

file a civil suit or not. The problem is aggravated having regard to the fact 

that in spite of section 143(3) of the Act requiring the complaints in regard 

to cheque dishonour cases under section 138 of the Act to be concluded 

within six months from the date of the filing of the complaint, such cases 

seldom reach finality before three or four years let alone six months. These 

cases give rise to complications where civil suits have not been filed within 

three years on account of the pendency of the criminal cases. While it is not 

the duty of criminal courts to ensure that successful complainants get the 

cheque amount also, it is their duty to have uniformity and consistency, with 

other courts dealing with similar cases. 

18. One other solution is a further amendment to the provision of Chapter 

XVII so that in all cases where there is a conviction, there should be a 

consequential levy of fine of an amount sufficient to cover the cheque 

amount and interest thereon at a fixed rate of 9% per annum interest, 

followed by award of such sum as compensation from the fine amount. This 

would lead to uniformity in decisions, avoid multiplicity of proceedings 

 1

(one for enforcing civil liability and another for enforcing criminal liability) 

and achieve the object of Chapter XVII of the Act, which is to increase the 

credibility of the instrument. This is however a matter for the Law 

Commission of India to consider. 

19. The appeal is dismissed. We place on record our appreciation for the 

assistance rendered by Dr. Rajiv Dhavan as Amicus Curiae.

 ....................................J.

 (R V Raveendran)

New Delhi; ..................................J.October 11, 2011. (R M Lodha) 
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