Holding

A cheque issued in terms of a compromise does not create a new liability under Section 138, and a second complaint for the same transaction is not maintainable.

Summary

Mis. Mediline India (P) Ltd obtained a loan of Rs.5,00,000 and issued two cheques which bounced for insufficient funds. A complaint under Section 138 of the Negotiable Instruments Act and Section 420 IPC was filed against two directors, Ashish Narula and Manish Arora, who were later convicted. While the case was pending, the parties attempted a settlement; Manish Arora issued a fresh cheque of Rs.5,02,050 as part of the compromise, which also bounced. A second complaint was filed, this time also implicating other directors, including the appellants, for the bounced settlement cheque. The Supreme Court held that the second cheque was issued merely to effect a compromise and did not create a new liability, and since the original transaction had already been punished, the second complaint could not be entertained. Consequently, the appeal was allowed and the second complaint dismissed.

Issues considered

What is the legal effect of a cheque issued under a compromise that subsequently bounces under Section 138 of the Negotiable Instruments Act?
Does the issuance of such a cheque create a fresh liability for the directors who were not signatories to it?
Can a second criminal complaint be filed for the same transaction after a conviction under Section 138 has already been obtained?

Legislation cited

Subjects

Negotiable Instruments ActSection 138cheque bouncecompromisedirector liabilitycriminal complaintdouble jeopardysettlement cheque

Judgment

.·,;

[2008] 7 S.C.R. 797

LAUT KUMAR SHARMA AND ANR. A
v.
STATE OF U.P. & ANR.
(Criminal Appeal No. 818 of 2008)
MAY 6, 2008
B
(S.8. SINHA AND LOKESHWAR SINGH PANTA, JJ.)

Negotiable Instruments Act, 1981; S. 138:
Dishonor of Cheque - A company allegedly taken loan
from respondent - Cheque issued by the company C
discharging loan amount bounced for insufficient fund -
Complaint against two directors of the company - Admitting
the liability as personal, directors entering into a compromise
with the respondent and issued another cheque for the ban
amount - The cheque again bounced for insufficient fund - D
Respondent filed another complaint against the directors of
the company including appellants, other directors o.f the
company - Correctness of-Held: No new liability is created
by issuing second cheque by the accused by entering into
compromise with the respondent - There was only one E
transaction between the accused directors and the respondent
in the first complaint and the accused have been punished -
Hence, the question of entertaining the second complaint did
not arise.
Appellants, who were directors of a company, F
allegedly took certain amount of loan from the
--..+
responchmt. In discharge of the loan amount, a cheque
was issued by the company in favour of respondent,
which had allegedfy bounced back for insufficient fund.
Respondent No. 2 filed a complaint against two directors G
of the company u/s. 138 of the Negotiable Instruments Act
~nd uls. 420 IPC. During pendency of the complaint,
..' ,;'
parties tried to resolve the dispute. One of the accused
issued a cheque for the entire amount in favour of the
797 H
. ··\'
798 SUPREME COURT REPORTS [2008] 7 S.C.R.

A respondent and the other accused entered into an >-·
agreement with the complainant admitting the liability in
question as his personal one. On presentation, the cheque
was returned. Respondent No.1 again filed a complaint
not only against the directors as in the first complaint but
B also against other two directors of the company, the
appellants. In the meantime, the trial Court in the first ~

complaint found the accused guilty of committing the
offence punishable u/s. 138 of the Act and they were
sentenced accordingly. In the second complaint,
c appellants filed an application before the Chief Judicial
Magistrate for setting aside the order summoning them.
The same was dismissed. A revision application filed
thereagainst by the appellants was dismissed by the High
Court. Hence, the present appeal.
D Allowing the appeal, the Court
~
HELD: 1.1 Evidently, the second cheque was issued
in terms of the compromise entered into between the
parties. It did not create a new liability. As the compromise
E did not fructify, the same cannot be said to have been
issued towards payment of debt. (Para - 15) [803-B]
1.2 The second cheque was issued by one of the
directors of the company for the purpose of arriving at a
settlement. The said cheque was not issued in discharge
F of the debt or liability of the Company of which the
appellants were said to be the directors. There was only ~-

one transaction between the two directors of the Company
and the complainant. They have already been punished.
Thus, the question of entertaining the second complaint
G did not arise. (Para - 17) [803-E-F]

CRIMINALAPPELLATEJURISDICTION: CriminalAppeal
No. 818 of 2008. ...
From the Judgment and Order dated 19.2.2007 of the High "'
H
LA.UT KUMAR SHARMA AND ANR v. STATE OF U.P. 799
& ANR. [S.B. SINHA, J.]
....J
Court of Judicature at Allahabad in Criminal Revision No. 5/ A
2003.
Rajeev Sharma (for Rameshwar Prasad Goyal) for the
Appellants.
Brij Bhushan for the Respondents. B
The Judgment of the Court was delivered by
5.8. SINHA, J. 1. Leave granted.

2. Application of Section 138 of the Negotiable Instruments
Act, 1881 (for short "the Act") in the facts and circumstances of c
the case is involved in this appeal which arises out of a judgment
and order dated 19.02.2007 passed by the High Court of
Judicature at Allahabad in Criminal Revision No. (5) of 2003.
3. Mis. Mediline India (P) Ltd. is a company registered
D
.>- and incorporated under the Companies Act, 1956. It had two
directors, viz., Shri Ashish Narula and Shri Manish Arora. The
Company took ioan for a sum of Rs. 5,00,000/-. Two cheques
bearing Nos. 0989637 dated 30.11.1999 and 0989638 dated
10.12.1999 for Rs. 3,00,000/- and Rs. 2,00,000/- respectively
E
were drawn on Vijaya Bank, Navyug Market, Ghaziabad in favour
of the respondent No. 1. On presentation, they were returned
unpaid with the remarks "insufficient fund".
4. A complaint petition was thereafter filed by the
respondent No. 2 (complainant) against Shri ¥anish Arora and F
Shri Ashish Narula under Section 138 of the Act and Section
420 of the Indian Penal Code.
5. Appellants were not signatories to the cheques.
Appellant No: 1 became a director of the said Company only
on 15.02.2000. Appellant No. 2 became a director on 1.12.1994. G
Both of them are said to have resigned from the post of
directorship on 30.11.2000.
-~ _,.
6. During pendency of the said complaint petition, an
~ndeavour was made to resolve the disputes and differences
H
..
800 SUPREME COURT REPORTS [2008] 7 S.C.R.
~.

A between the parties. An agreement was entered into by and
between the parties in terms whereof it was agreed that if a
cheque for a sum of Rs. 5,02,050/- is issued, the complaint
petition would be withdrawn. Manish Arora issued a cheque for
the said sum on 29.07.2000 which was also on presentation
B returned on 29.01.2001 with the remark "insufficient fund". It is J...
stated that an agreement was also entered into by and between
Shri Ashish Narula and the Company that the liability in question
was his personal one. He allegedly affirmed an affidavit and
executed an indemnity bond on 26.02.2000.
c 7. Complainant- respondent No. 2, however, f!:ed another
complaint petition with regard to the return of the said r:.eq<.Je
dated 29.07.2000 not only against Shri Ashish Narula and Shri
Manish Arora but also against the appellants herein.
8. Appellants were summoned in the said complaint case.
D
They filed an application before the Chief Judicial Magistrate ~

for setting aside the order summoning them. The same was
dismissed. A revision appiication filed thereagainst has also
been dismissed by the High Court by reason of the impugned
judgment.
E
9. Mr.
' l
Rajeev. Sharma,
- -..,_ :" '
learned counsel
..
appearing on
behalf of the appellants, urged that the second complaint petition
is not maintainable.
10. Mr. Brij Bhusan, learned counsel appearing on behalf
F of the respondents, however, supported the impugned judgment. ~

........
11. Section 138 of the Act reads, thus:
"138 - Dishonour of cheque for insufficiency, etc., offunds
in the account
G
Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any amount
of money to another person from out of that account for the ...
....
discharge, in whole or in part, of any debt or other liability,
is returned by the bank unpaid, either because of the
H
LAUT KUMAR SHARMA AND ANR. v. STATE OF U.P. 801
& ANR. [S.8. SINHA, J.]

amount of money standing to the credit of that account is A
insufficient to honour the cheque or that it exceeds the
amount arranged to be paid from that account by an
agreement made with that bank, such person shall be
deemed to have committed an offence and shall, without
prejudice to any other provisions of this Act, be punished s
with imprisonment for a term which may be extended to
two years, or with fine which may extend to twice the amount
of the cheque, or with both: Provided that nothing
contained in this section shall apply unless-
(a) the cheque has been presented to the bank within a C
r period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier;
{b) the payee or the holder in due course of the cheque,
as the case may be, makes a demand for the payment of
0
the said amount of money by giving a notice in writing, to
A-- the drawer of the cheque, within thirty days of the receipt
of information by him from the bank regarding the return
of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment E
of the said amount of money to the payee or, as the case
may be, to the holder in due course of the cheque, within
fifteen days of the receipt of the said notice.
Explanation.- For the purposes of this section, "debt or
other liability" means a legally enforceable debt or other F
-+ liability."
12. It is not disputed that in respect of the first cheques
dated 30.11.1999 and 10.12.1999, the appellants herein were
not proceeded against. It is furthermore not in dispute that G
although a purported compromise was entered into by and
between Ashish Narula, Manish Arora, on the one hand, and
• t the complainant, on the other, as a result whereof the said cheque
,.I-
for a sum of Rs. 5,02,050/- was issued and bounced; the
complaint petition had not been withdrawn. By a judgment and H
802 SUPREME COURT REPORTS [2008] ·7 S.C.R.

~
A order 16.01.2006, Ashish Narula and Manish Arora had been
found guilty for commission of the offence under Section 138 of
the Act. They were sentenced to undergo one year's R.I. with
fine of Rs. 20,000/-.each and in default thereof to undergo three
months' simple imprisonment. They were also directed to make
B payment of rupees nine lakhs as compensation to the
complainant within a period of one month of the orders under ......_
Section 357 of the Code of Criminal Procedure.
13. The fact that Manish Arora issued the second cheque
in terms of the settlement between the parties is not in dispute.
c It appears from the complaint petition itself, the requisite
averments made therefor were as under:
"5. That after getting their bail from the court the accused
No. 2 to 6 approached and requested the complainant to
take fresh cheques for full amount and withdraw the
D
complaint and also felt sorry for the said dishonour of the
cheque." 1'.

14. The learned Judicial Magistrate also in his order dated
1.10.2002 noticed:
E "... It has been stated on behalf of the accused persons
that by settlement it was found that the party involved in the
dealing would be responsible. Thus, prayer has been
made on behalf of the accused persons that the
aforementioned all the three accused persons may be
F discharged from this case.
......__
The aforesaid contentions have been opposed on behalf
of the complainant and it has been stated that all these
three persons were party in the whole dealing and their
liability is just like other accused persons.
G
It is clear from the perusal of the complaint that total 6
accused persons have been made parties in this matter
1•
by the complainant and in her statement U/s 200 of Cr.P.C., "'- '
complainant has clearly stated that Manish Arom, Ashish
H Narula and L.K. Sharma and Bela Narula and wife of L.K.
LAUT KUMAR SHARMA AND ANR. v. STATE OF U.P. 803
....j'
& ANR. [S.B. SINHA, J.]
Sharma were directors of the company. All th.e five accused A
persons demanded loan of Rs. Five Lakh Two Hundred
Fifty from the complainant for some time and promised
her to return the said money soon. All the five persons
have been equally involved in the dealing of giving and
receiving the cheque." B
_A.,
15. Evidently, therefore, the second cheque was issued in
terms of the compromise. It did not create a new liability. As the
compromise did not fructify, the same cannot be said to have
been issued towards payment of debt.
c
16. Ingredients of Section 138 of the Act are as under:

(i) that there is a legally enforceable debt;
(ii) that the cheque was drawn from the account of bank
for discharge in whole or in part of any debt or other
D
liability which presupposes a legally enforceable
debt; and
(iii) that the cheque so issued had been returned due to
insufficiency of funds.
E
17. Thus, the second cheque was issued by Manish
Arora for the purpose of arriving at a settlement. The said
cheque was not issued in discharge of the debt or liability of
the Company of which the appellants were said to be the
directors. There was only one transanction between Shri Ashish
Narula, Shri Manish Arora, Directors of the Company and the F
--+ complainant. They have already been punished. Thus, the
question of entertaining the second complaint did not arise. It
was, in our opinion, wholly misconceived. The appeal, therefore,
in our opinion, must be allowed. It is directed accordingly.
Respondent shall bear the costs of the appellants. Counsel's G
fee assessed at Rs. 25,000/-.
., ' ..J S.K.S. Appeal allowed .

H
::ii..