While refusing to quash the complaint under Section 138 of the Negotiable Instruments (NI) Act, the Delhi High Court has held that where settlement terms in a Section 138 NI Act matter expressly provide that legal remedies are only temporarily suspended, subject to the complaint already filed under Section 138, and further provide that withdrawal of complaints will happen only upon honouring of settlement cheques, the original complaint does not automatically stand compounded, extinguished, or subsumed merely because a later settlement was executed. In such a case, continuation of the original complaint is legally permissible, particularly where no payment has been made and the later settlement cheques were never encashed.
The Court clarified that the observation laid down by the Apex Court in the case of Gimpex Pvt. Ltd. v. Manoj Goel [2021 SCC OnLine SC 925] applies only where the settlement wholly replaces the original cause and gives rise to a fresh and separate Section 138 cause of action, leading to an impermissible parallel prosecution. It does not apply where the settlement itself preserves the pending complaint and only keeps it in abeyance pending performance. The Court also clarified that disputes over interpretation of such settlement terms are factual matters not fit for quashing under Section 482 CrPC unless the defence is based on unimpeachable material.
A Single Judge Bench of Justice Amit Mahajan first reiterated the settled position that quashing of a complaint under Section 138 NI Act at a pre-trial stage is an exception, and can be done only where the accused produces unimpeachable material showing that no offence is made out. Referring to Rathish Babu Unnikrishnan v. State (NCT of Delhi) [2022 SCC OnLine SC 513], the Bench said that where factual controversy exists and the statutory presumption under the NI Act operates, the High Court should be slow to scuttle criminal proceedings before trial.
On examining the consent terms dated May 01, 2018 and Aug 03, 2018, the Bench found that both documents expressly stated that the parties’ legal rights and remedies were only “temporarily suspended” and that such suspension was “subject to the action already taken U/s 138”. The consent terms also stated that criminal complaints would be withdrawn only if the post-dated cheques issued under the settlement were honoured. Prima facie, therefore, the settlement documents did not automatically wipe out or extinguish the pending NI Act complaint; rather, they contemplated that the complaint would be kept on hold pending payment.
The Bench found that the settlement terms themselves preserved the earlier Section 138 proceedings and only kept them in abeyance. Further, the security cheques issued under the later consent terms were never presented for encashment, so there were no second prosecution and no duplication of criminal proceedings.
The Bench also took note of the conduct of the accused after the settlements. It recorded that repeated adjournments were sought to make payment under the settlement, the cheques under the consent terms were allegedly not presented because the accused kept seeking time, and on Nov 29, 2018 the accused persons’ own counsel stated before the trial court that payment could not be made and the matter may proceed further. The Bench said this prima facie showed that the parties never intended immediate withdrawal of the original complaint before actual payment of the settlement amount.
On the argument that there was no longer a legally recoverable debt because the liability had been shifted to FLSPL, the Bench rejected the contention. It observed that the offence under Section 138 is complete once the cheque is dishonoured, and a later assignment or transfer of debt to a sister concern does not by itself invalidate the original liability, especially where the settlement itself preserves recourse against the original accused and no amount has actually been paid to the complainant.
The Bench also refused to interfere with the challenged procedural orders. It upheld the order dated Nov 30, 2019 closing the accused company’s right to cross-examine, noting that sufficient opportunities had already been given and the adjournment request was not justified. It also refused to interfere with the order dated Nov 29, 2018 framing notice, particularly because the accused’s own counsel had agreed that the matter should proceed. As regards the challenge to the statement under Section 313 CrPC, the Bench noted that no meaningful argument had been pressed and no specific prejudice had been shown.
Briefly, the petitions arose out of a complaint under Section 138 of the Negotiable Instruments Act, 1881 filed by Apace Transco Pvt Ltd. and its director against Flywheel Logistics Pvt Ltd. and its directors, including Anil Sayal and Luv Bhardwaj. The complaint concerned dishonour of cheques issued towards payment for logistics services availed by the accused company. The parties had first entered into an MOU dated Feb 25, 2017, and later a second MOU dated June 15, 2017, under which three fresh cheques were issued for the outstanding amount of Rs. 2.97 crores. When the cheques were presented, they were dishonoured, first on Aug 08, 2017 and again on Sep 06, 2017, following which a statutory notice dated Sep 29, 2017 was issued and the complaint was filed on Nov 08, 2017.
After the complaint was filed, the parties entered into further settlement arrangements. On May 01, 2018, consent terms were executed under which the accused company’s liability was admitted at Rs. 3.36 crores and the amount was stated to have been transferred to the books of Flywheel Logistics Solutions Pvt Ltd. (FLSPL), a sister concern. Seven security cheques were issued under these terms. Later, on Aug 03, 2018, a fresh set of consent terms was entered into with FLSPL, again recording the admitted liability and issuing seven new security cheques. The trial court was informed of these settlements, and the matter was repeatedly adjourned for verification of payment, but no payment was ultimately made. On Nov 29, 2018, in the presence of the accused persons, their counsel submitted that payment could not be made and requested that the matter proceed further, after which notice under Section 251 CrPC was framed.
The petitioners approached the High Court seeking quashing of the complaint and also challenged certain trial court orders, including the framing of notice, closure of the company’s right to cross-examine the complainant witness, and recording of the statement of Anil Sayal under Sections 281/313 CrPC. Their core argument was that once the parties had entered into settlement consent terms and the liability had been taken over by FLSPL, the original complaint stood effectively compounded or subsumed, and the complainant could not continue with the earlier Section 138 proceedings.
