Supreme Court in a Cheque Dishonour case rules: Court Cannot Override Agreement between Parties to Compound the Offence

Supreme Court in a Cheque Dishonour case rules: Court Cannot Override Agreement between Parties to Compound the Offence

The Supreme Court by its division bench comprising of Justices Krishna Murari and V Ramasubramanian observed 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.

The Top Court was hearing two appeals filed in the matter of BV Seshaiah vs. State of Telangana and B Vamsi Krishna vs. State of Telangana against the judgment passed by the High Court of Judicature at Hyderabad convicting the Appellants for offences under Section 138 of the Negotiable Instruments Act, 1881.

After the Appellants' conviction, a revision was preferred by them in the High Court. It was important to note that during the course of the revision filed by the Appellants, the parties had entered into a Memorandum of Understanding to settle the dispute within themselves.

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.

Further, it was 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 had failed to do so. The lack of filing of such a compromise petition, as agreed upon by the Respondent No.2, had led to the High Court dismissing the Revision and confirming the Conviction of the Appellants.

The Apex Court opined 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 Top Court remarked that, the Appellants cannot be convicted based on the orders passed by the Courts, as the settlement is nothing but a compounding of the offence.

Lastly the Court concluded, "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."

In view of the aforesaid reasons, the Top Court allowed the appeals and set aside the order of conviction passed by the Trial Court.