India: Delhi High Court: Go To Mediation For Cheque Bouncing

Last Updated: 14 November 2017
Article by S.S. Rana & Co. Advocates

In today's world, numerous commercial transactions take place in a routine fashion. With the passage of time we have evolved from barter system in the ancient age to a uniform mode of currency. As the technology has advanced, cash transaction have been replaced by Real Time Gross Settlement (RTGS). Even in the resent scenario, cheques remain an important mode of business intercourse.

A cheque is an acknowledged bill of exchange that is readily accepted in lieu of payment of money and it is negotiable. However, with the fall in moral standards, even these negotiable instruments are losing their creditability by not being honoured on presentment. Considering the very nature of the cheque being a negotiable instrument as a speedy vehicle of commerce, an action under the regime of civil legislation remained insufficient and hence the bouncing of cheques was recognized to be an offence liable for penalty.

In a recent move, the Delhi High Court in the case of Dayawati Vs. Yogesh Kumar Gosain (CRL.REF.No.1/2016) held that the cases of dishonor of cheques could be referred to alternate dispute resolution mechanisms like Arbitration, Mediation, Conciliation.

Brief Facts

In part discharge of his liability, the drawer issued two account payee cheques in favour of the complainant which were dishonoured by the drawer's bank on presentation on account of "insufficiency of funds". The demand notice of the complainant went unheeded and hence an action was initiated for the dishonor of cheque (under Section 138 of the Negotiable Instrument Act, 1881). Both parties expressed the intention to amicably settle their disputes and the matter was referred for mediation. After negotiations the parties settled their disputes under a common settlement agreement whereby they agreed to comply with the terms of the settlement.

The accused drawer failed to comply with the terms of the settlement. Thus, the Metropolitan Magistrate held that the Mediation had failed. Thereafter, the Complainant filed an application for enforcement of settlement to which the accused argued that the settlement agreement was not binding contending it to be unfair and arbitrary.

In view of the question of law that has arose, and the requirement of proper adjudication, a reference was been made for consideration and guidance of the Hon'ble High Court of Delhi (under Section 395 of The Code of Criminal Procedure, 1973).


The Court held that even though an express statutory provision enabling the criminal court to refer the complainant and accused persons to alternate dispute redressal mechanisms has not been specifically provided by the Legislature, the Code of Criminal Procedure (hereinafter referred to as the 'CrPC') does permit and recognize settlement without stipulating or restricting the process by which it may be reached.

It was concluded that there is no bar to utilizing the alternate dispute mechanisms including arbitration, mediation, conciliation (recognized under Section 89 of the Code of Civil Procedure) for the purposes of settling disputes which are the subject matter of offences covered under Section 320 of the Cr.P.C.


The Court arrived at its decision considering the following points:

  1. It is legal to refer a criminal compoundable case as one under Section 138 of the NI Act to mediation.
  2. The Cr. P.C gives statutory recognition to settlements between complainants/ victims and accused persons for criminal matters under Section 320 of the Cr.P.C.
  3. Applicability of Mediation rules to criminal and cheque bouncing matters
    The Court observed that formulation of Mediation and Conciliation Rules, prescribed by the rule making power under Part X of the Code of Civil Procedure, provide for mediation not only in civil suits, but also for mediation in a matter referred by the Court concerning criminal cases as well as proceedings under Section 138 of the N.I. Act.
  4. Procedure followed once a Cheque bouncing case has already been referred for mediation
    The Court laid down the following procedure to be followed once the dispute has been referred for mediation:

    1. Upon the receipt of complaint under Section 138 of the N.I Act, 1881, the Magistrate on being satisfied about the existence of elements of settlement shall inquire from the parties about their willingness towards an amicable settlement.
    2. The interested parties should be informed by the Court about the various settlement mechanisms available including Lok Adalats, Mediation as well as conciliation.
    3. Once the parties choose the appropriate mechanism to resolve their disputes, the Court should refer the parties to such forum while stipulating the prescribed time period, within which the matter should be negotiated (ideally a period of six weeks) and the next date of hearing in order to monitor the progress and outcome of such negotiations.
    4. If the parties seek reference to mediation, the Court should list the matter before the concerned mediation center/mediator on a fixed date directing the presence of the parties/authorized representatives before the mediator on the said date.
    5. If referred to mediation, the courts/ mediators, should encourage parties to resolve their overall disputes of the parties.
    6. The parties should endeavor to interact/discuss their individual resolutions/proposals for efficient resolution within the period granted by the Court.
  5. Composition of Settlement Deed
    The Court held that the settlement agreement must incorporate:

    1. Clear stipulation of the amount agreed to be paid by one of the parties to the other.
    2. Clear & simple method, manner and mode of payment.
    3. Undertakings by the parties to abide and be bound by settlement terms.
    4. Clear stipulation of penalty in event of default/ breach of settlement terms.
    5. Stipulation stating voluntariness of settlement and declaration being made by free will.
    The mediator should submit carefully executed settlement deed duly signed by both parties along with settlement agreement to the Court.
  6. Proceedings before the Court
    The Court discussed the procedure to be followed by the Magistrate in furtherance of Order XXIII of the Code of Civil Procedure:

    1. The Magistrate should record the statement of the parties on Oath affirming the terms and contents of the settlement entered into voluntarily with free will along with an undertaking to abide by its terms supported by an affidavit.
    2. The Magistrate should satisfy himself that the settlement agreement is lawful, genuine, equitable, not opposed to public policy, voluntary and that there is no legal impediment in accepting the same.
    3. Pursuant to recording of the statement of the parties, the Magistrate should specifically accept the statement of the parties, their undertakings and hold them bound by the terms of the settlement terms entered into.
    In case reference in a criminal case is restricted to only an underlying civil dispute and a settlement is reached in mediation, the referring Court could require the mediator to place such settlement in the civil litigation between the parties which would proceed in the matter in accordance with prescribed procedure.
  7. Breach of the mediation settlement
    In the event the mediation is accepted by the Court and not complied with:

    1. The Magistrate would direct the accused to make payment in the same manner as fine would be recovered.
    2. Additionally, appropriate action might be taken upon failure of compliance with the undertaking including proceedings for Contempt of Courts.


In arriving at the aforesaid decision the Court has taken into account the factor that the Supreme Court of India vide a catena of cases has encouraged the settlement of disputes through dispute resolution mechanism. It was held that there is no legal prohibition upon a Court, seized of a complaint under N.I. Act, to encourage dispute resolution by recourse to the alternate dispute resolution methods including mediation.

It has been observed that even criminal cases involving offences which arise from commercial, financial, mercantile, partnership or similar transactions with an essentially civil flavour may in appropriate situations, fall for quashing where parties have settled the dispute. The Court also held that the proceedings under Section 138 of the N.I. Act are in the nature of a civil wrong which has been given criminal overtones.

The Court seems to have adopted a positive approach by promoting the settlement through efficient, effective, speedy, convenient and inexpensive process to resolve disputes with dignity, mutuality, respect and civility where parties participate in arriving at a negotiated settlement rather than being confronted with a third party adjudication of their disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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