India: Mediation For Offence Under Section 138 Of Ni Act, 1881 – Analysis Of The Delhi High Court Judgment

Last Updated: 30 November 2017
Article by Akanksha Sisodia, Mahip Singh Sikarwar and Palash Jain

Most Read Contributor in India, December 2018


A divisional bench of Hon'ble Delhi High Court headed by Chief Justice Gita Mittal and Justice Anu Mehrotra recently delivered a landmark judgment and held that Compoundable Offences2 can also be resolved through Mediation and thereafter laid the procedure to be adopted in such a case and the implications of legal breach. It implies that offences under Section 138 of Negotiable Instrument's Act, 18813 can be tried under Section 89 of Code of Civil Procedure Code, 19084 which specifies the disputes that can be resolved under Alternate Dispute Resolution ("ADR"). The bench while giving its judgment relied on the three bench judgment of Hon'ble Supreme Court in Damodar S. Prabhu v Syed Babala5 which ruled that "the punishment in cases under NI Act is not a means of seeking retribution, but is more a means to ensure payment of money." As a general principle of law, the Code of Criminal Procedure, 1973 ("CrPC") and the Negotiable Instruments Act, 1881 ("NI Act") do not contain any provision to refer matters to ADR unlike some of the other statutes i.e Hindu Marriage Act (Section 23), the Family Courts Act, 1984 (Section 9) and; the Industrial Disputes Act, 1947 (Section 10) which explicitly provide for settlement by the same.

The rationale on which the bench majorly rested its reasoning for the judgment was that there is no bar or restriction on using the Alternative Dispute Resolution mechanisms in either of the statutes, i.e the NI Act, 1881 or the CrPC, 1973, thereby providing the requisite leverage to refer the disputes under Section 138 to mediation. The bench answered five major questions pertaining to the issue which have been reproduced herein below:

Questions answered:

Question I: Is it legal to refer a criminal compoundable case as of Section 138 of NI Act, to mediation?6 To this question, the Honorable Division bench replied in affirmative and stated that it is legal to refer such disputes to mediation.

It is a settled principle that as far as a civil dispute is concerned, Courts shall adopt the principles as laid down in the case of Afcon Infrastructure Limited.7 Accordingly, Courts first ascertain if it's a fit case for adjudication by means of ADR process and then accordingly decide the kind of ADR (Arbitration, Conciliation, Mediation) as per consent of the parties. In the instant case, the bench opined that even though there is no express statutory provision under the Criminal Code to refer the parties to mediation, such matters can be referred to ADR if they fall under the ambit of Section 320, Cr.P.C8 and such settlement shall be an order of the Court.

Question II: The next question answered by the Honorable Division Bench was that the whether the Mediation and Conciliation Rules, 2004 enacted under the Code of Civil Procedure be and imported and applied in criminal cases or not? Is the formulation of separate rules required in this regard?

The Delhi Court framed "The Mediation and Conciliation Rules,2004" in exercise of the rule making power under Part X of the Code of Civil Procedure, 1908 ("CPC") and Section 89(2)(d) of the CPC. The rules cover all the proceedings which are pending before the Delhi High Court or any other sub-coordinate court. As far as the nature of the proceeding under Section 138 are concerned, they are quasi-civil in nature and the Criminal Courts follow the principle used by civil court's to adjudicate the same.

Question III: Thereafter the Court had to adjudicate on the question that once the dispute has been referred to mediation, then what procedure has to be followed in its furtherance?

In several cases, the Apex Court has held that after considering the legislative ambit of Section 147 of NI Act , the offences under Section 138 can be termed as Compoundable. Therefore, the procedure to be adopted for the settlement would be as per the principles of CPC i.e. Order XXIII Rule 3 which provide for Compromise of Suits. It is to be noted that generally the principles of Civil procedure shall not apply to Criminal matters, but as there is a lacuna in the legislative intent, Order XXIII Rule 3 of the CPC shall squarely apply to the subject matter of consideration by a Court under Section 320 of the Cr.P.C. or Section 147 of the NIA.

Question IV: The other question for the consideration for the Honorable Bench was that in case the settlement reached in the process of mediation is not honored by the parties then, what would be subsequent course of action? Will the court proceed with the case by conducting trial on merits or hold such settlement to be executable as decree?9

In case of breach of the terms of the settlement Agreement, Section 421 of the CrPC10 comes into play which provides the mechanism to recover fines. Also, under Section 431 of CrPC11., in case money is to be collected other than fine under CrPC and the method is not expressly provided, it shall be recoverable in terms of Section 421 CrPC. Also, if a Court accepts an undertaking in the form of an Agreement and there is non-compliance of the same, the parties shall be punished under Section 2(b) Contempt of Courts Act, 1971.12

Question V: If the Mediated Settlement Agreement, by itself, is taken to be tantamount to a decree, then, how the same is to be executed? Is the complainant to be relegated to file an application for execution in a civil court? And if yes, what should be the appropriate orders with respect to the criminal complaint case at hand. What would be the effect of such a mediated settlement vis-à- vis the complaint case?13

As in the case of a civil dispute, the settlement between the parties is in terms of the decree of the Court and is to be executed under the procedure of Order XXIII of the CPC unlike in criminal cases which cannot be executed similarly. Also , a settlement in mediation arising out of referral in a civil court can result in a decree upon compliance with the procedure under Order XXIII of the C.P.C which cannot be done in case of a criminal matter.


By means of in The Arbitration & Conciliation Act (Amendment) Act, 2015, the main objective of the legislature was to expedite the process of ADR mechanism and reduce the burden of Courts by making it more effective and time bound process. Thus, through this order, the Judiciary has given a signal of permitting resorting to mediation and other alternative disputes redressal mechanism in criminal cases by enunciating the procedure to be followed and consequences of the legal breach.


2. Section 147- Offences to be compoundable

3. Section 138- Dishonor of cheque for insufficiency, etc., of funds in the account.

4. Section 89- Settlement of disputes outside the Court

5. 2010 5 SCC 663

6. Dayawati v. Yogesh Kumar Gosain (MANU/DE/3173/2017); Para.1

7. Afcons Infrastructure Ltd. & Anr. v. Cherian Varkey Constructions Co. Pvt. Ltd, (2010) 8 SCC 24

8. Section 320 - Compounding of offences

9. Ibid.

10. Section 421- Warrant for levy of fine

11. Section 431- Money ordered to be paid recoverable as fine

12. Section 2(b) Contempt of Courts Act- (b) "civil contempt" means wilful disobedience to any judgment, decree, direction, order, writ or other process of a court or wilful breach of an undertaking given to a court;

13. Supra 3 Pg.2

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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