REPORTABLE IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO_263_ OF 2012 (Arising out of SLP (Crl.) No.4445/2009)

JIK Industries Limited & Ors. ....Appellant(s)

- Versus -

Amarlal V. Jumani and Another ....Respondent(s)

WITH Crl.A. No…264/2012 @ SLP(Crl) No.4446/2009, Crl.A. No 265/2012 @ SLP(Crl) No.4447/2009, Crl.A. No.266/2012 @ SLP(Crl) No.4448/2009, Crl.A. No.267/2012 @ SLP(Crl) No.4449/2009, Crl.A. No.268/2012 @ SLP(Crl) No.4450/2009, Crl.A. No.269/2012 @ SLP(Crl) No.4451/2009, Crl.A. No.270/2012 @ SLP(Crl) No.4452/2009, Crl. A.No.271/2012 @ SLP(Crl) No.4453/2009, Crl.A. No.272/2012 @ SLP(Crl) No.4454/2009,  Crl.A. No.273/2012 @ SLP(Crl) No.4456/2009, Crl.A. No.274/2012 @ SLP(Crl) No.4457/2009, Crl.A. No…275-294/2012 @ SLP(Crl) No.843-862/2010, Crl.A. No…295-303/2012 @ SLP(Crl) No.6643-6651/2010.

J U D G M E N T

GANGULY, J.

1. Leave granted.

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2. This group of appeals were heard together as they  

involve common questions of law. There are some  

factual differences but the main argument by the  

appellant(s) in this matter was advanced by Mr.  

Chander Uday Singh, Senior Advocate on behalf of  

the  Sharp  Industries  Limited  in  SLP  (Crl.)  

No.6643-6651  of  2010  and  the  facts  are  taken  

mostly from the said case.

3. The learned counsel assailed the judgment of the  

High  Court  wherein  by  a  detailed  judgment  High  

Court  dismissed  several  criminal  writ  petitions  

which were filed challenging the processes which  

were  issued  by  the  learned  Trial  Judge  on  the  

complaint filed by the respondents in proceedings  

under  Section  138  read  with  Section  141  of  

Negotiable  Instruments  Act,  1881  (hereinafter  

‘N.I. Act’). By way of a detailed judgment, the  

High  Court  after  dismissing  the  writ  petitions  

held that sanction of a scheme under Section 391  

of the Companies Act, 1956 (hereinafter ‘Companies  

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Act’) does not amount to compounding of an offence  

under Section 138 read with Section 141 of the  

N.I. Act. The High Court also held that sanction  

of a scheme under Section 391 of the Companies Act  

will  not  have  the  effect  of  termination  or  

dismissal of complaint proceedings under N.I. Act.  

However, the learned Judge made it clear that the  

judgment of the High Court will not prevent the  

petitioners  from  filing  separate  application  

invoking  the  provisions  of  Section  482  Criminal  

Procedure Code, if they are so advised.  Assailing  

the  said  judgment  the  learned  counsel  submitted  

that an unsecured creditor who does not oppose the  

scheme of compromise or arrangement under Section  

391 of the Companies Act must be taken to have  

supported the scheme in its entirety once such a  

scheme is sanctioned by the High Court, even a  

dissenting  creditor  cannot  file  a  criminal  

complaint under Section 138 of the N.I. Act for  

enforcement  of  a  pre-compromise  debt.   Nor  can  

such a creditor oppose the compounding of criminal  

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complaint which was filed under Section 138 of the  

N.I. Act in respect of pre-compromise debt.  

4. The  material  facts  of  the  case  are  that  the  

appellant company on or about 12th May, 2005 came  

out with a scheme by which it was agreed that the  

appellant company should be revived and thereafter  

payments will be made to the creditors.  Pursuant  

to  such  scheme  the  appellant  company  filed  a  

petition under Section 391 of the Companies Act to  

the  High  Court.   The  whole  scheme  was  placed  

before  the  High  Court  and  according  to  the  

appellant(s), first order of the scheme came to be  

passed  by  the  Hon’ble  High  Court  by  its  order  

dated 5th May, 2005 in Company Petition No.92 of  

2005.  At the time the said company petition was  

pending, a meeting was convened by the appellant  

company on 1.6.05 and the same was attended by  

several creditors including representative of the  

first  respondents  and  they  opposed  the  scheme.  

Despite  the  said  opposition,  the  appellant(s)  

succeeded  in  getting  the  scheme  approved  by  4

statutory  majority  as  required  under  the  law.  

Thereafter, on 17.11.2005 another company petition  

with a fresh scheme (Company petition No. 460 of  

2005) was filed.  After the said company petition  

was filed all proceedings which were initiated by  

different companies against the appellant(s) came  

to be stayed by the High Court.  In view of the  

aforesaid  scheme  the  appellant  company  filed  

application for compounding under Section 147 of  

the N.I. Act read with Section 320 of the Criminal  

Procedure  Code  (hereinafter,  ‘the  Code’)  and  

Section 391 of the Companies Act.  However, the  

respondents  opposed  the  said  prayer  of  the  

petitioner  and  by  an  order  dated  19th January,  

2007,  the  learned  Chief  Judicial  Magistrate,  

Ahmednagar rejected the application filed by the  

appellant for termination of the proceedings inter  

alia on the ground that the learned Magistrate has  

no power to quash or terminate the proceedings.   

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5. Being  aggrieved  by  the  said  order  of  the  

Magistrate,  the  appellants  filed  writ  petitions  

before the High court.   

6. Similar petitions were filed on 6.7.2009 by JIK  

Industries  Limited  and  another.   All  those  

petitioners were dismissed by the High court on  

18.3.2010  in  view  of  an  order  dated  14.8.2008  

passed by the High Court in connection with the  

petitions  filed  by  other  similarly  placed  

companies (JIK Industries).

7. In  the  background  of  the  aforesaid  facts  the  

contentions  raised  by  the  appellant  company  is  

that the scheme envisaged a compromise between the  

company and the secured creditors on the one hand  

and  its  unsecured  creditors  on  the  other  hand.  

Such scheme was framed pursuant to the order of  

the  Company  Court  dated  5th May,  2005  which  

directed  meeting  of  the  different  classes  of  

creditors  for  consideration  of  the  scheme.  6

Thereafter,  meeting  was  convened  of  unsecured  

creditors and the scheme was approved on 1st June,  

2005 by the requisite majority of the shareholders  

and  unsecured  creditors.   Then  the  scheme  was  

taken up for sanction by the Company Court.  The  

Court  considered  the  objections  of  some  of  the  

unsecured creditors and workmen but ultimately by  

its judgment dated 17th November, 2005 approved the  

scheme with a few minor modifications.  It was  

also urged that some of the secured and unsecured  

creditors have taken advantage of the scheme and  

did not challenge the scheme.  However, the scheme  

was challenged by the appellant(s) in respect of  

certain observations made therein by the learned  

Company  Judge  and  the  said  appeal  is  pending  

before the Bombay High court.  The learned counsel  

for the appellant(s) argued that the effect of a  

scheme of compromise between the company and its  

creditors under Section 391 of the Companies Act  

is  binding  upon  all  class  of  creditors  whether  

they are assenting or dissenting.  The purpose of  

a scheme under Section 391 and 392 is restructure  

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and alteration of the old debts which were payable  

prior  to  the  scheme  so  as  to  make  the  debts  

payable in the manner and to the extent provided  

under the scheme.   

8. In  so  far  as  the  case  of  JIK  Industries  is  

concerned, it has been urged that the scheme in  

JIK is different that Sharp. The learned counsel  

for  the  appellant(s)  urged  that  the  once  the  

scheme is sanctioned, it relates back to the date  

of  the  meeting  and  in  support  of  the  said  

contention reliance was placed on a judgment of  

the Privy Council in the case of  Raghubar Dayal  vs.  The Bank of Upper India Ltd. reported in AIR  1919 P.C. 9. It was also urged that in a scheme  

under  Section  491  a  judgment  is  in  rem.  The  

learned counsel further submitted that admittedly  

the respondents objected to the scheme and is a  

dissenting creditor.  

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9. The learned counsel for the respondents (in Sharp  

Industries case) on the other hand submitted that  

in  the  petition  which  was  filed  before  the  

Magistrate on behalf of the Sharp Industries the  

prayer  was  only  for  quashing  of  the  criminal  

proceedings  and  there  was  no  prayer  for  

compounding of the offences. While the Magistrate  

refused to quash the said proceeding then while  

challenging the same in the High Court the prayer  

for compounding was made for the first time. The  

learned counsel for the respondents (in the case  

of JIK Industries) has drawn the attention of this  

Court to the order dated 3.10.2006 passed by the  

Metropolitan Magistrate, XII Court Bandra, Mumbai  

whereby the learned Magistrate passed an order on  

the application of the accused, the appellant, for  

compounding of offences under Section 138. By the  

said  order  the  learned  Magistrate  rejected  the  

prayer  for  compounding  made  by  the  appellant(s)  

under Section 147 of the N.I. Act.

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10. It was also pointed out by some of the respondents  

that  after  the  High  Court  passed  the  impugned  

order whereby the prayer for compounding by the  

appellant(s)  was  rejected  and  the  appellant(s)  

were given an opportunity to file a petition under  

Section  482  of  the  Criminal  Procedure  Code  for  

quashing  of  the  complaint,  some  of  the  

appellant(s) availing of that liberty also filed  

application for quashing of the proceedings. They  

have also filed SLPs before this Court. This Court  

should, therefore, dismiss the SLPs.

11. Considering the aforesaid submissions of the rival  

parties,  this  Court  finds  that  the  effect  of  

approval of a scheme of compromise and arrangement  

under Section 391 of the Companies Act is that it  

binds the dissenting minority, the company as also  

the liquidator if the company is under winding up.  

Therefore, Section 391 of the Companies Act gives  

very wide discretion to the Court to approve any  

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set  of  arrangement  between  the  company  and  its  

shareholders.  

12. Learned  counsel  for  the  appellant(s)  placed  

reliance on the decision of this Court in  M/s.  J.K. (Bombay) Private Ltd. vs. M/s. New Kaiser-I- Hind Spinning and Weaving Co., Ltd., and others  reported in AIR 1970 SC 1041 in support of his  

contention that a scheme under Section 391 of the  

Companies Act is not a mere agreement but it has a  

statutory force. The learned counsel also urged,  

relying on the said judgment that the scheme is  

statutorily binding even on dissenting creditors  

and shareholders. The effect of the scheme is that  

so long as it was carried out by the company by  

regular payment in terms of the scheme, a creditor  

is bound by it and cannot maintain even a winding-

up petition.  

13. Even  if  the  aforesaid  position  is  accepted  the  

same does not have much effect on any criminal  1

proceedings initiated by the respondent creditors  

for non-payment of debts of the company arising  

out  of  dishonour  of  cheques.  Factually  the  

allegation of the respondent is that even payment  

under  the  scheme  has  not  been  made.  However,  

without  going  into  those  factual  controversies,  

the legal position is that a scheme under Section  

391 of the Companies Act does not have the effect  

of creating new debt. The scheme simply makes the  

original  debt  payable  in  a  manner  and  to  the  

extent provided for in the scheme. In the instant  

appeal in most of the cases the offence under the  

N.I. Act has been committed prior to the scheme.  

Therefore,  the  offence  which  has  already  been  

committed  prior  to  the  scheme  does  not  get  

automatically compounded only as a result of the  

said  scheme.  Therefore,  even  by  relying  on  the  

ratio of the aforesaid judgment, this Court cannot  

accept the appellant’s contention that the scheme  

under Section 391 of the Companies Act will have  

the  effect  of  automatically  compounding  the  

offence under the N.I. Act.  

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14. The  learned  counsel  for  the  appellant(s)  also  

relied  on  various  other  judgments  to  show  the  

effect  of  the  scheme  under  Section  391  of  the  

Companies  Act.  Reliance  was  also  placed  on  the  

decision of this Court in the case of S.K. Gupta  and another vs. K.P. Jain and another reported in  1979 (3) SCC 54. In the case of S.K. Gupta (supra)  also the ratio in the case of  M/s. J.K. (Bombay)  Private Ltd. (supra) was relied upon and it was  held  that  a  scheme  under  Section  391  of  the  

Companies Act has a statutory force and is also  

binding on the dissenting creditor. Various other  

questions were discussed in the said judgment with  

which we are not concerned in this case.

15. The scheme under Section 391 of the Companies Act  

has been very elaborately dealt with by this Court  

in the case of  Miheer H. Mafatlal vs.  Mafatlal  Industries Ltd. reported in AIR 1997 SC 506. From  a perusal of the various principles laid down in  

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Mafatlal (supra), it is clear that the proposed  scheme  cannot  be  violative  of  any  provision  of  

law, nor can it be contrary to public policy. (see  

paragraph 29 sub-paragraph 6 at page 602 of the  

report).

16. In  Hindustan  Lever  and  another vs.  State  of  Maharashtra and another reported in (2004) 9 SCC  438 it has been reiterated that a scheme under  

Section 391 of the Companies Act is binding on all  

shareholders  including  those  who  oppose  it  from  

being sanctioned. It has also been reiterated that  

the  jurisdiction  of  the  Company  Court  while  

sanctioning the scheme is supervisory. This Court  

in  Hindustan  Lever (supra)  also  accepted  the  principle laid down in sub-para 6 of para 29 in  

Mafatlal  (supra) discussed above and held that a  scheme  under  Section  391  of  the  Companies  Act  

cannot be unfair or contrary to public policy, nor  

can it be unconscionable or  against the law (see  

para 18 page 451 of the report)

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17. In  the  case  of  Administrator  of  the  Specified  Undertaking of the Unit Trust of India and another  vs.  Garware Polyester Ltd. reported in (2005) 10  SCC  682,  this  Court  held  that  a  scheme  under  

Section 391 of the Companies Act is a commercial  

document and the principles laid down in the case  

of  Mafatlal (supra) have been relied upon and in  para 32 at page 697 of the report it has been  

reiterated that the scheme must be fair, just and  

reasonable and should not contravene public policy  

or any statutory provision and in paragraph 33 at  

page 697 of the report, sub-paragraph 6 of para 29  

of Mafatlal (supra) has been expressly quoted and  approved.

18. Therefore,  the  main  argument  of  the  learned  

counsel for the appellant(s) that once a scheme  

under  Section  391  of  the  Companies  Act  is  

sanctioned  by  the  Court  the  same  operates  as  

compounding of offence under Section 138 read with  

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Section 141 of the N.I. Act cannot be accepted.  

Rather the principle which has been reiterated by  

this Court repeatedly in the aforesaid judgments  

is  that  a  scheme  under  Section  391  of  the  

Companies Act cannot be contrary to any law. From  

this  consistent  view  of  this  Court  it  clearly  

follows that a scheme under Section 391 of the  

Companies Act cannot have the effect of overriding  

the requirement of any law. The compounding of an  

offence  is  always  controlled  by  statutory  

provision.  There  are  various  features  in  the  

compounding of an offence and those features must  

be  satisfied  before  it  can  be  claimed  by  the  

offender  that  the  offence  has  been  compounded.  

Thus, compounding of an offence cannot be achieved  

indirectly by the sanctioning of a scheme by the  

Company Court.  

19. The learned counsel also relied on a few other  

judgments  in  order  to  contend  the  scheme  of  

compromise  operates  a  statutory  consent  and  the  

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same will have the effect of restructuring legally  

enforceable debts or liabilities of the company.  

In  support  of  the  said  contention  reliance  was  

placed on the judgment of this Court in the case  

of  Balmer  Lawrie  Workers’  Union,  Bombay  and  another vs.  Balmer Lawrie & Co. Ltd. and others  reported in 1984 (Supp.) SCC 663. That decision  

related to a settlement reached in a proceeding  

under  Industrial  Disputes  Act  in  which  a  

representative union was a party. The Court held  

that  such  a  settlement  is  binding  on  all  the  

workmen of the undertaking. This Court fails to  

understand the application of this ratio to the  

facts of the present case.

20. Reliance was also placed by the learned counsel  

for the appellant(s) on the decision of this Court  

in the case of Shivanand Gaurishankar Baswanti vs.  Laxmi Vishnu Textile Mills and others reported in  (2008) 13 SCC 323. In that case also the question  

of  an  agreement  under  Section  18  of  Industrial  

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Disputes  Act  came  up  for  consideration  by  this  

Court.  The  wide  sweep  of  an  agreement  under  

Section 18 of the Industrial Disputes Act for the  

purpose of maintaining industrial peace is not in  

issue  in  this  case.  Therefore,  the  decision  in  

Shivanand (supra) does not have any relevance to  the question with which we are concerned in the  

facts and circumstances of the case.

21. The  learned  counsel  for  the  appellant(s)  then  

advanced his argument on the provisions of N.I.  

Act and the nature of the offence under the N.I.  

Act. Reliance was placed on explanation to Section  

138 of the N.I. Act in order to show that for the  

purposes of an offence under Section 138 of the  

N.I.  Act,  debt  or  other  liability  must  mean  a  

legally enforceable debt or liability. The learned  

counsel urged that even if a cheque is issued by  

the  appellant  company  and  which  has  been  

subsequently  dishonoured,  the  same  is  a  cheque  

relating to the debt of the company in respect of  

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which there is a sanctioned scheme. Therefore, the  

same is not a legally enforceable debt in as much  

as after the sanctioning of the scheme the debt of  

the  company  can  only  be  enforced  against  the  

company by a creditor in accordance with the said  

scheme and not otherwise. Reliance was also placed  

on Section 139 of the N.I. Act in order to contend  

that the statutory presumption must be construed  

in favour of the appellant company in as much as  

the  cheque  which  has  been  received  by  the  

respondent is not for the discharge of any debt of  

the  company  which  is  legally  enforceable.  The  

learned  counsel  relied  on  several  judgments  of  

this Court on the question of the nature of the  

offence under Section 138 of the N.I. Act.    

22. Reliance was placed on the decision of this Court  

in  the  case  of  Kaushalya  Devi  Massand vs.  Roopkishore Khore reported in (2011) 4 SCC 593.  The learned counsel relied on the observation made  

in  para  11,  at  page  595  of  the  report  and  

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contended that the gravity of a complaint under  

the N.I. Act cannot be equated with an offence  

under  the  provisions  of  Indian  Penal  Code  and  

further urged that this Court held that a criminal  

offence  under  Section  138  of  the  N.I.  Act  is  

almost in the nature of a civil wrong which has  

been given criminal overtones.

23. Reliance was also placed on the judgment of this  

Court  in  the  case  of  Mandvi  Cooperative  Bank  Limited vs. Nimesh B. Thakore reported in (2010) 3  SCC 83. This Court in Mandvi (supra) discussed the  scope of N.I. Act including the first amendment to  

the Act inserted under Chapter XVII in the Act.  

This Court looked into the Statement of Objects  

and  Reasons  introducing  the  amendment  and  noted  

the rationale for introduction of Section 147 of  

N.I.  Act.  Section  147  of  N.I.  Act  made  the  

offences  under  the  said  Act  compoundable.  The  

Court noted that from the Statement and Objects  

and Reasons it is clear that the Parliament became  

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aware of the fact that the courts are not able to  

dispose of, in a time bound manner, large number  

of cases coming under the said Act in view of the  

procedure in the Act. In order to deal with such  

situation, several amendments were introduced and  

one of them is making offences under the said Act  

compoundable. Section 147 of the N.I. Act is as  

follows:

“147.  Offences  to  be  compoundable.  –  Notwithstanding anything contained in the  Code  of  Criminal  Procedure,  1973  (2  of  1974), every offence punishable under this  Act shall be compoundable.”

24. This Court fails to understand the applicability  

of the principle laid down in  Mandvi  (supra) to  the facts of the present case. It is no doubt true  

that Section 147 of the N.I. Act makes an offence  

under N.I. Act a compoundable one. But in order to  

make the offence compoundable the mode and manner  

of compounding such offences must be followed. No  

contrary view has been expressed by this Court in  

Mandvi (supra).

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25. On  the  nature  of  the  offence  under  N.I.  Act  

learned counsel for the appellant(s) also placed  

reliance on a decision of this Court in the case  

of Damodar S. Prabhu vs. Sayed Babalal H. reported  in (2010) 5 SCC 663. In paragraph 4, this Court  

held that the dishonour of a cheque can be best  

described as a regulatory offence which has been  

created to serve the public interest in ensuring  

the reliability of these instruments and the Court  

has further held that the impact of the offence is  

confined  to  private  parties  involvement  in  

commercial transactions. The Court also noted the  

situation  that  large  number  of  cases  involving  

dishonour  of  cheques  are  choking  the  criminal  

justice system and putting an unprecedented strain  

on the judicial functioning. In paragraph 7 of the  

judgment this Court noted the submissions of the  

learned Attorney General to the extent that the  

Court  should  frame  certain  guidelines  so  as  to  

motivate the litigants from seeking compounding of  

the offence at an early stage of litigation and  2

not at an unduly late stage. It was argued that if  

compounding is early the pendency of arrears can  

be tackled.

26. In  paragraph  12  of  Damodar  (supra)  this  Court  dealt with the provision of Section 147 of the  

N.I. Act and held that the same is an enabling  

provision for compounding of the offence and is an  

exception to the general rule incorporated in sub-

section 9 of Section 320 of the Code. This Court  

harmonised  the  provision  of  Section  320  of  the  

Code along with Section 147 of N.I. Act by saying  

that  an  offence  which  is  not  otherwise  

compoundable in view of the provisions of Section  

320  sub-section  9  of  the  Code  has  become  

compoundable in view of Section 147 of N.I. Act  

and to that extent Section 147 of N.I. Act will  

override  Section  320  sub-section  9  of  the  Code  

since  Section  147  of  N.I.  Act  carries  a  non-

obstante clause. This Court on the basis of the  

submissions of the learned Attorney General framed  

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certain  guidelines  for  compounding  of  offence  

under  Section  138  of  the  N.I.  Act.  Those  

guidelines are as follows:

“THE GUIDELINES  (i) In the circumstances, it is proposed  as follows: (a) That directions can be given that the  writ  of  summons  be  suitably  modified  making  it  clear  to  the  accused  that  he  could make an application for compounding  of  the  offences  at  the  first  or  second  hearing of the case and that if such an  application  is  made,  compounding  may  be  allowed by the court without imposing any  costs on the accused. (b)  If  the  accused  does  not  make  an  application for compounding as aforesaid,  then if an application for compounding is  made before the Magistrate at a subsequent  stage, compounding can be allowed subject  to the condition that the accused will be  required to pay 10% of the cheque amount  to  be  deposited  as  a  condition  for  compounding  with  the  Legal  Services  Authority, or such authority as the court  deems fit. (c)  Similarly,  if  the  application  for  compounding  is  made  before  the  Sessions  Court  or  a  High  Court  in  revision  or  appeal, such compounding may be allowed on  the condition that the accused pays 15% of  the cheque amount by way of costs. (d)  Finally,  if  the  application  for  compounding  is  made  before  the  Supreme  Court, the figure would increase to 20% of  the cheque amount.”

2

27.   The  Court  held  in  paragraph  26  of  Damodar  (supra) that those guidelines have been issued by  

this Court under Article 142 of the Constitution  

in  order  to  fill-up  legislative  vacuum  which  

exists in Section 147 of the N.I. Act.  The Court  

held that Section 147 of the N.I. Act does not  

carry  any  guidance  on  how  to  proceed  with  the  

compounding of the offence under the N.I. Act and  

the Court felt that Section 320 of the Code cannot  

be strictly followed in the compounding of offence  

under  Section  147  of  the  N.I.  Act.   Those  

guidelines  were  given  to  fill  up  a  legislative  

vacuum.

28. Reliance was also placed by the learned counsel  

for the appellant(s) on the judgment of this Court  

in Central Bureau of Investigation, SPE, SIU (X),  New  Delh vs.  Duncans  Agro  Industries  Ltd.,  Calcutta reported  in  (1996)  5  SCC  591.  The  decision of this Court in Duncans Agro (supra) was  on the question of quashing the complaint under  

2

Section  482  of  Criminal  Procedure  Code.  In  the  

facts of that case the learned Judges held that  

the Bank filed suits for recovery of the dues on  

account of grant of credit facility and the suits  

have  been  compromised  on  receiving  the  payments  

from the company concerned. The learned Court held  

if  an  offence  of  cheating  is  prima  facie  

constituted,  such  offence  is  a  compoundable  

offence and compromise decrees passed in the suits  

instituted  by  the  Banks,  for  all  intents  and  

purposes amount to compounding of the offence of  

cheating.  In  that  case  the  Court  came  to  the  

conclusion since the claims of the Banks have been  

satisfied and the suits instituted by the Banks  

have been compromised on receiving payments, the  

Court  felt  that  the  complaint  should  not  be  

perused any further and, therefore, the Court felt  

“in the special facts of the case” the decision of  

the High Court in quashing the complaint does not  

require any interference under Article 136 of the  

Constitution.  

2

29. Quashing of a case is different from compounding.  

In  quashing  the  Court  applies  it  but  in  

compounding it is primarily based on consent of  

injured  party.   Therefore,  the  two  cannot  be  

equated.

30. It is clear from the discussion made hereinabove  

that  the  said  case  was  not  one  relating  to  

compounding of offence. Apart from that the Court  

found  that  the  dues  of  the  Banks  have  been  

satisfied  by  receiving  the  money  and  the  suits  

filed by the Bank in the Civil Court have been  

compromised. The FIRs were filed in 1987-1988 and  

the  investigation  had  not  been  completed  till  

1991.  On those facts the Court, rendering the  

judgment in July, 1996, felt that having regard to  

the lapse of time and also having regard to the  

fact that there is a compromise decree satisfying  

the Banks’ dues, there is no purpose in allowing  

the  criminal  prosecution  to  proceed.  On  those  

consideration, this Court, in the ‘special facts  

2

of the case’, did not interfere with the order of  

the  High  Court  dated  23.12.1992  whereby  the  

criminal prosecution was quashed.

31. It is, therefore, clear that no legal proposition  

has been laid down on the compounding of offence  

in  Duncans Agro (supra). This Court proceeded on  the peculiar facts of the case discussed above.  

Therefore,  the  said  decision  cannot  be  an  

authority to contend that by mere sanctioning of a  

scheme,  the  offences  committed  by  the  appellant  

company, prior to the scheme, stand automatically  

compounded.

32. Reliance was also placed on the decision of this  

Court in the case of  Hira Lal Hari Lal Bhagwati  vs.  CBI, New Delhi reported in (2003) 5 SCC 257.  In that case reliance was placed on the decision  

of this Court in Duncans Agro (supra). In Hira Lal  (supra)  this  Court  was  discussing  the  voluntary  

scheme  namely,  Kar  Vivad  Samadhan scheme  1998  2

introduced by the Government of India. The Court  

found that the aforesaid scheme being a voluntary  

scheme has provided that if the dispute and demand  

is  settled  by  the  authority  and  pending  

proceedings  were  withdrawn  by  an  importer  the  

balance  demand  against  the  importer  shall  be  

dropped and the importer shall be immune from any  

penal proceedings under any law. The Court also  

came to the conclusion that under the Customs Act,  

1962 the appellant(s) have been discharged and the  

scheme granted them immunity from prosecution. On  

those facts the Court held that the immunity which  

has been granted under the provisions of Customs  

Act will also extend to such offences that may,  

prima facie, be made out on identical allegation,  

namely, evasion of customs duty and violation of  

any  notification  under  the  said  Act.  The  Court  

also found, on a reading of the chargesheet and  

the FIR that there was no allegation against the  

appellant(s)  of  any  intentional  deception  or  of  

fraudulent or dishonest intention. On those facts  

the Court held that once a civil case has been  

2

compromised  and  the  alleged  offence  has  been  

compounded,  the  continuance  of  the  criminal  

proceedings thereafter would be an abuse of the  

judicial process.  

33. We fail to appreciate how the ratio in the case of  

Hira Lal (supra) rendered on completely different  facts  has  any  application  to  the  facts  of  the  

present case.

34. Reliance was also placed on the judgment of this  

Court in the case of  Nikhil Merchant vs.  Central  Bureau  of  Investigation  and  another reported  in  (2008) 9 SCC 677. In paragraphs 30 and 31 of the  

judgment  this  Court  held  that  dispute  between  

company and the Bank have been set at rest on the  

basis of compromise arrived at between them. The  

Court  noted  that  Bank  does  not  have  any  claim  

against the company. The Court poses the question  

whether the power of quashing criminal proceeding  

3

which is there with the Court should be exercised.  

(See para 30 at page 684 of the judgment)

35. The  Court  answered  the  same  in  Nikhil  Merchant  (supra)  by  saying  in  para  31  that  technicality  

should  not  be  allowed  to  stand  in  the  way  of  

quashing of the criminal proceedings since in the  

view  of  the  Court  the  continuance  of  the  same  

after the compromise could be a futile exercise.  

Therefore,  the  said  decision  in  Nikhil  Merchant  (supra) was rendered in the peculiar facts of the  

case and it was done in exercise of quashing power  

by  the  Court.  It  was  not  a  case  of  automatic  

compounding of an offence on the sanctioning of a  

scheme under Section 391 of the Companies Act.   

36. Mr. K. Parameshwar, learned counsel appearing for  

the respondent in special leave petition Nos.4445-

4454/2009 argued that the impugned judgment of the  

High Court is based on correct principles inasmuch  

as the effect of a Scheme under Section 391 of the  3

Companies Act can only be made applicable to a  

civil  proceeding  and  it  cannot  affect  criminal  

liability. Learned counsel further submitted that  

under the criminal law there is nothing known as  

deemed  compounding.  It  was  further  urged  that  

under the very concept of compounding, it cannot  

take  place  without  the  explicit  consent  of  the  

complainant or the person aggrieved. It was also  

urged that in the instant case the offence has  

been completed prior to the scheme under Section  

391 of the Companies Act was sanctioned by the  

Court.

37. Learned  counsel  distinguished  between  a  Scheme  

under Section 391 and an act of compounding by  

urging that a Scheme under section 391 can at most  

be  a  Scheme  to  forego  a  part  of  a  debt  or  to  

restructure the payment schedule of a debt but the  

act of compounding an offence must proceed on the  

basis of the consent of the person compounding and  

his consent cannot be assumed under any situation.

3

38. Learned  counsel  further  submitted  that  the  

impugned  judgment  of  the  High  Court  correctly  

formulated the principle of compounding by holding  

that the act of compounding involves an element of  

mutuality  and  it  has  to  be  bilateral  and  not  

unilateral.

39. This Court finds lot of substance in the aforesaid  

submission.

40. Compounding of an offence is statutorily provided  

under Section 320 of the Code. If we look at the  

list of offences which are specified in the Table  

attached to Section 320 of the Code, it would be  

clear that there are basically two categories of  

offences under the provisions of Indian Penal Code  

which have been made compoundable.

3

41. There is a category of offence for the compounding  

of which leave of the Court is required and there  

is  another  category  of  offences  where  for  

compounding  the  leave  of  the  Court  is  not  

required. But all cases of compounding can take  

place at the instance of persons mentioned in the  

Third Column of the Table. If the said Table is  

perused,  it  will  be  clear  that  compounding  can  

only be possible at the instance of the person who  

is either a complainant or who has been injured or  

is aggrieved.

42. Sub-sections  4(a)  and  4(b)  of  Section  320  also  

reiterate  the  same  principle  that  in  case  of  

compounding,  the  person  competent  to  compound,  

must be represented in a manner known to law. If  

the person compounding is a minor or an idiot or a  

lunatic, the person competent to contract on his  

behalf  may,  with  the  permission  of  the  Court,  

compound the offence. Legislature has, therefore,  

provided that if the aforesaid category of person  

3

was suffering from some disability, a person to  

represent  the  aforesaid  category  of  persons  is  

only competent to compound the offence and in such  

cases  the  permission  of  the  Court  is  statutory  

required.

43. Section  320  (4)  (b)  also  reiterates  the  same  

principle by providing that when a person who is  

otherwise  competent  to  compound  an  offence  is  

dead, his legal representatives, as defined under  

the Code of Civil Procedure may, with the consent  

of the Court, compound such offence.

44. Therefore,  representation  of  the  person  

compounding has been statutorily provided in all  

situations.  

45. Sub-section (9) of Section 320 which is relevant  

in this connection is set out below:

“No offence shall be compounded except as  provided by this section.”

3

46. Section 147 of the Negotiable Instrument Act reads  

as follows:

“147. Offences to be compoundable. –  Notwithstanding  anything  contained  in  the  code  of  Criminal  Procedure,  1973  (2  of  1974), every offence punishable under this  Act shall be compoundable.”

47. Relying  on  the  aforesaid  non-obstante  clause  in  

Section 147 of the N.I. Act, learned counsel for  

the  appellant  argued  that  a  three-Judge  Bench  

decision of this Court in  Damodar (supra), held  that in view of non-obstante clause in Section 147  

of  N.I.  Act,  which  is  a  special  statute,  the  

requirement of consent of the person compounding  

in Section 320 of the Code is not required in the  

case of compounding of an offence under N.I. Act.  

This  Court  is  unable  to  accept  the  aforesaid  

contention for various reasons which are discussed  

below.

48. The insertion of a non-obstante clause is a well  

known legislative device and in olden times it had  

3

the  effect  of  non  obstante  aliquo  statuto  in  

contrarium  (notwithstanding  any  statute  to  the  

contrary).

49. Under the Stuart reign in England the Judges then  

sitting  in  Westminster  Hall  accepted  that  the  

statutes were overridden by the process but this  

device of judicial surrender did not last long. On  

the  device  of  non-obstante  clause,  William  

Blackstone  in  his  Commentaries  on  the  Laws  of  

England (Oxford: The Claredon Press, 1st Edn. 1765-

1769) observed that the devise was  “…effectually  

demolished  by  the  Bill  of  Rights  at  the  

revolution,  and  abdicated  Westminster  Hall  when  

James II abdicated the Kingdom” (See Bennion on  

Statutory Interpretation, 5th Edition, Section 48).  

50. Under  the  Scheme  of  modern  legislation,  non-

obstante  clause  has  a  contextual  and  limited  

application.

3

51. The  impact  of  a  ‘non-obstante  clause’  on  the  

concerned act was considered by this Court in many  

cases and it was held that the same must be kept  

measured by the legislative policy and it has to  

be limited to the extent it is intended by the  

Parliament and not beyond that. [See  ICICI Bank  Ltd. vs. Sidco Leathers Ltd. and Ors. – (2006) 10  SCC 452 para 37 at page 466]

52. In the instant case the non-obstante clause used  

in Section 147 of N.I. Act does not refer to any  

particular  section  of  the  Code  of  Criminal  

Procedure but refers to the entire Code.  When  

non-obstante  clause  is  used  in  the  aforesaid  

fashion the extent of its impact has to be found  

out on the basis of consideration of the intent  

and purpose of insertion of such a clause.

3

53. Reference in this connection may be made to the  

Constitution Bench decision of this Court in the  

case of Madhav Rao Scindia Bahadur, etc. vs. Union  of India and Another reported in (1971) 1 SCC 85,  Chief Justice Hidayatullah delivering the majority  

opinion, while construing the provision of Article  

363,  which also uses non-obstante clause without  

reference to any Article in the Constitution, held  

that when non-obstante clause is used in such a  

blanket  fashion  the  Court  has  to  determine  the  

scope of its use very strictly (see paragraph 68-

69 at page 138-139 of the report).   

54. This has been followed by a three-Judge Bench of  

this Court in  Central Bank of India vs. State of  Kerala and others reported in (2009) 4 SCC 94,  following the principles as laid down in  Madhav  Rao (supra)  this  Court  in  Central  Bank  (supra)  held as follows:-

3

“…When  the  section  containing  the  said  clause  does  not  refer  to  any  particular  provisions which it intends to override but  refers  to  the  provisions  of  the  statute  generally,  it  is  not  permissible  to  hold  that it excludes the whole Act and stands  all  alone  by  itself.   ‘A  search  has,  therefore,  to  be  made  with  a  view  to  determining  which  provision  answers  the  description and which does not’.”

(Para 105, page 132 of the report)

55. Section 147 in N.I. Act came by way of amendment.  

From  the  Statement  of  Objects  and  Reasons  of  

Negotiable Instrument (Amendment) Bill 2001, which  

ultimately became Act 55 of 2002, these amendments  

were introduced to deal with large number of cases  

which were pending under the N.I. Act in various  

Courts  in  the  country.  Considering  the  said  

pendency,  a  Working  Group  was  constituted  to  

review  Section  138  of  the  N.I.  Act  and  make  

recommendations  about  changes  to  deal  with  such  

pendency.

56. Pursuant  to  the  recommendations  of  the  Working  

Group,  the  aforesaid  Bill  was  introduced  in  

4

Parliament  and  one  of  the  amendments  introduced  

was “to make offences under the Act compoundable”.

57. Pursuant  thereto  Section  147  was  inserted  after  

Section 142 of the old Act under Chapter II of Act  

55 of 2002.

58. It  is  clear  from  a  perusal  of  the  aforesaid  

Statement  of  Objects  and  Reasons  that  offence  

under  the  N.I.  Act,  which  was  previously  non-

compoundable in view of Section 320 sub-Section 9  

of the Code has now become compoundable. That does  

not  mean  that  the  effect  of  Section  147  is  to  

obliterate all statutory provisions of Section 320  

of the Code relating to the mode and manner of  

compounding of an offence.  Section 147 will only  

override Section 320 (9) of the Code in so far as  

offence  under  Section  147  of  N.I.  Act  is  

concerned.   This  is  also  the  ratio  in  Damodar  (supra), see para 12.  Therefore, the submission  

4

of the learned counsel for the appellant to the  

contrary cannot be accepted.   

59. In this connection, we may refer to the provisions  

of Section 4 of the Code. Section 4 of the Code,  

which  is  the  governing  statute  in  India  for  

investigation, inquiry and trial of offences has  

two parts.

60. Section  4  sub-section  (1)  deals  with  offences  

under the Indian Penal Code. Section 4 sub-section  

(2) deals with offences under any other law which  

would  obviously  include  offences  under  the  N.I.  

Act. (See 2007 Crl. Law Journal 3958)

61. In the instant case no special procedure has been  

prescribed  under  the  N.I.  Act  relating  to  

compounding  of  an  offence.  In  the  absence  of  

special  procedure  relating  to  compounding,  the  

procedure  relating  to  compounding  under  Section  4

320  shall  automatically  apply  in  view  of  clear  

mandate of sub-section (2) of Section 4 of the  

Code.  

62. Sub-section (2) of Section 4 of the code is set  

out below:-

“4(2) All offences under any other law shall  be investigated, inquired into, tried, and  otherwise dealt with according to the same  provisions, but subject to any enactment for  the  time  being  in  force  regulating  the  manner or place of investigating, inquiring  into, trying or otherwise dealing with such  offences.”

63. Interpreting the said Section, this Court in the  

case of Khatri and Ors.  etc. Vs. State of Bihar  and  Ors. –  AIR  1981  SC  1068  held  that  the  provisions  of  the  Code  are  applicable  where  an  

offence under the Indian Penal Code or under any  

other  law  is  being  investigated,  inquired  into,  

tried or otherwise dealt with (See para 3 page  

1070).

4

64. In view of Section 4(2) of the Code, the basic  

procedure of compounding an offence laid down in  

Section 320 of the Code will apply to compounding  

of an offence under N.I. Act.   

65. In Vinay Devanna Nayak vs. Ryot Sewa Sahakari Bank  

Limited reported in  (2008) 2 SCC 305, this Court  

also considered the object behind the insertion of  

Section 138 of the N. I. Act by Banking Financial  

Institutions  and  Negotiable  Instruments  

(Amendment) Act 1988. This Court held:-

“…The  incorporation  of  the  provision  is  designed  to  safeguard  the  faith  of  the  creditor in the drawer of the cheque, which  is  essential  to  the  economic  life  of  a  developing  country  like  India.   The  provision has been introduced with a view to  curb  cases  of  issuing  cheques  indiscriminately  by  making  stringent  provisions  and  safeguarding  interest  of  creditors.”

(para 16, page 309 of the report)

66. The Court also looked into the scope of Section  

147 of the N.I. Act, and held after considering  

the  two  sections,  that  there  is  no  reason  to  4

refuse  compromise  between  the  parties.  But  the  

Court did not hold that in view of Section 147,  

the  procedure  relating  to  compounding  under  

Section 320 of the Code has to be given a go bye.

67. Subsequently in the case of  R. Rajeshwari vs.  H.  N. Jagadish reported in (2008) 4 SCC 82, another  Bench of this Court also construed the provisions  

of Section 147 of the N.I. Act, as well as those  

of Section 320 of the Code.  Here also it was not  

held that all the requirements of Section 320 of  

the Code for compounding were to be given a go  

bye.  

68. Both  these  aforesaid  decisions  were  referred  to  

and approved in  Damodar (supra). The decision in  

Damodar (supra)  was  rendered  by  referring  to  

Article  142  of  the  Constitution  insofar  as  

guidelines were framed in relation to compounding  

for reducing pendency of 138 cases. In doing so  

the Court held that attempts should be made for  4

compounding  the  offence  early.  Therefore,  the  

observations  made  in  paragraph  24  of  Damodar  

(supra),  that  the  scheme  contemplated  under  

Section 320 of the Code cannot be followed ‘in the  

strict sense’ does not and cannot mean that the  

fundamental  provisions  of  compounding  under  

Section 320 of the Code stand obliterated by a  

side wind, as it were.  

69. It is well settled that a judgment is always an  

authority for what it decides. It is equally well  

settled  that  a  judgment  cannot  be  read  as  a  

statute. It has to be read in the context of the  

facts  discussed  in  it.  Following  the  aforesaid  

well settled principles, we hold that the basic  

mode and manner of effecting the compounding of an  

offence under Section 320 of the Code cannot be  

said to be not attracted in case of compounding of  

an offence under N.I. Act in view of Section  147  

of the same.   

4

70. Compounding as codified in Section 320 of the Code  

has  a  historical  background.   In  common  law  

compounding  was  considered  a  misdemeanour.   In  

Kenny’s  ‘Outlines  of  Criminal  Law’  (Nineteenth  

Edition, 1966) the concept of compounding has been  

traced as follows:-

“It  is  a  misdemeanour  at  common  law  to  ‘compound’  a  felony  (and  perhaps  also  to  compound a misdemeanour); i.e. to bargain,  for value, to abstain from prosecuting the  offender who has committed a crime.  You  commit this offence if you promise a thief  not to prosecute him if only he will return  the goods he stole from you; but you may  lawfully take them back if you make no such  promise.  You may show mercy, but must not  sell mercy.  This offence of compounding is  committed by the bare act of agreement; even  though the compounder afterwards breaks his  agreement and prosecutes the criminal.  And  inasmuch as the law permits not merely the  person  injured  by  a  crime,  but  also  all  other  members  of  the  community,  to  prosecute, it is criminal for anyone to make  such a composition; even though he suffered  no injury and indeed has no concern with the  crime.”

71. Russell  on  Crime  (Twelfth  Edition)  also  

describes:-

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“Agreements not to prosecute or to stifle a  prosecution for a criminal offence are in  certain cases criminal”.   (Chapter 22 – Compounding Offences, page 339)

72. Later  on  compounding  was  permitted  in  certain  

categories of cases where the rights of the public  

in general are not affected but in all cases such  

compounding is permissible with the consent of the  

injured party.  

73. In our country also when the Criminal Procedure  

Code, 1861 was enacted it was silent about the  

compounding  of  offence.   Subsequently,  when  the  

next  Code  of  1872  was  introduced  it  mentioned  

about compounding in Section 188 by providing the  

mode of compounding. However, it did not contain  

any  provision  declaring  what  offences  were  

compoundable.  The decision as to what offences  

were compoundable was governed by reference to the  

exception to Section 214 of the Indian Penal Code.  

The subsequent Code of 1898 provided Section 345  4

indicating  the  offences  which  were  compoundable  

but the said Section was only made applicable to  

compounding  of  offences  defined  and  permissible  

under Indian Penal code.  The present Code, which  

repealed  the  1898  Code,  contains  Section  320  

containing  comprehensive  provisions  for  

compounding.  A perusal of Section 320 makes it  

clear that the provisions contained in Section 320  

and the various sub-sections is a Code by itself  

relating  to  compounding  of  offence.  It  provides  

for  the  various  parameters  and  procedures  and  

guidelines in the matter of compounding.  If this  

Court upholds the contention of the appellant that  

as a result of incorporation of Section 147 in the  

N.I. Act, the entire gamut of procedure of Section  

320  of  the  Code  are  made  inapplicable  to  

compounding of an offence under the N.I. Act, in  

that case the compounding of offence under N.I.  

Act will be left totally unguided or uncontrolled.  

Such an interpretation apart from being an absurd  

or unreasonable one will also be contrary to the  

provisions of Section 4(2) of the Code, which has  

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been discussed above.  There is no other statutory  

procedure  for  compounding  of  offence  under  N.I.  

Act.  Therefore, Section 147 of the N.I. Act must  

be reasonably construed to mean that as a result  

of the said Section the offences under N.I. Act  

are made compoundable, but the main principle of  

such  compounding,  namely,  the  consent  of  the  

person  aggrieved  or  the  person  injured  or  the  

complainant cannot be wished away nor can the same  

be substituted by virtue of Section 147 of N.I.  

Act.  

74.  For the reasons aforesaid, this Court is unable  

to accept the contentions of the learned counsel  

for the appellant(s) that as a result of sanction  

of a scheme under Section 391 of the Companies Act  

there  is  an  automatic  compounding  of  offences  

under Section 138 of the N.I. Act even without the  

consent of the complainant.

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75. The  appeals  are  dismissed.  The  judgment  of  the  

High Court is affirmed.   

.......................J. (ASOK KUMAR GANGULY)

.......................J. New Delhi (JAGDISH SINGH KHEHAR) February 1, 2012

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