Reportable

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1902 OF 2011 (Arising out of SLP (Crl.) No.2586 of 2007)

R.Vijayan … Appellant

Vs.

Baby & Anr. … Respondents

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave granted. Heard.

2. The complainant in a complaint under section 138 of the Negotiable  

Instruments Act,  1881 (‘Act’ for  short) is  the appellant in this appeal by  

special leave. A cheque dated 31.3.1995 for Rs.20,000/- issued by the first  

respondent drawn in favour of the complainant, towards alleged repayment  

of a loan was dishonoured when presented for payment. The appellant sent a  

notice dated 20.4.1995 demanding payment. According to the complainant,  

the notice was served on the first respondent but the payment was not made.  

Therefore on 25.5.1995 the appellant lodged a complaint  against the first  

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respondent, under section 138 of the Act before the First Class Magistrate  

-IV, (Mobile), Thiruvananthapuram. After trial,  the learned Magistrate by  

judgment dated 30.11.1996 found the accused guilty under section 138 of  

the  Act  and  sentenced  her  to  pay  a  fine  of  Rs.2000/-  and  in  default  to  

undergo imprisonment for one month. He also directed the accused to pay  

Rs.20,000/- as compensation to the complainant and in default to undergo  

simple imprisonment for three months.

3. The first  respondent challenged the said judgment  and the criminal  

appeal  filed  by her  was  allowed by the  First  Additional  Sessions  Judge,  

Thiruvananthapuram by  judgment  dated  26.11.2001.  The  conviction  and  

sentence imposed on the first respondent was set aside and the appellant was  

acquitted. The first appellate court held that the accused having denied her  

signature  in  the  postal  acknowledgement  relating  to  the  notice  dated  

20.4.1995, the appellant ought to have examined the postman who served  

the  notice;  and  as  the  appellant  did  not  do  so,  the  court  held  that  the  

complainant had not discharged the burden to prove that the notice was duly  

served on the first respondent. The appellant filed criminal appeal before the  

High Court.  The High Court  allowed the appeal  in  part.  It  held that  the  

service  of  notice  was  duly  proved.  As  a  consequence  it  restored  the  

conviction entered by the learned Magistrate in reversal of the judgment of  

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the first  appellate court.  However the High Court  held that  it  could only  

restore  the fine of  Rs.2000/-  imposed by the Magistrate  with the default  

sentence but not the direction for payment of compensation under section  

357(3)  of  the Code,  as  it  could not  co-exist  with the imposition  of  fine.  

Therefore, the direction for payment of compensation was not restored. The  

said judgment is challenged in this appeal by special leave.

4. The appellant  contends  that  sections  29 and  357 of  the  Code  and  

section 138 of the Act should be read harmoniously and complementary to  

each other; and if so done, compensation could be awarded in cases under  

section 138 of the Act to meet the loss sustained by the dishonour and that if  

compensation could not be awarded for any reason, fine could be levied upto  

twice  the  cheque  amount;  and  therefore  the  High  Court  ought  to  have  

restored the direction for payment of Rs.20,000/- to the appellant either by  

way of compensation under section 357(3) or from the fine under section  

357(1)(b) of the Code, by increasing the fine.

5. Section 138 of the Act provided that where a cheque is dishonoured,  

the  person  drawing  the  cheque  shall  be  deemed  to  have  committed  an  

offence and shall, without prejudice to any other provision of the Act, be  

punished with imprisonment for a term which may extend to one year or  

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with fine which may extend to twice the amount of the cheque or with both.  

It  may  be  mentioned  that  subsequent  to  the  judgment  of  the  learned  

Magistrate, the said Section 138 was amended (with effect from 6.2.2003)  

increasing and the period of imprisonment imposable to two years.

6. Section 357 relates to Order to pay compensation.  

“357.  Order  to  pay  compensation.—(1)  When  a  Court  imposes  a  sentence of fine or a sentence (including a sentence of death) of which fine  forms a part, the Court may, when passing judgment order the whole or  any part of the fine recovered to be applied ---

(a) in defraying the expenses properly incurred in the prosecution;

(b) in the payment to any person of compensation for any loss or injury  caused by the offence, when compensation is, in the opinion of the Court,  recoverable by such person in a Civil Court;

(c) & (d) x x x x   (not relevant)

(2)  x x x x x (not relevant)

(3) When a Court imposes a sentence, of which fine does not form a part,  the Court may, when passing judgment order the accused person to pay,  by way of compensation such amount as may be specified in the order to  the person who has suffered any loss or injury by reason of the act for  which the accused person has been so sentenced.”  

(4) An order  under this  section may also be made by an Appellate  Court or by the High Court or Court of sessions when exercising  its power of revision.

(5)  At the time of awarding compensation in any subsequent civil suit  relating to the same matter, the court shall take into account any sum paid  or recovered as compensation under this section.

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7. Sub-section (3) of section 357, is categorical that the compensation  

can be awarded only where fine does not form part of the sentence. Section  

357(3) has been the subject-matter of judicial interpretation by this Court in  

several decisions. In State of Punjab vs. Gurmej Singh [2002 (6) SCC 663],  

this Court held :          

“A reading of sub-section (3) of Section 357 would show that the question  of award of compensation would arise where the court imposes a sentence  of which fine does not form a part.”

This Court also held that section 357(3) will not apply where a sentence of  

fine has been imposed.

8. In Sivasuriyan vs. Thangavelu [2004 (13) SCC 795], this Court held :

“In  view  of  the  submissions  made,  the  only  question  that  arises  for  consideration is whether the court can direct payment of compensation in  exercise of power under sub-section (3) of Section 357 in a case where  fine already forms a part of the sentence. Apart from sub-section (3) of  Section 357 there is no other provision under the Code whereunder the  court can exercise such power:”

After  extracting section 357(3) of the Code,  the Court proceeded to hold  

thus:

“On a plain reading of the aforesaid provision, it is crystal clear that the  power can be exercised only when the court imposes sentence by which  fine does not form a part. In the case in hand, a court having sentenced to  imprisonment, as also fine, the power under sub-section (3) of Section 357  could not have been exercised. In that view of the matter, the impugned  

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direction of the High Court directing payment of compensation to the tune  of Rs. one lakh by the appellant is set aside.”

9. It is evident from Sub-Section (3) of section 357 of the Code, that  

where  the  sentence  imposed  does  not  include  a  fine,  that  is,  where  the  

sentence relates to only imprisonment, the court, when passing judgment,  

can direct the accused to pay, by way of compensation, such amount as may  

be specified in the order to the person who has suffered any loss or injury by  

reason of the act for which the accused person has been so sentenced. The  

reason for this is obvious. Sub-section (1) of section 357 provides that where  

the court imposes a sentence of fine or a sentence of which fine forms a part,  

the Court may direct the fine amount to be applied in the payment to any  

person of compensation for any loss or injury caused by the offence, when  

compensation is, in the opinion of the court, recoverable by such person in a  

Civil Court. Thus, if compensation could be paid from out of the fine, there  

is no need to award separate compensation. Only where the sentence does  

not include fine but only imprisonment and the court finds that the person  

who has suffered  any loss or  injury by reason of  the act  of  the accused  

person, requires to be compensated, it is permitted to award compensation  

under compensation under section 357(3).  

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10. The difficulty arises in this case because of two circumstances. The  

fine  levied  is  only  Rs.2000/-.  The  compensation  required  to  cover  the  

loss/injury on account of the dishonour of the cheque is Rs.20,000/-. The  

learned Magistrate having levied fine of Rs.2,000/-, it is impermissible to  

levy any compensation having regard to section 357(3) of the Code. The  

question  is  whether  the  fine  can  be  increased  to  cover  the  sum  of  Rs.  

20,000/- which was the loss suffered by the complainant,  so that the said  

amount could be paid as compensation under section 357(1)(b) of the Code.  

As noticed above, section 138 of the Act authorizes the learned Magistrate to  

impose by way of fine, an amount which may extend to twice the amount of  

the cheque, with or without imprisonment. Section 29 of the Code deals with  

the sentences which Magistrates may pass. The Chief Judicial Magistrate is  

empowered to pass any sentence authorized by law (except sentence of death  

or imprisonment for life or imprisonment for a term exceeding seven years).  

On the other  hand, sub-section (2)  of  Section 29 empowers  a court  of  a  

Magistrate of First Class to pass a sentence of imprisonment for a term not  

exceeding three years or fine not exceeding Rs.5,000/- or of both. (Note : By  

Act No.25 of 2005, sub-section (2) of Section 29 was amended with effect  

from 23.6.2006 and the maximum fine that could be levied by the Magistrate  

of First Class, was increased to Rs.10,000/-).  At the relevant point of time,  

the  maximum  fine  that  the  First  Class  Magistrate  could  impose  was  

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Rs.5,000/-.  Therefore,  it  is  also  not  possible  to  increase  the  fine  to  

Rs.22,000/- so that Rs.20,000/- could be awarded as compensation, from the  

amount recovered as fine.

11.  The first respondent was a widow and police woman. On the facts  

and circumstances the learned Magistrate thought fit to impose only a fine  

and not imprisonment. When the conviction was set aside, the appellant filed  

a revision, challenging the non-grant of compensation of Rs.20,000/-. He did  

not however challenge the non-imposition of sentence of imprisonment. The  

High  Court  was,  therefore,  justified  in  holding  that  once  the  sentence  

consists of only fine, the power under Section 357(3) could not be invoked  

for directing payment of compensation. The High Court was also justified in  

not converting the sentence from fine to imprisonment, so enable itself to  

award  compensation,  as  the  facts  and circumstances  of  the  case  did  not  

warrant imprisonment.  Therefore, we are of the view that the order of High  

Court does not call for interference.

12. It is of some interest to note, though may not be of any assistance in  

this case, that the difficulty caused by the ceiling imposed by section 29(2)  

of the Code has been subsequently solved by insertion of section 143 in the  

Act (by Amendment Act No.55 of 2002) with effect from 6.2.2003. Section  

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143(1)  provides  that  notwithstanding anything contained in  the Code,  all  

offences  under  Chapter  XVII  of  the  Act  should  be  tried  by  a  Judicial  

Magistrate  of  the  First  Class  or  by  a  Metropolitan  Magistrate  and  the  

provisions of sections 262 to 265 of the Code (relating to summary trials)  

shall, as far as may be, apply to such trials. The proviso thereto provides that  

it shall be lawful for the Magistrate to pass a sentence of imprisonment for a  

term extending one year and an amount of fine exceeding Rs.5,000/-, in case  

of conviction in a summary trial under that section. In view of conferment of  

such  special  power  and  jurisdiction  upon  the  First  Class  Magistrate,  the  

ceiling as to the amount of fine stipulated in section 29(2) of the Code is  

removed. Consequently, in regard to any prosecution for offences punishable  

under section 138 of the Act, a First Class Magistrate may impose a fine  

exceeding Rs.5000/-, the ceiling being twice the amount of the cheque.  

13. This case relates to dishonour of cheque in the year 1995. Though the  

complainant-appellant  has  succeeded  in  obtaining  a  conviction,  he  has  

virtually lost in the sense he did not get compensation to recover the amount  

of the dishonoured cheque. As the limitation for filing a civil suit expired  

during the pendency of the appeal before the sessions court, the appellant  

has also lost the opportunity of recovering the amount by way of civil suit.  

In view of this peculiar  position,  we requested Dr.  Rajiv Dhavan, senior  

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counsel, to assist us as an Amicus Curiae to suggest methods to improve the  

disposal of cases under section 138 of the Act and also improve the relief  

that could be granted in such cases. In the meantime a three Judge Bench of  

this Court in Damodar S.Prabhu vs. Sayed Babalal H. [2010 (5) SCC 663],  

addressed the question of reluctance of offenders to compound the cases at  

earlier stages of the case prosecution leading to a huge pendency of cheque  

dishonour cases, and issued the following guidelines proposing levy of ‘a  

graded scale of fine’ to encourage compounding at earlier stages of the case :  

“(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.

x x x x x

The  graded  scheme  for  imposing  costs  is  a  means  to  encourage  compounding at  an early stage of litigation.  In the status quo, valuable  time of the Court is spent on the trial of these cases and the parties are not  liable  to  pay any Court fee since the  proceedings  are  governed by the  Code of Criminal  Procedure,  even though the  impact  of the offence is  

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largely confined to the private parties. Even though the imposition of costs  by the competent court is a matter of discretion, the scale of costs has been  suggested in the interest of uniformity. The competent Court can of course  reduce the costs with regard to the specific facts and circumstances of a  case,  while  recording  reasons  in  writing  for  such  variance.  Bona  fide  litigants should of course contest the proceedings to their logical end.”  

14. We propose to address an aspect of the cases under section 138 of the  

Act, which is not dealt with in Damodar S. Prabhu. It is sometimes said that  

cases  arising  under  section  138  of  the  Act  are  really  civil  cases  

masquerading as criminal cases. The avowed object of Chapter XVII of the  

Act  is  to  “encourage  the  culture  of  use  of  cheques  and  enhance  the  

credibility of the instrument”. In effect, its object appears to be both punitive  

as also compensatory and restitutive, in regard to cheque dishonour cases.  

Chapter XVII of the Act is an unique exercise which blurs the dividing line  

between  civil  and  criminal  jurisdictions.  It  provides  a  single  forum and  

single proceeding, for enforcement of criminal liability (for dishonouring the  

cheque)  and  for  enforcement  of  the  civil  liability  (for  realization  of  the  

cheque amount)  thereby obviating the need for  the creditor  to move two  

different  fora for  relief.  This  is  evident  from the following provisions of  

Chapter XVII of the Act.    

(i) The provision for levy of fine which is linked to the cheque amount  and may extend to twice the amount of the cheque (section 138) thereby  rendering section 357(3) virtually infructuous in so far as cheque dishonour  cases.   

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(ii) The provision enabling a First Class Magistrate to levy fine exceeding  Rs.5,000/-  (Section  143)  notwithstanding  the  ceiling  to  the  fine,  as  Rs.5,000/- imposed by section 29(2) of the Code;   (iii) The provision relating to mode of service of summons (section 144)  as contrasted from the mode prescribed for criminal cases in section 62 of  the Code;  

(iv) The  provision  for  taking  evidence  of  the  complainant  by  affidavit  (section 145) which is more prevalent  in civil  proceedings,  as  contrasted  from the procedure for recording evidence in the Code;  

(v) The provision making all offences punishable under section 138 of the  Act compoundable.  

15. The  apparent  intention  is  to  ensure  that  not  only  the  offender  is  

punished,  but  also  ensure  that  the  complainant  invariably  receives  the  

amount of the cheque by way of compensation under section 357(1)(b) of  

the Code. Though a complaint under section 138 of the Act is in regard to  

criminal liability for the offence of dishonouring the cheque and not for the  

recovery of the cheque amount, (which strictly speaking, has to be enforced  

by a  civil  suit),  in  practice  once  the  criminal  complaint  is  lodged under  

section 138 of the Act, a civil suit is seldom filed to recover the amount of  

the cheque. This is because of the provision enabling the court to levy a fine  

linked to the cheque amount  and the usual  direction in such cases is for  

payment  as  compensation,  the  cheque  amount,  as  loss  incurred  by  the  

complainant on account of dishonour of cheque, under section 357 (1)(b) of  

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the Code and the provision for compounding the offences under section 138  

of the Act.  Most of the cases (except those where liability is denied) get  

compounded at one stage or the other by payment of the cheque amount with  

or without interest. Even where the offence is not compounded, the courts  

tend to direct payment of compensation equal to the cheque amount (or even  

something more towards interest) by levying a fine commensurate with the  

cheque amount.  A stage  has  reached when most  of  the complainants,  in  

particular the financing institutions (particularly private financiers) view the  

proceedings under section 138 of the Act, as a proceeding for the recovery  

of the cheque amount, the punishment of the drawer of the cheque for the  

offence of dishonour, becoming secondary.  

16. Having reached that stage, if some Magistrates go by the traditional  

view  that  the  criminal  proceedings  are  for  imposing  punishment  on  the  

accused,  either  imprisonment  or  fine  or  both,  and  there  is  no  need  to  

compensate the complainant, particularly if the complainant is not a ‘victim’  

in  the  real  sense,  but  is  a  well-to-do  financier  or  financing  institution,  

difficulties and complications arise. In those cases where the discretion to  

direct  payment  of  compensation  is  not  exercised,  it  causes  considerable  

difficulty to the complainant, as invariably, by the time the criminal case is  

decided,  the  limitation  for  filing  civil  cases  would  have  expired.  As  the  

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provisions  of  Chapter  XVII  of  the  Act  strongly  lean  towards  grant  of  

reimbursement of the loss by way of compensation, the courts should, unless  

there  are  special  circumstances,  in  all  cases  of  conviction,  uniformly  

exercise the power to levy fine upto twice the cheque amount (keeping in  

view the cheque amount and the simple interest thereon at 9% per annum as  

the  reasonable  quantum of  loss)  and  direct  payment  of  such  amount  as  

compensation. Direction to pay compensation by way of restitution in regard  

to the loss on account of dishonour of the cheque should be practical and  

realistic, which would mean not only the payment of the cheque amount but  

interest thereon at a reasonable rate. Uniformity and consistency in deciding  

similar cases by different courts, not only increase the credibility of cheque  

as a negotiable instrument, but also the credibility of courts of justice.   

17. We are conscious of the fact that proceedings under section 138 of the  

Act cannot be treated as civil suits for recovery of the cheque amount with  

interest. We are also conscious of the fact that compensation awarded under  

section 357(1)(b) is not intended to be an elaborate exercise taking note of  

interest  etc.  Our  observations  are  necessitated  due  to  the  need  to  have  

uniformity  and  consistency  in  decision  making.  In  same  type  of  cheque  

dishonour  cases,  after  convicting  the  accused,  if  some  courts  grant  

compensation  and  if  some  other  courts  do  not  grant  compensation,  the  

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inconsistency, though perfectly acceptable in the eye of law, will give rise to  

certain amount of uncertainty in the minds of litigants about the functioning  

of courts. Citizens will not be able to arrange or regulate their affairs in a  

proper manner as they will not know whether they should simultaneously  

file a civil suit or not. The problem is aggravated having regard to the fact  

that in spite of section 143(3) of the Act requiring the complaints in regard  

to cheque dishonour cases under section 138 of the Act to be concluded  

within six months from the date of the filing of the complaint, such cases  

seldom reach finality before three or four years let alone six months. These  

cases give rise to complications where civil suits have not been filed within  

three years on account of the pendency of the criminal cases. While it is not  

the duty of criminal courts to ensure that successful complainants get the  

cheque amount also, it is their duty to have uniformity and consistency, with  

other courts dealing with similar cases.  

18. One other solution is a further amendment to the provision of Chapter  

XVII  so  that  in  all  cases  where  there is  a  conviction,  there  should be a  

consequential  levy  of  fine  of  an  amount  sufficient  to  cover  the  cheque  

amount  and  interest  thereon  at  a  fixed  rate  of  9%  per  annum  interest,  

followed by award of such sum as compensation from the fine amount. This  

would  lead  to  uniformity  in  decisions,  avoid  multiplicity  of  proceedings  

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(one for enforcing civil liability and another for enforcing criminal liability)  

and achieve the object of Chapter XVII of the Act, which is to increase the  

credibility  of  the  instrument.  This  is  however  a  matter  for  the  Law  

Commission of India to consider.  

19. The appeal is dismissed. We place on record our appreciation for the  

assistance rendered by Dr. Rajiv Dhavan as Amicus Curiae.

………………………………J. (R V Raveendran)

New Delhi; …………………………….J. October 11, 2011. (R M Lodha)        

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