1. Court’s decision
The Bombay High Court (Nagpur Bench) has partly allowed a criminal appeal challenging the imposition of compensation under Section 250 CrPC after the accused was acquitted in a cheque dishonour case under Section 138 of the Negotiable Instruments Act. The Court held that the Magistrate erred in concluding that the complainant initiated proceedings “without reasonable grounds” and that discrepancies in evidence or failure to prove the ingredients of Section 138 do not automatically warrant compensation.
Observing that there was no finding of mala fide, malice, or frivolous prosecution, the High Court struck down the direction requiring the complainant to pay ₹25,000 compensation to the accused, while noting that the acquittal itself remained undisturbed.
2. Facts
The complainant alleged lending a hand loan of ₹3,00,000 to the accused, who issued cheque No. 232800 dated 20/03/2013 drawn on SBI. The cheque was presented through Nishant Multi-State Co-operative Credit Society and allegedly returned unpaid on 22/03/2013 with the reason “Funds Insufficient.”
A statutory notice was issued on 20/04/2013 and received by the accused on 22/04/2013, but payment was not made. The complainant then filed a complaint under Section 138 NI Act in S.C.C. No. 2110/2013 before the Judicial Magistrate First Class, Akola.
The accused denied taking any loan and claimed the cheque was misused — alleging it was given blank as security to a credit society while assisting a third person, and later fraudulently obtained and filled by the complainant.
After trial, the Magistrate acquitted the accused and, invoking Section 250 CrPC, ordered the complainant to pay ₹25,000 compensation for allegedly initiating proceedings without reasonable grounds. The complainant appealed only against the compensation, as leave to appeal against acquittal was earlier rejected.
3. Issues
The High Court considered:
- Whether discrepancies in proof of a cheque case justify invoking Section 250 CrPC.
- Whether the Magistrate was correct in concluding that no reasonable grounds existed for instituting prosecution.
- Whether Section 250 CrPC requires a positive finding of malicious or frivolous prosecution.
- Whether the evidence on record satisfied the statutory threshold for imposing compensation.
4. Appellant’s arguments
The appellant argued that:
• The cheque bore the accused’s undisputed signature.
• Return memo of SBI, demand notice, postal acknowledgments, receipts, and reply were all on record.
• Even if he failed to prove the ingredients of Section 138, the prosecution was not malicious.
• Section 250 CrPC can be invoked only on clear findings of absence of reasonable grounds, malice, or ulterior motive, none of which existed.
• The Magistrate misapplied Section 250 by focusing on evidentiary discrepancies rather than legal standards.
5. Respondent’s arguments
Though counsel appeared earlier, there was no appearance during final hearing. The Court proceeded on the basis of available record, noting that the matter was pending since 2017 and the original complaint dated back to 2013.
6. Analysis of the law
The Court conducted a detailed analysis of Section 250 CrPC, citing its text and interpreting its scope. It emphasised that compensation can be awarded only when:
- The accusation was made without reasonable grounds, and
- The complainant’s conduct reflects malice, frivolousness, or ulterior motive.
The Court relied extensively on the Supreme Court’s decision in State of Rajasthan v. Jainudeen Shekh (2016) 1 SCC 514, which clarified that:
• Acquittal alone is insufficient to award compensation.
• There must be material showing false implication, malicious prosecution, or abuse of process.
• Courts must avoid awarding compensation based on mere discrepancies in prosecution evidence.
The High Court noted that the Magistrate highlighted various discrepancies — missing payee bank memo, unclear endorsements, lack of date of loan, and inconsistency regarding banking channels. However, these only reflected inability to prove the 138 offence, not intent to maliciously prosecute.
The Court stressed that reasonable grounds existed because:
• the cheque bore admitted signature of the accused;
• it was presented for encashment and dishonoured;
• demand notice was duly served;
• the complaint was filed after statutory compliance.
7. Precedent analysis
The Court applied several Supreme Court principles:
(a) State of Rajasthan v. Jainudeen Shekh (2016)
Compensation cannot be granted merely because prosecution fails; it requires malice, false implication, or deliberate abuse of law.
(b) Indian Oil Corporation v. NEPC India Ltd. (2006) 6 SCC 736
Courts should invoke Section 250 CrPC to curb malicious prosecutions, but only when frivolous or ulterior motives are clearly evident, not merely when a case fails on merits.
The High Court observed that the Magistrate failed to apply the standard laid down in these decisions.
8. Court’s reasoning
The Court held that:
• The Magistrate’s findings about missing documents and inconsistencies do not establish malice.
• Trial Court’s conclusions were based on “surmises and presumptions.”
• There was no evidence supporting the theory that the complainant misused a blank cheque.
• The defence witness from the credit society admitted that the society cannot take blank cheques, undermining the respondent’s story.
• Acquittal was due to evidentiary shortcomings, not because the complaint was unreasonable or malicious.
• Section 250 requires a much higher threshold than mere failure to prove guilt.
Thus, the order awarding compensation was held perverse and legally unsustainable.
9. Conclusion
The High Court quashed the Section 250 CrPC compensation order. It held that the complainant had reasonable grounds to file the cheque dishonour case, and that the trial court’s inference of malice was unsupported by the record.
Accordingly, the appeal was partly allowed, and the direction to pay ₹25,000 compensation was set aside. The acquittal of the accused remains undisturbed.
10. Implications
This ruling clarifies important principles for Section 138 NI Act litigation:
• Failure to prove a cheque case cannot be treated as malicious prosecution.
• Section 250 CrPC is reserved for exceptional cases involving false implication or deliberate abuse of process.
• Courts must avoid chilling legitimate prosecutions by penalising complainants for evidentiary gaps.
• Reasonable grounds—such as admitted signatures, dishonour memos, and service of notice—are sufficient to rule out Section 250 sanctions.
• The judgment strengthens safeguards against misuse of Section 250 CrPC and reaffirms that cheque cases must be assessed on legal merits, not suspicion of ulterior motives.
CASE-LAW REFERENCES (as applied by the Court)
• State of Rajasthan v. Jainudeen Shekh (2016) 1 SCC 514 — Compensation requires proof of malice; acquittal alone insufficient.
• Indian Oil Corporation v. NEPC India Ltd. (2006) 6 SCC 736 — Section 250 CrPC should be used only when criminal prosecution is demonstrably frivolous or malicious.
FAQs
1. Can compensation under Section 250 CrPC be awarded simply because a cheque case ends in acquittal?
No. The High Court held that acquittal alone does not justify compensation. There must be evidence of malice or lack of reasonable grounds.
2. What constitutes “malicious prosecution” under Section 250 CrPC?
There must be clear proof that the complaint was filed with ulterior motive, frivolous intent, or false implication—not merely that the case failed.
3. Is a complainant protected from compensation orders if reasonable statutory steps were followed?
Yes. If the cheque bore admitted signature, was dishonoured, and notice was served, reasonable grounds exist, barring compensation.
