Court’s Decision
The Karnataka High Court, per Justice Venkatesh Naik T, allowed a criminal revision petition and set aside the conviction and sentence imposed on the petitioner for the offence under Section 138 of the Negotiable Instruments Act, 1881. The Court noted that the dispute had been amicably settled before the National Lok Adalat held on 26 April 2025, where both the petitioner (accused) and respondent (complainant) agreed to a full and final settlement of ₹12,75,000 against the total cheque amount of ₹13,50,000 across three related cases.
Observing that the Lok Adalat had already recorded the settlement and acquitted the petitioner in one connected matter, Justice Naik held that the same terms applied to the present case, and therefore, the conviction and sentence stood modified in terms of the compromise.
“In view of the settlement arrived at between the petitioner and the respondent, the judgment of conviction and order of sentence are hereby set aside,” the Court ordered.
Facts
The petitioner, a trader engaged in the business of agricultural goods, was accused of issuing three cheques totalling ₹13,50,000 to the respondent, which were dishonoured due to insufficient funds. The respondent initiated private complaints under Section 200 Cr.P.C. leading to prosecution under Section 138 of the N.I. Act.
The trial court, after examining the evidence, convicted the petitioner in all three cases (C.C. Nos. 29397/2015, 29399/2015, and one other) and sentenced him to pay the cheque amount as compensation and undergo imprisonment in default. The Sessions Court, Bengaluru (CCH-59) upheld the conviction and sentence in appeal.
Aggrieved, the petitioner filed three separate criminal revision petitions before the High Court — Crl.R.P. Nos. 292/2022, 309/2022, and 334/2022 — challenging the concurrent findings of guilt.
While these petitions were pending, the parties opted for conciliation before the National Lok Adalat. During the proceedings, they arrived at a mutual settlement whereby the petitioner agreed to pay ₹12,75,000 as full and final settlement against the cheque amount of ₹13,50,000. A joint memo reflecting the settlement was filed before the Lok Adalat and signed by both parties.
Issues
- Whether the conviction and sentence passed under Section 138 of the N.I. Act could be set aside after a compromise recorded before the Lok Adalat.
- Whether such a compromise automatically operates to acquit the accused in related criminal revision petitions.
Petitioner’s Arguments
The petitioner’s counsel submitted that the parties had amicably resolved the dispute before the National Lok Adalat, which had already passed an order in Crl.R.P. No. 309/2022 recording the terms of settlement and acquitting the petitioner in that case. It was pointed out that the Lok Adalat order expressly stated that the settlement covered three connected criminal revision petitions — Nos. 292/2022, 309/2022, and 334/2022 — and that the same terms applied to all.
He argued that the petitioner had already deposited ₹7,50,000 before the trial court and had agreed to pay the remaining ₹5,25,000 by 14 August 2025, as recorded in the Lok Adalat award. Consequently, the continuation of conviction in the present revision petition would defeat the very purpose of the compromise.
The petitioner urged that the High Court should set aside the conviction in terms of the Lok Adalat settlement and cancel the bail bonds executed during the pendency of the proceedings.
Respondent’s Arguments
The respondent’s counsel, while confirming the compromise, submitted that the complainant had accepted the settlement amount and had no objection to the setting aside of the conviction. He acknowledged that the compromise had been voluntarily entered into with full knowledge of its consequences, and both parties had agreed that the payment of the agreed sum would constitute a complete discharge of liability.
However, he drew attention to the condition in the Lok Adalat order stating that if the petitioner failed to deposit ₹5,25,000 by 14 August 2025, the settlement would stand cancelled, and the original conviction would be revived, allowing the complainant to execute the sentence as per law.
Analysis of the Law
The Court noted that Lok Adalat settlements have statutory recognition under Sections 19 and 21 of the Legal Services Authorities Act, 1987. Once a dispute is settled through Lok Adalat, the award is deemed to be a decree of a civil court and is final and binding on all parties. Moreover, Section 320 of the Cr.P.C. permits compounding of certain offences, including those under Section 138 of the N.I. Act, with the consent of the complainant.
The High Court observed that since the Lok Adalat had already modified the judgment of conviction and acquitted the petitioner in one connected case, and as the settlement expressly covered the present petition, the same benefit must extend to all related matters.
The Court emphasized that compounding of offences under Section 138 can take place at any stage, including post-conviction, as clarified by the Supreme Court in Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, which encourages settlement to reduce litigation in cheque dishonour cases.
Precedent Analysis
- Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663 — The Supreme Court held that courts should encourage compounding of cheque dishonour cases at all stages to promote amicable resolution and decongest dockets.
- Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560 — Clarified that Section 138 offences are primarily civil wrongs and may be resolved through mediation, compromise, or Lok Adalat proceedings even after conviction.
- K.M. Ibrahim v. K.P. Mohammed, (2010) 1 SCC 798 — Held that compounding of an offence under Section 138 post-conviction is legally permissible and leads to acquittal of the accused.
These precedents collectively support the Court’s decision that once a lawful settlement is reached before a recognized body like the Lok Adalat, continuation of criminal proceedings is unnecessary.
Court’s Reasoning
Justice Venkatesh Naik observed that the joint memo filed before the Lok Adalat was clear and unambiguous in its terms. The parties agreed to settle all three matters for ₹12,75,000, of which ₹7,50,000 had already been deposited before the trial court. The balance ₹5,25,000 was to be paid by 14 August 2025.
The Court held that once such a settlement is reached and recorded by the Lok Adalat, the conviction must be deemed to have been set aside in all connected cases. It noted that “the very purpose of Lok Adalat proceedings is to promote reconciliation and reduce pendency.”
Accordingly, the High Court set aside the conviction and sentence passed by the trial court and confirmed in appeal, acquitting the petitioner of the offence under Section 138 N.I. Act. The bail bonds were cancelled, and all pending interlocutory applications were disposed of as infructuous.
Conclusion
The Karnataka High Court dismissed the criminal revision petition as settled and acquitted the petitioner, bringing an end to the long-standing cheque dishonour dispute. The Court recorded the settlement achieved before the Lok Adalat and held that the conviction and sentence stood modified in terms of the compromise.
This decision reaffirms the judiciary’s emphasis on alternative dispute resolution mechanisms like Lok Adalats, which not only reduce litigation but also restore business relationships through negotiated settlements.
Implications
The judgment reinforces three critical principles:
- Lok Adalat settlements have binding legal effect equivalent to a court decree under Section 21 of the Legal Services Authorities Act.
- Cheque dishonour offences can be compounded even after conviction, leading to acquittal if the complainant consents.
- Courts are expected to encourage negotiated settlements in financial and commercial disputes to promote judicial economy and goodwill.
This decision strengthens the role of Lok Adalats as effective forums for the resolution of cheque dishonour and similar commercial cases through conciliation.
Judgments Referred
- Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663 — Encouraged compounding at all stages in cheque bounce cases.
- Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560 — Affirmed that Section 138 offences can be settled even post-conviction.
- K.M. Ibrahim v. K.P. Mohammed, (2010) 1 SCC 798 — Upheld post-conviction compounding leading to acquittal.
FAQs
Q1. Can an accused be acquitted after conviction in a cheque bounce case through Lok Adalat settlement?
Yes. Once a valid compromise is recorded before a Lok Adalat, the conviction and sentence can be set aside and the accused acquitted.
Q2. What happens if the accused fails to honour the Lok Adalat settlement terms?
The settlement stands cancelled, and the original conviction and sentence revive automatically, allowing the complainant to execute the judgment.Q3. Are Lok Adalat awards binding like court decrees?
Yes. Under Section 21 of the Legal Services Authorities Act, a Lok Adalat award is final, binding, and enforceable as a civil court decree.
