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Re Proceedings For Recovery In Civil Suit And Simultaneously Under Section 138 NI Act Permissible In Case Of Dishonoured Cheque?

Dishonour of cheque, for reasons enumerated in Section 138 of the Negotiable Act, 1881, attracts criminal proceedings under the NI Act and the drawer/accused can be punished with imprisonment for a term which may extend upto two years, or with fine which may extend to twice the amount of the cheque, or with both. But, the million dollar question is whether the Drawee/Holder can simultaneously legally pursue Civil Remedy for recovery of Loan/Debt?

It would be trite to refer to the case of D.Purushotama Reddy and Another v. K.Sateesh (2008) 8 SCC 505 wherein the Apex Court categorically held that filing of civil suit for recovery of the amount is not a bar for filing complaint under Section 138 of the Negotiable Instruments Act, 1881. The Court held thus:

7. The principal contention raised herein is that the Trial Court and consequently the High Court committed a serious error in decreeing the suit in its entirety, i.e., for a sum of Rs. 3,09,000/- with interest without taking into consideration the fact that an amount of Rs. 2,10,000/- had already been deposited by the appellants in the said criminal proceedings.

8. Contention of the respondent, however, is that as the said question was not and could not have been raised before the Trial Court, the impugned judgment is sustainable. It was furthermore urged that in view of the well-settled principle of law that pendency of a criminal matter would not be an impediment in proceeding with a civil suit, the impugned judgment should not be interfered with.

9. A suit for recovery of money due from a borrower indisputably is maintainable at the instance of the creditor. It is furthermore beyond any doubt or dispute that for the same cause of action a complaint petition under terms of Section 138 of the Act would also be maintainable.

Following D.Purushotama (supra) the Karnataka High Court in the case of Cref Finance Limited vs Sree Shanthi Homes Private Limited (2014) 4 KCCR 3032, observed thus:

15. A feeble attempt is made by the respondents and it is contended by learned counsel that both the civil and criminal cases for recovery of dues and dishonour of cheques cannot be maintained. On this aspect of the matter, learned counsel for the appellant has placed reliance on the decision of the Apex Court, reported in (2008)8 Supreme Court Cases 505 [D.Purushotama Reddy and another Vs. K.Sateesh]. The appellant has filed O.S. No.15045/01; wherein he has sought for a decree against the respondents for a sum of Rs.9,20,59,032-00.

Simultaneously, he filed the complaint before the trial Court to initiate action for the offence punishable under Section 138 of the Act. There is no dispute so far as this position is concerned. The Apex Court in the aforesaid decision has held "simultaneous civil suit and complaint case under Section 138 of the N.I. Act for the same cause of action are maintainable". Therefore, the respondents cannot take any advantage of filing the suit by the appellant for recovery of dues.

It would be apropos to refer to Punjab- Haryana High Court judgment in the case of Babalgeet Singh vs Hdfc Bank Ltd decided on 20 February, 2024 wherein the Court observed thus:

12. On the other hand, this Court finds merit in the argument raised by the counsel for the respondent that there is no embargo in initiating civil and criminal proceedings for the same cause of action...... "

It would be appropriate to refer to Delhi High Court judgment in Ifci Factors Limited vs Ramsarup Industries Limited & Ors. AIRONLINE 2019 DEL 1273 wherein following the dictum of D.Purushotama Reddy (supra), the Court observed thus:

34. Further, it is well settled that filing of a complaint under S.138 of the Negotiable Instruments Act, 1888 does not bar the filing of a civil suit for recovery in respect of amounts due and payable..... "

One important question that arises is the interplay between Section 138 NI Act & Civil suit for recovery of the cheque amount dishonoured by the bank.The Apex Court in D.Purushotama Reddy (supra) answered the complex question on analogy of sub-section (1) of Section 357 of the Code & observed thus:

10. The question, however, is as to whether the courts in one proceeding can issue directions to deposit amount in favour of the plaintiff without taking into consideration the amount deposited by the defendant in the other.

11. We have noticed hereinbefore that whereas the judgment of conviction and sentence was passed on 15.12.2005, the suit was decreed by the civil court on 23.01.2006. Deposit of a sum of Rs. 2,00,000/- by the appellants in favour of the respondent herein, was directed by the Criminal Court. Such an order should have been taken into consideration by the Trial Court.

An appeal from a decree, furthermore, is a continuation of suit. The limitation of power on a civil court should also be borne in mind by the appellate court. Was any duty cast upon the civil court to consider the amount of compensation deposited in terms of Section 357 of the Code is the question. In terms of sub-section (1) of Section 357 of the Code, a criminal court is empowered to direct that out of the amount recovered from an accused by way of fine, compensation of a specified amount may be directed to be paid for any loss or injury caused by the offence, when compensation is, in the opinion of the Court, recoverable by a person in a Civil Court. It is, therefore, evident that the amount of compensation could have been directed to be paid by the criminal court as the same was recoverable by the respondent as against the appellants in a civil court also. Such an order can also be passed by the Appellate Court or by the High Court or by the Court of Sessions when exercising its power of revision.

12. Sub-section (5) of Section 357 of the Code, which is relevant for our purpose, reads as under:

357. Order to pay compensation:

(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."

It would be befitting to refer to the Punjab & Haryana High Court judgment in the case of Vivek Sahni And Another vs Kotak Mahindra Bank Ltd decided on 18 July, 2019, wherein the Court, dealing with the controversy in hand observed thus:
"Learned counsel for the petitioners has made reference to a judgment passed by the Hon'ble Supreme Court in the case of D.Purshotama Reddy and another vs. K. Sateesh, (2008) 8 SCC 505. In that case, Hon'ble Supreme Court was examining a situation where in the proceedings under Section 138 of the NI Act compensation amount ordered by the court stood paid. For recovery of some amount including the cheque amount, a civil suit had been filed which was decreed along with interest. Question which arose before the Hon'ble Supreme Court was whether such amount is liable to be adjusted. The Court found that the provisions of the Act have to be given purposive interpretation and construction, therefore, the amount of compensation already recovered shall be liable to be adjusted in the decree of the Civil court as per the provisions of sub-section (5) of Section 357 of the Code of Criminal Procedure."

It would be noteworthy to refer to Kerala High Court judgment in N.N.Sivadasan Nair vs Saju Mathews decided on 18 November, 2014 wherein the Court summed up thus:

17. Starting from the decision reported in Purushotama Reddy's case (cited supra), it is true that in the said decision, the Apex Court had occasion to consider the question of compensation being awarded in an offence punishable under Section 138 of Negotiable Instruments Act and the effect of the compensation awarded in such a case with reference to the decree that may be passed on the same transaction in a Civil suit. Probably, one could also say that if the compensation had already been deposited, that should have been taken note of while passing the decree.

Similarly, in the case of G. Balakrishnan vs.M/S. Rajesh Exports Limited decided on 29 November, 2023, the Karnataka High Court following D.Purushotama Reddy(supra) observed thus:

"In another judgment of the Hon'ble Apex Court in D.Purushotama Reddy and Another vs. K Sateesh reported in (2008) 8 Supreme Court Cases, 505 while considering the adjustment of compensation paid in criminal proceedings when money suit was already pending held that, Criminal court's direction to deposit the fine, held, should have been taken into consideration by civil court while passing a decree against the defendant - It was statutorily bound to do so. Adjustment by civil court of compensation awarded under section 357 of Civil Procedure Code, 1908 has to be considered. It has been further held that simultaneous civil suit and criminal proceedings under S.138 N.I. Act for the same cause of action are maintainable."

Thus, as far as the question of maintenance of simultaneous civil suit for recovery of cheque amount and criminal proceedings under S.138 N.I. Act for the same cause of action is concerned, the same are maintainable and there is no legal embargo for the same. As regards the decreeing of civil suit relating to the same matter, the Court shall take into account any sum paid or recovered as compensation under Section 138 of NI Act and vice- versa. In case the Civil Suit for recovery of the amount is decreed first, then while imposing fine under the NI Act, the Court should consider the amount decreed/ recovered in the Civil Suit to make the same fair & justifiable.

Written By: Inder Chand Jain
Mob:8279945021, Email: [email protected]

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