Delhi High Court Delivers Landmark Judgment Regarding Settlement In Section 138 Through Mediation.

The Delhi High Court recently delivered a comprehensive judgment regarding the legal permissibility of referring cases under Section 138 of the NI Act for amicable settlement through mediation, procedure to be followed for settlement and the legal implications of breach of such a settlement.

The Bench of Acting Chief Justice Gita Mittal and Justice AnuMalhotra, first highlighted the statutory provisions applicable to cases like these under Section 138 of the NI Act and observed that,

“Even though an express statutory provision enabling the criminal court to refer the complainant and accused persons to alternate dispute redressal mechanisms has not been specifically provided by the Legislature, however, the Cr.P.C. does permit and recognize settlement without stipulating or restricting the process by which it may be reached. There is thus no bar to utilizing the alternate dispute mechanisms including arbitration, mediation, conciliation (recognized under Section 89 of CPC) for the purposes of settling disputes which are the subject matter of offences covered under Section 320 of the Cr.P.C.”  

Senior Advocate JP Sengh and Advocates VeenaRalli and Siddhartha Aggarwal were appointed as amicus curiae by the court for the said matter between one Dayawati who had filed a complaint under section 138 against one Yogesh Kumar Gosain who allegedly had a liability of Rs. 55,99,600 towards her.

The matter was referred to the Delhi High Court Mediation and Conciliation Centre and both the parties reached a settlement. However, the accused failed to comply with the terms of the agreement and argued that the settlement was not binding. The Metropolitan Magistrate Bharat Chugh then referred the matter to the Delhi High Court.

The question before the bench to adjudicate was can a criminal court in any manner refer the parties before it to dispute resolution by mediation. To answer this question, the bench pointed out that though there is no statutory provision which explicitly provides that matters before a criminal court can be referred for mediation but the code for Criminal Procedure does allow and recognize settlement without stipulating or restricting the process by which it may be reached.

Hence, there is no restriction for using the alternate dispute mechanisms including arbitration, mediation, conciliation as recognised under Section 89 of CPC for the purposes of settling disputes which are the subject matter of offences covered under Section 320 of Cr.P.C.  Hence, it is legal to refer a criminal compoundable matter as given under Section 138 of the Negotiable Instruments Act for mediation.

The Court also stated that proceedings under Section 138 of the NI Act have a special character. They arise from a civil dispute relating to dishonouring to a cheque but may result in a criminal consequence. Even though the statute is punitive in nature, however, its spirit, intent and object is to provide compensation and ensure restitution as well which aspects must receive priority over punishment.

The Court then shed light on various judgments and came to the conclusion that there is no legal prohibition upon a court, seized of a complaint under NI Act, to encourage dispute resolution by recourse to the alternate dispute resolution methods including mediation.

The Bench further stated that Mediation and Conciliation Rules, 2004 would guide the process to be followed even in references to mediation arising under Section 138 of the N.I. Act.

Regarding the procedure to be followed in case a settlement is reached in cases under Section 138, the court observed that,

“Courts have had regard to the nature of proceedings, and, wherever found that criminal proceedings are really quasi-civil in nature, so far as matters of procedure is concerned, consistently expanded the limits of specific statutory prescription in order to do complete justice between the parties, keeping in mind the elements of public interest as well as the spirit, object and intendment of the legislation.

Other than the settlement agreement, there is no judicial order of any court that binds the respondent to honour the settlement arrived at during mediation….The criminal courts necessarily have to keep the complaint pending, awaiting the implementation of the negotiated settlement.

In the event of breach of the settlement, the courts have to recommence proceedings on merits and the evidentiary/legal value of the mediated settlement remains undetermined. The courts cannot permit use of mediation as a tool to abuse judicial process.”

Regarding breach of a settlement which has been accepted by the court, the Bench observed that,“The party attempting to breach the settlement and undertaking cannot be permitted to avoid making the payment.

In the event that a criminal court passes order accepting the mediated settlement between the parties and directs the accused to make payment in terms thereof, the settlement amount becomes payable under the order of the court. Such order having been passed in proceedings under Section 138 of the NI Act, would be an order under Section 147 of the NI Act and Section 320 of the Cr.P.C.”

At the end of the judgment, the Bench laid down the exact procedure which is to be followed in cases under Section 138 wherein mediation and mutual settlement are involved and also categorically answered the questions raised by the Metropolitan Magistrate Bharat Chugh while referring the matter to the High Court.


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