Damodar.S.Prabhu v. Sayed Babalal-SC of India : Impact of Section 147 of Negotiable Instruments Act
This case decided by Supreme Court on Section 147 of the Negotiable Instruments Act speaks upon a new scheme to be adopted by the courts while dealing with cheque bounce cases. As there are reportedly more than 38 lakhs of cheque cases pending in different courts in India, this decision has laid down a simple working formula which could be said as one safe step towards preserving the object of Section 138 and Section 147 of the Negotiable Instruments.
Object of Section 138 explained:
The decision reiterates the statutory principle and object as a result of which the Section has come into force. The section has been inserted into the Negotiable Instruments Act(hereinafter referred as 'Act') by the Banking, Public Financial Institutions and Negotiable Instruments Laws(Amendment)Act, 1988 with an object to underline the faith in the banking operations and credibility in transactions using negotiable instruments.The section has laid down certain specifications, penalties etc in the case of bouncing of cheques. The amendment to the section in 2002 increased the punishment duration as two years imprisonment.
Object of Section 147 explained:
Section 147 in the Act fill the element of compounding which Section 320 left out.Thus the legislative vaccum with regard to compounding of cheque bouncing cases has been filled by Section 147.It is interesting to note that the statement of objects and reasons for the 2002 Amendment in the Act, it is described that the deficiencies of Sections 138 to 142 of the Act in dealing with dishonour of cheques was one of the reason behind insertion of Section 147.
Guidelines laid down
1.  Modification of summons to the effect that the accused could make an application for compounding of the offence at the first or second hearing of the case. If an application is made, the Court can allow to compound the offence without costs.
2. If such an application is not made at the earlier stage and made only at a later subsequent stage of the case, compounding can be allowed with a cost of additional 10% of the cheque amount to be deposited with such authority which the Court deems fit.
3. The percentage of cost varies in appeal stage viz 15% in Sessions or High Court and 20% in Supreme Court.
The decision further clarified that the Court can in its discretion reduce the costs.
The grading scheme as to costs is intended to encourage compounding at an early stage of litigation. The time of Court also can be saved.In this case the Court also made a direction to disclose by affidavit along with the complaint to state that there is no other claim in any other court as to the same cause of action.
My conclusions
Providing with a deterrent effect was the one of the object of the section and the amendment. But if the number of cases are to be decreased, apart from thinking the increase of number of judges, benches, effective judiciary, discipline, the treatment of such cases has to be different. One should find out an effective mechanism to know the genuine nature of each case. We can think of laying down stringent guidelines in the transactions of the cheque right from the beginning when it is drawn. But every guideline and rule will be broken. This is a fact. It is also true that one cannot draw a silver line between the amount of falsity and truth in each transaction. It is made much clearer during the trial of such cases. But the accused can even raise a plea of compulsion which is recognised by the Indian Contract Act and Indian Penal Code and will rightly apply to the cases in the Act also. So it is now very clear that the amount of cases and the nature of the parties may not change very bigger in the future. But even after spending years in litigation they have the power to compound the offences. This I think, is a boon and at the same time a bane. As Section 320 speaks nothing about compounding cheque bouncing cases and Section 147 in the Act, even though lays down the power, does not prescribe any stipulations for such compounding which enables the parties to take the recourse at their will. This may happen even before taking the cognizance or at the fag end or the last moments of a case in the greatest court of the nation. Thus an effective use of Section 147 with necessary modifications are the need of the hour. In my opinion the present decision brings some light into this aspect.
As Section 147 was inserted due to the inefficiency of Sections 138 to 142, this step can surely be called to be the second phase of improvement in the legislation. But this time it is the judiciary which is tooling the terms. If followed in the right manner, the section can ease the pressure of the parties, courts etc caused due to the whopping increase in cheque cases.
Finally, in my conclusion, understanding the true spirit of law is important for success. Even this case can be glorified as a turning point, the manner of application is to be carefully watched. The summons gives the accused the time of two hearings which the Court should be watchful not to be delayed. Another point is that imposition of costs may prevent genuine party to suffer even if he want to compound the case outside the court by paying the right amount for which he is liable. In such case the complainant cannot necessarily cut down his rightful money due from the accused. He can for sure cut the wrong additions in the cheque amount. It is the accused who suffers by paying cost to others. But for a little relief for all genuine parties the news is that the settlement of cases in Adalaths are not suffered by this decision and there is still a ray of hope for them from getting rid of this grading scheme of cost. For this the parties, counsels and the judiciary must stand together.

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  1. Many times cheque given as a security is misused. Many times inflated amounts are written on the cheque even if the due is less. In such cases the compounding guideline are not helpful for amicable settlement. The trial court are now following guideline as mandatory provision & thus the Innocent person arraigned as an accused is suffering. There should be more clarity in such guideline & it should be more flexible in it's approach.

  2. First of all those who are collecting money against cheque and then refuse to pay are BASTARDS. Therefore such harramkor people do not deserve any kind of mercy & must be brutally hanged till death so that no one thinks of betraying anyone in the days to come.

    When it comes to security cheques & inflated amounts, how can one fill amounts like that? Does it mean one is giving blank cheque? How can one give blank cheque like that without any liability?

    Anyway bottom line is there shall be no leniency towards culprits who just go on misusing innocent's hard earned money and push them to darkness.


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