Settling a cheque bounce case out of court is a common practice in India, especially when both parties (the payee and the drawer) want to avoid lengthy litigation and seek a faster resolution. Section 138 of the Negotiable Instruments Act, 1881, allows for criminal prosecution in cheque bounce cases, but it also provides room for settlement through mutual agreement. An out-of-court settlement can be a more cost-effective and time-saving way to resolve disputes without the need for a court ruling.
1. Understanding Out-of-Court Settlement in Cheque Bounce Cases
An out-of-court settlement in a cheque bounce case is essentially an agreement between the complainant (payee) and the accused (drawer), where the accused agrees to pay the cheque amount or an agreed-upon sum to settle the matter, and in return, the complainant agrees to withdraw the criminal case or not to pursue the legal proceedings further.
2. Benefits of Settling a Cheque Bounce Case Out of Court
- Time-Saving: Court cases in India can take several months or even years to conclude. Settling out of court can save time for both parties.
- Cost-Effective: Litigation can be expensive, including legal fees, court fees, and other associated costs. Settling out of court can help reduce these expenses.
- Control Over Outcome: Both parties can negotiate and agree on terms that are acceptable to them rather than leaving the decision in the hands of the court.
- Privacy: Court proceedings are public, while settlements outside the court offer a private resolution.
3. Steps to Settle a Cheque Bounce Case Out of Court
a. Negotiation Between the Parties
The first step towards an out-of-court settlement is negotiation between the complainant and the accused. This negotiation can be initiated by either party and can be facilitated by:
- Direct talks between the parties involved.
- Legal representatives of both parties.
- A mediator, if both parties prefer a neutral third-party intervention.
During this negotiation, the following points are typically discussed:
- The total amount the accused agrees to pay to the complainant.
- Payment timelines and method (e.g., lump sum or installments).
- Any additional costs, such as interest or compensation for delays.
b. Drafting a Settlement Agreement
Once both parties reach a mutual agreement, they must formalize it in writing through a settlement agreement. The settlement agreement is a legally binding document that outlines the terms and conditions agreed upon by both the complainant and the accused.
The settlement agreement should include:
- Details of the cheque bounce case: Cheque number, date of issue, amount, reason for dishonor.
- Payment terms: The amount to be paid, whether it will be paid in one go or in installments, and the deadlines for payment.
- Clause for withdrawal of the case: The complainant agrees to withdraw the criminal complaint upon receiving the full payment.
- Consequences of breach: What happens if the accused fails to make the payment on time (e.g., re-initiating legal action).
It is important that both parties sign the settlement agreement, and it is usually recommended to have witnesses and legal representatives present during the signing.
c. Filing an Application for Withdrawal of the Case
Once the settlement is reached, the complainant needs to withdraw the pending case in court. For this:
- The complainant must file an application for withdrawal of the complaint.
- In the case of a compounding of the offense, both parties can jointly approach the court and inform the judge that they have reached a settlement and that the case should be closed.
d. Compounding of the Offense (Section 147 of the Negotiable Instruments Act)
The cheque bounce offense under Section 138 is a compoundable offense, which means it can be settled between the parties. Under Section 147 of the Negotiable Instruments Act, the court allows compounding of the offense, i.e., the parties can settle the matter outside court, and the court can drop the criminal charges.
In this process:
- Both parties (complainant and accused) file a joint application before the court informing them about the settlement.
- The court, after reviewing the settlement terms, will allow the compounding of the offense and close the case.
- The court may impose a small fine, but the accused will not face criminal penalties such as imprisonment or a criminal record.
e. Payment of the Settled Amount
The accused must pay the settled amount as per the terms agreed upon in the settlement agreement. Payment may be made in one lump sum or in installments, depending on the agreement. Once the payment is completed, the complainant must acknowledge the receipt of payment in writing.
f. Filing for Closure of the Case
After the settlement amount is fully paid, the complainant should formally inform the court that the matter has been resolved and request the court to close the case. The court will then officially close the case, and the criminal charges against the accused will be dismissed.
4. Points to Keep in Mind When Settling a Cheque Bounce Case
a. Fair Negotiation
Both parties should engage in fair and honest negotiations. The accused should offer a reasonable amount, and the complainant should also be open to compromise. It is important that neither party tries to exploit the situation.
b. Legal Representation
It is advisable for both parties to have legal representation during the settlement process to ensure that their rights are protected. Lawyers can also help draft the settlement agreement, ensuring it is legally sound and enforceable.
c. Ensure Proper Documentation
All agreements and payments should be properly documented. The settlement agreement must be detailed, and the complainant should issue a formal acknowledgment of payment once the agreed amount is received.
d. Follow-Up with the Court
Even after the settlement, it is important to follow up with the court to ensure that the case is officially closed. Any failure to notify the court of the settlement may result in the case remaining active, which could create complications for the accused.
5. FAQs on Settling a Cheque Bounce Case Out of Court
Q1: Is it legal to settle a cheque bounce case out of court?
A: Yes, cheque bounce cases are compoundable offenses, and the parties can legally settle them out of court under Section 147 of the Negotiable Instruments Act.
Q2: What happens if the accused fails to make the payment after the settlement?
A: If the accused fails to honor the settlement terms, the complainant can reopen the case and continue with the criminal proceedings. The settlement agreement should include provisions for such breaches.
Q3: Can the settlement be done at any stage of the court case?
A: Yes, a cheque bounce case can be settled at any stage of the court proceedings, even after the complaint has been filed, but before the court pronounces the judgment.
Q4: Do I need to go to court if we settle out of court?
A: While most of the negotiation and settlement process can occur outside the court, both parties will need to appear in court to formally withdraw or compound the case.
Q5: What are the risks of settling a cheque bounce case out of court?
A: The main risk is if either party fails to honor the terms of the settlement agreement. To mitigate this risk, ensure the settlement agreement is legally binding and covers all possible scenarios.
Conclusion
Settling a cheque bounce case out of court can be a highly beneficial option for both parties, offering a faster and more cost-effective resolution. The process involves negotiating a mutually agreeable settlement, drafting a settlement agreement, filing for the withdrawal of the case, and ensuring that all payments are made as per the agreement. Both parties should engage in fair negotiations, seek legal advice, and ensure proper documentation to protect their interests during the settlement process.
Disclaimer: This information is intended for general guidance only and does not constitute legal advice. Please consult with a qualified lawyer for personalized advice specific to your situation.
Advocate J.S. Rohilla (Civil & Criminal Lawyer in Indore)
Contact: 88271 22304