Guidelines on Costs for Compounding Cheque Dishonour Cases in Damodar S Prabhu Ruling not Binding: Supreme Court [Read Judgement]

The Division Bench of Justice M.M. Sundresh and Justice Satish Chandra Sharma held that the directions issued in Damodar S. Prabhu v. Sayed Babalal H cannot be applied as a binding precedent in every case, particularly when the complainant does not seek additional payment and the accused is unable to comply.

Rajeev Khandelwal was convicted for the offence under Section 138 of the NI Act relating to cheque dishonour. His appeal before the Sessions Court was dismissed. Subsequently, he approached the Bombay High Court in revision.

During pendency of the revision, the parties entered into an agreement and settled the dispute. Based on this settlement, the appellant was acquitted, subject to the condition that he deposit costs with the State Legal Services Authority in line with the guidelines issued by the Supreme Court in Damodar S. Prabhu v. Sayed Babalal H. (2010).

The appellant challenged only this cost component before the Supreme Court.

Senior Advocate Navin Pahwa, appearing for the appellant and assisted by counsel S.S. Sobti, Mohit D. Ram, and AOR Sthavi Asthana, argued that the High Court erred in treating Damodar S. Prabhu was laying down mandatory law.

He submitted that the earlier judgment invoked Article 142 of the Constitution, which empowers the Supreme Court to do complete justice, and therefore cannot be interpreted as a universally binding rule requiring imposition of costs at the revisional stage.

He further submitted that the appellant lacked financial capacity to comply and that the complainant had no objection to waiver of such costs.

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Counsel for the respondents, including Advocates Anand Dilip Landge, Siddharth Dharmadhikari and AOR Aaditya Aniruddha Pande, did not dispute the factual assertions relating to settlement or object to appropriate orders being passed by the Court.

The Supreme Court accepted the appellant’s contentions. The Bench emphasized that Damodar S. Prabhu cannot be treated as a rigid precedent governing all settlements under Section 138 of the NI Act.

The Supreme Court noted that “The law laid down in the aforementioned judgment cannot be regarded as a binding precedent, as every case must be considered on its own facts.”

It was thus held that, “In the present case, we are inclined to hold that the direction imposing costs on the appellant, to be paid to the Legal Services Authority cannot be sustained in the eye of law, particularly when the complainant does not want any further amount and the appellant has expressed his inability to comply with the same, which aspect is not in dispute.”

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The Court noted that the complainant did not seek any further amount beyond the settlement, and the appellant had clearly indicated his inability to pay the costs directed by the High Court. Since neither of these facts were in dispute, the Bench found no justification for insisting on mandatory cost payment to the Legal Services Authority.

The Supreme Court held that the High Court’s direction imposing costs was unsustainable in law and accordingly set it aside. The appeal was disposed of in terms of the signed order, with all pending applications also being disposed.

While the guidelines encourage compounding of offences under the NI Act, courts must consider individual circumstances rather than applying the guidelines mechanically.

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