Dayawati vs Yogesh Kumar Gosain on 17 October, 2017

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*IN THE HIGH COURT OF DELHI AT NEW DELHI

+ CRL.REF.No.1/2016
% Reserved on : 28th February 2017
Date of decision : 17th October 2017

DAYAWATI ….. Petitioner
Through: Mr. Gautam Pal, Adv. for the
complainant
versus
YOGESH KUMAR GOSAIN ….. Respondent
Through: Mr. Ajay Digpaul, Adv. for the
respondent

Mr. J.P. Sengh, Sr. Adv., Ms.
Veena Ralli alongwith Mr.
Ravin Kapur and Mr. Siddharth
Aggarwal, Advs. as Amici
Curiae.
CORAM:
HON’BLE THE ACTING CHIEF JUSTICE
HON’BLE MS. JUSTICE ANU MALHOTRA

JUDGMENT

GITA MITTAL, ACTING CHIEF JUSTICE

1. The legal permissibility of referring a complaint cases under
Section 138 of the NI Act for amicable settlement through mediation;
procedure to be followed upon settlement and the legal implications of
breach of the mediation settlement is the subject matter of this
judgment. Shri Bharat Chugh, as the concerned Metropolitan

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Magistrate (NI Act) – Central – 01/THC/ Delhi, when seized of
Complaint Case Nos.519662/2016 and 519664/2016 (Old Complaint
Case Nos.2429/2015 and 2430/2015) under Section 138 of the
Negotiable Instruments Act (“NI Act” hereafter) passed an order dated
13th January, 2016, the following questions under Section 395 of the
Code of Criminal Procedure (“Cr.P.C” hereafter) to this court for
consideration :

“1. What is the legality of referral of a criminal
compoundable case (such as one u/s 138 of the NI Act) to
mediation?

2. Can the Mediation and Conciliation Rules, 2004
formulated in exercise of powers under the CPC, be
imported and applied in criminal cases? If not, how to fill
the legal vacuum? Is there a need for separate rules
framed in this regard (possibly u/s 477 of the CrPC)?

3. In cases where the dispute has already been referred
to mediation – What is the procedure to be followed
thereafter? Is the matter to be disposed of taking the very
mediated settlement agreement to be evidence of
compounding of the case and dispose of the case, or the
same is to be kept pending, awaiting compliance thereof
(for example, when the payments are spread over a long
period of time, as is usually the case in such settlement
agreements)?

4. If the settlement in Mediation is not complied with –
is the court required to proceed with the case for a trial on
merits, or hold such a settlement agreement to be
executable as a decree?

5. If the Mediated Settlement Agreement, by itself, is
taken to be tantamount to a decree, then, how the same is
to be executed? Is the complainant to be relegated to file
an application for execution in a civil court? If yes, what

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should be the appropriate orders with respect to the
criminal complaint case at hand. What would be the effect
of such a mediated settlement vis-à-vis the complaint
case?”

(Emphasis by us)
The reference has been registered as Crl.Ref.No.1/2016.

2. Given the importance of the questions raised in criminal law, by
an order dated 15th March, 2016, we had appointed Mr. Siddharth
Aggarwal, Advocate as amicus curiae in the matter. On the 20th of
July 2016, having regard to the nature of the above issues which had
been crystallized by the ld. Metropolitan Magistrate and in view of
their extensive experience on all aspects of mediation, we had also
appointed Mr. J.P. Sengh, Sr. Advocate as well as Ms. Veena Ralli,
Advocate (currently Member and Organizing Secretary respectively of
the Organizing Committee of Samadhan – Delhi High Court Mediation
and Conciliation Centre), both senior and experienced mediators, as
amici curiae in the matter.

3. Court notice was also issued to the counsel for the parties in
both CC Nos.2429/2015 2430/2015, Dayawati v. Yogesh Kumar
Gosain pending in the court of the Metropolitan Magistrate for
appearance before us and they stand represented through counsel
before us.

4. Written submissions stand filed by learned amici curiae to assist
this court. We have had the benefit of hearing Mr. J.P. Sengh, Senior
Advocate, Ms. Veena Ralli, Advocate and Mr. Siddharth Aggarwal,

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Advocate as amici curiae as well as Mr. Gautam Pal, ld. counsel for
the complainant and Mr. Ajay Digpaul, ld. counsel for the respondent
in the complaints under Section 138 of the NI Act.

5. We set down hereunder the headings under which we have
considered the matter :

I. Factual matrix (paras 6 to 16)

II. Alternate dispute resolution mechanisms statutorily
recognized (paras 17 to 20)

III. Statutory provisions (paras 21 to 31)

IV. Scope of Section 89 of the Code of Civil Procedure,
1908 (paras 32 to 41)

V. Statutory power to refer matters for dispute resolution
and effect of a settlement (paras 42 to 49)

VI. Power of criminal courts to refer cases to mediation
(paras 50 to 57)

VII. Process to be followed in reference of above disputes
in criminal law to mediation (para 58)

VIII. Dispute resolution encouraged in several cases by the

Supreme Court in non-compoundable cases as well
(paras 59 to 62)

IX. Nature of proceedings under Section 138 of the NI Act
(paras 63 to 67)

X. Permissibility of settlement of offence under Section
138 of the NI Act (paras 68 to 73)

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XI. Mediation and Conciliation Rules, 2004 – notified the
Delhi High Court (paras 74 to 77)

XII. Impact of settlement of disputes in a complaint under
Section 138 Negotiable Instruments Act by virtue of
Lok Adalat under the Legal Services Authorities Act,
1987 (paras 78 to 80)

XIII. What is the procedure to be followed if in a complaint
case under Section 138 of the NI Act, a settlement is
reached in mediation? (paras 81 to 107)

XIV. Breach of such settlement accepted by the court –

consequences? (paras 108 to 117)
XV. Reference answered (para 118)

XVI. Result (paras 119 to 121)

We now propose to discuss the above issues in seriatim :

I. Factual matrix

6. Before dealing with the questions raised before us, it is
necessary to briefly note some essential facts of the case. The
appellant Smt. Dayawati (“complainant” hereafter) filed a complaint
under Section 138 of the NI Act, complaining that the respondent Shri
Yogesh Kumar Gosain herein (“respondent” hereafter) had a liability
of `55,99,600/- towards her as on 7th April, 2013 as recorded in a
regular ledger account for supply of fire-fighting goods and equipment
to the respondent on different dates and different quantities. In part
discharge of this liability, the respondent was stated to have issued two
account payee cheques in favour of the complainants of `11,00,000/-
(Cheque No.365406/- dated 1st December, 2014) and `16,00,000/-

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(Cheque No.563707 dated 28th November, 2014). Unfortunately,
these two cheques were dishonoured by the respondent’s bank on
presentation on account of “insufficiency of funds”.

7. As a result, the complainant was compelled to serve a legal
notice of demand on the respondent which, when went unheeded, led
to the filing of two complaint cases under Section 138 of the NI Act
before the Patiala House Courts, New Delhi being CC Nos.89/1/15
and 266/1/15. In these proceedings, both parties had expressed the
intention to amicably settle their disputes. Consequently, by a
common order dated 1st April, 2015 recorded in both the complaint
cases, the matter was referred for mediation to the Delhi High Court
Mediation and Conciliation Centre.

8. We extract hereunder the operative part of the order dated 1 st
April, 2015 which reads as follows :

“… Ld. Counsel for accused submits that accused is willing
to explore the possibilities of compromise. Ld. Counsel for
complainant is also interested (sic) in compromise talk. Let
the matter be referred to Mediation Cell, High Court Delhi,
Delhi. Parties are directed to appear before the Mediation
Cell, Hon’ble High Court, Delhi on 15.04.2015 at 2:30
p.m.”

9. It appears that after negotiations at the Delhi High Court
Mediation and Conciliation Centre, the parties settled their disputes
under a common settlement agreement dated 14th May, 2015 under
which the accused agreed to pay a total sum of `55,54,600/- to the
complainant as full and final settlement amount in installments with

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regard to which a mutually agreed payment schedule was drawn up. It
was undertaken that the complainant would withdraw the complaint
cases after receipt of the entire amount. In the agreement drawn up,
the parties agreed to comply with the terms of the settlement which
was signed by both the parties along with their respective counsels.
We extract the essential terms of the settlement hereunder :

“xxx xxx xxx

6. The following settlement has been arrived at between
the parties hereto :

a) That the second party shall pay a total sum of
Rs.55,54,600/- to the first party towards full and final
settlement of all the claims of the first party against the
second party.

b) That on 25.06.2015, the second party shall pay
Rs.11,00,000/- to the first party by way of
NEFT/RTGS/demand draft.

c) That on 25.10.2015, the second party shall pay
Rs.16,00,000/- to the first party by way of
NEFT/RTGS/demand draft.

d) The balance sum of Rs.28,54,600/- shall be paid by
the second party to the first party within 18 months from
25.11.2015 by way of NEFT/RTGS/demand draft in equal
monthly installments i.e. Rs.1,58,600/-

e) That the second party shall also provide “C-Form
(Sales Tax, Mumbai)” to the first party against Bill Nos.R
605 dated 27.02.2013 and R 607 dated 06.03.2013.

f) That the first party undertakes to withdraw the
present CC Nos. 89/1/15 and 266/1/15 upon receipt of
entire settlement amount from the second party.”

(Emphasis by us)

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10. This settlement agreement was placed before the court on 1st
June, 2015 when the following order was recorded :

“File received back from the Mediation Centre with report
of settlement. Settlement agreement dated 14.05.2015 gone
through. At joint request, put up for compliance of
abovesaid settlement agreement and for making of first
installment on 30.06.2015”

(Emphasis by us)

11. Unfortunately, the accused/respondent herein failed to comply
with the terms of the settlement. Though vested with the obligation
thereunder to pay a sum of `11,00,000/- as the first installment on 25th
June, 2015, he paid only a sum of `5,00,000/- to the complainant
through RTGS without giving any justification. On the 30th June of
2015, the Metropolitan Magistrate consequently recorded thus:

“… Ld. Counsel for complainant submits that the accused
has not made the payment of first installment in terms of
mediation settlement dated 14.05.2015.

Ld. Counsel for complainant further submits that
accused was to pay first installment of Rs. 11,00,000/- on or
before the 25.06.2015 however he has paid only Rs.
5,00,000/- through RTGS. No reasonable explanation for
the non-payment of full amount of first installment is given
by the accused. Further, no assurance is given by the
accused for making of the due installments within the
stipulated time.

Considering the facts of the case and submissions on
behalf of both the parties, it is apparent that the accused is
not willing to comply with the terms and conditions of the
mediation settlement. Hence, mediation settlement failed.

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Let the matter be proceeded on merit, put up on
14.08.2015″

(Emphasis by us)

12. Thereafter, two more opportunities were given by the
Metropolitan Magistrate on 14th August, 2015 and 21st August, 2015
to the accused to comply with the settlement. Finally, in view of the
continued non-compliance, the matter was listed for framing of notice
on 28th September, 2015 and trial on merits.

13. In the meantime, the Negotiable Instruments (Amendment)
Ordinance, 2015, received the assent of the President of India on the
26th of December, 2016. On account of promulgation of the ordinance,
Section 142 of the Negotiable Instuments Act, 1881 stood amended
with regard to jurisdiction of offences under Section 138 of the
enactment and therefore these cases stood transferred from Patiala
House Courts to Tis Hazari Courts at which stage the matter came to
be placed before the ld. referral judge.

14. At this stage, an application dated 16th November, 2015 was
filed by the complainant seeking enforcement of the settlement
agreement dated 14th May, 2015 placing reliance on the judicial
precedents reported at 2013 SCC OnLine Del 124 Hardeep Bajaj v.
ICICI; 2015 SCC OnLine Del 7309 Manoj Chandak v. M/s Tour
Lovers Tourism (India) Pvt Ltd and 2015 SCC OnLine Del 9334 M/s
Arun International v. State of Delhi. The complainant urged that the
settlement agreement was arrived at after long negotiations and
meetings; that it was never repudiated by the accused nor challenged

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on grounds of it being vitiated for lack of free consent or any other
ground and lastly, that the accused having paid part of the first agreed
installment, has also acted upon the mediation settlement and cannot
be allowed to wriggle free of his obligation under the same.

15. The respondent, on the other hand, argued that the settlement
agreement was not binding contending primarily, for the first time,
that the settlement amount was exorbitant and onerous pointing out
that the complaints were filed with regard to two cheques which were
for a cumulative amount of `27,00,000/- while the settlement amount
was of `55,54,600/- and this by itself was evidence that the agreement
was unfair, arbitrary and not binding on the accused. It was further
urged that on receipt of the case from the mediation cell, the statement
of the parties ought to have been recorded before the court whereby
the parties would have adopted the mediation settlement agreement so
that the same bore the imprimatur of the court. As per the respondent,
absence of such statement in the case denuded the settlement
agreement of its binding nature and efficacy.

16. The ld. Metropolitan Magistrate was of the view that these
questions had arisen, not just in this case, but a plethora of other cases
as well. Consequently, the order dated 13th of January 2016 was
passed making the aforestated reference under Section 395 of the
Cr.P.C. to this court. At the same time, so far as the complaints under
Section 138 of the NI Act are concerned, the ld. MM additionally
directed thus :

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“In view of the question of law that has arose in the
present case, the decision on which is necessary for further
proceedings and a proper adjudication of the present case –
a reference has been made u/s 395 of the CrPC for
consideration and guidance of the Hon’ble High Court of
Delhi.

The office attached to this court is directed to send
this Reference Order to the Ld. Registrar General, Hon’ble
High Court of Delhi in appropriate manner and through
proper channel.

List the matter now on 06.06.2016 awaiting the
outcome of the reference and clarity on the legal issue.”

II. Alternate dispute resolution mechanisms statutorily
recognized

17. Let us, first and foremost, briefly examine the genesis, modes
and methods of dispute resolution available to disputants. It is
common knowledge that other than the traditional adversarial
litigation before courts, alternate dispute resolution mechanisms found
as being increasingly suited for various classes of cases, stand given
statutory recognition and have received judicial recommendation as
well.

18. The legislature has increasingly awarded statutory recognition
and provided for alternate dispute resolution mechanisms to parties in
several enactments, some completely dedicated to this process. These
include lok adalats (Section 19 of the Legal Services Authorities Act,
1987); arbitration and conciliation (Parts I III of Arbitration and
Conciliation Act, 1996 as well as Section 89(a) (b) of the Code of
Civil Procedure, 1908 incorporated on 1st of July 2002); judicial

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settlement and mediation (Section 89(c) (d) of the Code of Civil
Procedure).

19. Some other statutes that recognize and prescribe alternate
dispute resolution attempts mandatorily include the Hindu Marriage
Act (Section 23), the Family Courts Act, 1984 (Section 9) and; the
Industrial Disputes Act, 1947 (Section 10).

20. We find that so far as criminal proceedings are concerned,
statutory recognition stands given to settlements between
complainants/victims and accused persons under Section 320 of the
Cr.P.C which also provides the limits of permissibility and the
procedure to be followed by the court in compounding of offences.

III. Statutory provisions

21. Before examining the reference, we may for expediency extract
the relevant provisions of the Negotiable Instruments Act, 1881; the
Legal Services Authority Act, 1987; the Code of Civil Procedure,
1908 and the Code of Criminal Procedure, 1973 in one place.

22. The relevant statutory provisions of Negotiable Instruments
Act, 1881 read as follows:

“138 Dishonour of cheque for insufficiency, etc., of funds
in the account. –Where any cheque drawn by a person on
an account maintained by him with a banker for payment of
any amount of money to another person from out of that
account for the discharge, in whole or in part, of any debt
or other liability, is returned by the bank unpaid, either
because of the amount of money standing to the credit of
that account is insufficient to honour the cheque or that it

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exceeds the amount arranged to be paid from that account
by an agreement made with that bank, such person shall be
deemed to have committed an offence and shall, without
prejudice to any other provisions of this Act, be punished
with imprisonment for a term which may be extended to
two years, or with fine which may extend to twice the
amount of the cheque, or with both: Provided that nothing
contained in this section shall apply unless–

(a) the cheque has been presented to the bank within a
period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as
the case may be, makes a demand for the payment of the
said amount of money by giving a notice in writing, to the
drawer of the cheque, within thirty days of the receipt of
information by him from the bank regarding the return of
the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of
the said amount of money to the payee or, as the case may
be, to the holder in due course of the cheque, within fifteen
days of the receipt of the said notice.

Explanation.– For the purposes of this section, “debt or
other liability” means a legally enforceable debt or other
liability.]”

xxx xxx xxx

143. Power of Court to try cases summarily.- (1)
Notwithstanding anything contained in the Code of
Criminal Procedure, 1973, all offences under this Chapter
shall be tried by a Judicial Magistrate of the first class or
by a Metropolitan Magistrate and the provisions
of Sections 262 to 265 (both inclusive) of the said Code
shall, as far as may be, apply to such trials:

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Provided that in the case of any conviction in a summary
trial under this section, it shall be lawful for the Magistrate
to pass a sentence of imprisonment for a term not
exceeding one year and an amount of fine exceeding five
thousand rupees:

Provided further that when at the commencement of, or in
the course of, a summary trial under this section, it appears
to the Magistrate that the nature of the case is such that a
sentence of imprisonment for a term exceeding one year
may have to be passed or that it is, for any other reason,
undesirable to try the case summarily, the Magistrate shall
after hearing the parties, record an order to that effect and
thereafter recall any witness who may have been examined
and proceed to hear or rehear the case in the manner
provided by the said Code.

(2) The trial of a case under this section shall, so far as
practicable, consistently with the interests of justice, be
continued from day to day until its conclusion, unless the
Court finds the adjournment of the trial beyond the
following day to be necessary for reasons to be recorded in
writing.

(3) Every trial under this section shall be conducted as
expeditiously as possible and an endeavour shall be made
to conclude the trial within six months from the date of
filing of the complaint.”

xxx xxx xxx

147. Offences to be compoundable.–Notwithstanding
anything contained in the Code of Criminal Procedure,
1973 (2 of 1974), every offence punishable under this Act
shall be compoundable.”

(Emphasis by us)

23. The Legal Services Authorities Act, 1987 provides for
constitution of legal services authorities to provide free and competent

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legal services to the weaker sections of the society as well as to ensure
that opportunities for securing justice are not denied to any citizen by
reason of economic or other disabilities, and also postulates alternate
dispute resolution mechanism as lok adalats. The relevant statutory
provisions of Legal Services Authorities Act, 1987 regarding dispute
resolution are reproduced hereafter :

“19. Organisation of Lok Adalats.–

(1) Every State Authority or District Authority or the
Supreme Court Legal Services Committee or every High
Court Legal Services Committee or, as the case may be,
Taluk Legal Services Committee may organise Lok Adalats
at such intervals and places and for exercising such
jurisdiction and for such areas as it thinks fit.

xxx xxx xxx
(5) A Lok Adalat shall have jurisdiction to determine and
to arrive at a compromise or settlement between the
parties to a dispute in respect of–

(i) any case pending before; or

(ii) any matter which is falling within the jurisdiction of,
and is not brought before, any court for which the Lok
Adalat is organised: Provided that the Lok Adalat shall
have no jurisdiction in respect of any case or matter
relating to an offence not compoundable under any law.

20. Cognizance of cases by Lok Adalats.–
(1) Where in any case referred to in clause (i) of sub-

section (5) of section 19
(i) (a) the parties thereof agree; or

(b) one of the parties thereof makes an application
to the court,

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for referring the case to the Lok Adalat for settlement and
if such court is prima facie satisfied that there are chances
of such settlement; or

(ii) the court is satisfied that the matter is an appropriate
one to be taken cognizance of by the Lok Adalat,
the court shall refer the case to the Lok Adalat:

Provided that no case shall be referred to the Lok
Adalat under sub-clause (b) of clause (i) or clause (ii) by
such court except after giving a reasonable opportunity of
being heard to the parties.

(2) Notwithstanding anything contained in any other law
for the time being in force, the Authority or Committee
organising the Lok Adalat under sub-section (1) of section
19 may, on receipt of an application from any one of the
parties to any matter referred to in clause (ii) of sub-
section (5) of section 19 that such matter needs to be
determined by a Lok Adalat, refer such matter to the Lok
Adalat, for determination:

Provided that no matter shall be referred to the Lok
Adalat except after giving a reasonable opportunity of
being heard to the other party.

(3) Where any case is referred to a Lok Adalat under sub-
section (1) or where a reference has been made to it under
sub-section (2), the Lok Adalat shall proceed to dispose of
the case or matter and arrive at a compromise or
settlement between the parties.

(4) Every Lok Adalat shall, while determining any
reference before it under this Act, act with utmost
expedition to arrive at a compromise or settlement between
the parties and shall be guided by the principles of justice,
equity, fair play and other legal principles.
(5) Where no award is made by the Lok Adalat on the
ground that no compromise or settlement could be arrived

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at between the parties, the record of the case shall be
returned by it to the court, from which the reference has
been received under sub-section (1) for disposal in
accordance with law.

(6) Where no award is made by the Lok Adalat on the
ground that no compromise or settlement could be arrived
at between the parties, in a matter referred to in sub-
section (2), that Lok Adalat shall advise the parties to seek
remedy in a court.

(7) Where the record of the case is returned under sub-
section (5) to the court, such court shall proceed to deal
with such case from the stage which was reached before
such reference under sub-section (1).

21. Award of Lok Adalat.-

(1) Every award of the Lok Adalat shall be deemed to be a
decree of a civil court or, as the case may be, an order of
any other court and where a compromise or settlement has
been arrived at, by a Lok Adalat in a case referred to it
under sub-section (1) of section 20, the court-free paid in
such case shall be refunded in the manner provided under
the Court Fees Act, 1870 (7 of 1870).]”

(2) Every award made by a Lok Adalat shall be final and
binding on all the parties to the dispute, and no appeal
shall lie to any court against the award.

(Emphasis by us)

24. Let us also examine Section 89 of the Code of Civil Procedure,
1908 (“CPC” hereafter), relevant statutory provisions whereof also
prescribe alternate dispute resolution mechanisms, which are as under:

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“89. Settlement of disputes outside the Court

(1) Where it appears to the court that there exist elements
of a settlement which may be acceptable to the parties, the
court shall formulate the terms of settlement and give
them to the parties for their observations and after
receiving the observation of the parties, the court may
reformulate the terms of a possible settlement and refer
the same for-

(a) arbitration;

(b) conciliation

(c) judicial settlement including settlement
through Lok Adalat; or

(d) mediation.

(2) Where a dispute had been referred-

(a) for arbitration or conciliation, the provisions of
the Arbitration and Conciliation Act, 1996 shall
apply as if the proceedings for arbitration or
conciliation were referred for settlement under the
provisions of that Act.

(b) to Lok Adalat, the court shall refer the same to
the Lok Adalat in accordance with the provisions of
sub-section (1) of section 20 of the Legal Services
Authority Act, 1987 and all other provisions of that
Act shall apply in respect of the dispute so referred
to the Lok Adalat;

(c) for judicial settlement, the court shall refer the
same to a suitable institution or person and such
institution or person shall be deemed to be a Lok
Adalat and all the provisions of the Legal Services
Authority Act, 1987 shall apply as if the dispute

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were referred to a Lok Adalat under the provisions
of that Act;

(d) for mediation, the court shall effect a
compromise between the parties and shall follow
such procedure as may be prescribed.”

(Emphasis supplied)

25. So far as the civil suits are concerned, the Legislature has
amended the CPC to incorporate Rules 1A, 1B and 1C in Order X
which are reproduced hereunder:

“1-A. Direction of the court to opt for any one mode of
alternative dispute resolution.– After recording the
admissions and denials, the Court shall direct the parties
to the suit to opt either mode of the settlement outside the
Court as specified in sub-section (1) of Section 89. On the
option of the parties, the court shall fix the date of
appearance before such forum or authority as may be
opted by the parties.

1-B. Appearance before the conciliatory forum or
authority.– Where a suit is referred under Rule 1-A, the
parties shall appear before such forum or authority for
conciliation of the suit.

1-C. Appearance before the Court consequent to the
failure of efforts of conciliation.– Where a suit is referred
under Rule 1-A and the presiding officer of conciliation
forum or authority is satisfied that it would not be proper in
the interest of justice to proceed with the matter further,
then, it shall refer the matter again to the court and direct
the parties to appear before the Court on the date fixed by
it.”

(Emphasis by us)

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26. We may also usefully extract the provisions of Rule 3 of Order
XXIII of the CPC which provide the manner in which a civil court
will proceed upon adjustment of a suit, wholly or in part, by an
agreement or compromise. This provision reads thus :

“3. Compromise of suit.- Where it is proved to the
satisfaction of the court that a suit has been adjusted
wholly or in part by any lawful agreement or compromise
in writing and signed by the parties, or where the
defendant satisfies the plaintiff in respect of the whole or
any part of the subject matter of the suit, the court shall
order such agreement, compromise or satisfaction to be
recorded, and shall pass a decree in accordance therewith
so far as it relates to the parties to the suit, whether or not
the subject matter of the agreement, compromise or
satisfaction is the same as the subject matter of the suit: –

Provided that where it is alleged by one party and denied
by the other than an adjustment or satisfaction has been
arrived at, the court shall decide the question; but no
adjournment shall be granted for the purpose of deciding
the question, unless the court, for reasons to be recorded,
thinks fit to grant such adjournment.”

(Emphasis by us)

27. At this point, it is also necessary to examine from the Cr.P.C.,
the provisions of Section 29, which provides the sentence which a
magistrate may pass; Section 320 which stipulates cases which may be
compounded by the parties as well as those which may be
compounded with the leave of the court or otherwise; Section 357
which provides for award of compensation while awarding a sentence
of fine or of which fine forms a part; Section 421 which provides for
the manner in which a fine may be recovered and Section 431 which

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enables a court to recover any money by virtue of an order made under
the Cr.P.C.

28. Sections 29 and 320 of the Cr.P.C., are relevant for the present
consideration, read as follows :

“29. Sentences which Magistrates may pass
(1) The Court of a Chief Judicial Magistrate may pass any
sentence authorised by law except a sentence of death or of
imprisonment for life or of imprisonment for a term
exceeding seven years.

(2) The Court of a Magistrate of the first class may pass a
sentence of imprisonment for a term not exceeding three
years, or of fine not exceeding five thousand rupees, or of
both.

(3) The Court of a Magistrate of the second class may pass
a sentence of imprisonment for a term not exceeding one
year, or of fine not exceeding one thousand rupees, or of
both.

(4) The Court of a Chief Metropolitan Magistrate shall
have the powers of the Court of a Chief Judicial Magistrate
and that of a Metropolitan Magistrate, the powers of the
Court of a Magistrate of the first class.”

320. Compounding of offences.–(1) The offences
punishable under the sections of the Indian Penal Code (45
of 1860) specified in the first two columns of the Table
next following may be compounded by the persons
mentioned in the third column of that Table:–

xxx xxx xxx
(2) The offences punishable under the sections of the
Indian Penal Code (45 of 1860) specified in the first two
columns of the Table next following may, with the
permission of the Court before which any prosecution for

Crl.Ref.No.1/2016 Page 21 of 89
such offence is pending, be compounded by the persons
mentioned in the third column of that Table:–

xxx xxx xxx”
(Emphasis supplied)

29. The provisions of Sections 357, 421, 431 of the Cr.P.C. which
enable the court to direct payments of monetary amounts and enable
recovery thereof, by the trial courts also may be extracted and read as
follows :

“357. Order to pay compensation
(1) When a Court imposes a sentence of fine or a sentence
(including a sentence of death) of which fine forms a part,
the Court may, when passing judgment, order the whole
or any part of the fine recovered to be applied-

(a) in defraying the expenses properly incurred in the
prosecution;

(b) in the payment to any person of compensation for any
loss or injury caused by the offence, when compensation is,
in the opinion of the Court, recoverable by such person in a
Civil Court;

(c) when any person is convicted of any offence for having
caused the death of another person or of having abetted the
commission of such an offence, in paying compensation to
the persons who are, under the Fatal Accidents Act, 1855
(13 of 1855 ), entitled to recover damages from the person
sentenced for the loss resulting to them from such death;

(d) when any person is convicted of any offence which
includes theft, criminal misappropriation, criminal breach
of trust, or cheating, or of having dishonestly received or
retained, or of having voluntarily assisted in disposing of,
stolen property knowing or having reason to believe the
same to be stolen, in compensating any bona fide purchaser

Crl.Ref.No.1/2016 Page 22 of 89
of such property for the loss of the same if such property is
restored to the possession of the person entitled thereto.
(2) If the fine is imposed in a case which is subject to
appeal, no such payment shall be made before the period
allowed for presenting the appeal has elapsed, or, if an
appeal be presented, before the decision of the appeal.
(3) When a Court imposes a sentence, of which fine does
not form a part, the Court may, when passing judgment,
order the accused person to pay, by way of compensation,
such amount as may be specified in the order to the person
who has suffered any loss or injury by reason of the act for
which the accused person has been so sentenced.
(4) An order under this section may also be made by an
Appellate Court or by the High Court or Court of Session
when exercising its powers of revision.
(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.”

“421. Warrant for levy of fine
(1) When an offender has been sentenced to pay a fine,
the Court passing the sentence may take action for the
recovery of the fine in either or both of the following ways,
that is to say, it may-

(a) issue a warrant for the levy of the amount by
attachment and sale of any movable property belonging to
the offender;

(b) issue a warrant to the Collector of the district,
authorising him to realise the amount as arrears of land
revenue from the movable or immovable property, or
both, of the defaulter: Provided that, if the sentence directs
that in default of payment of the fine, the offender shall be

Crl.Ref.No.1/2016 Page 23 of 89
imprisoned, and if such offender has undergone the whole
of such imprisonment in default, no Court shall issue such
warrant unless, for special reasons to be recorded in
writing, it considers it necessary so to do, or unless it has
made an order for the payment of expenses or
compensation out of the fine under section 357.
(2) The State Government may make rules regulating the
manner In which warrants under clause (a) of sub- section
(1) are to be executed, and for the summary determination
of any claims made by any person other than the offender
in respect of any property attached in execution of such
warrant.

(3) Where the Court issues a warrant to the Collector
under clause (b) of sub- section (1), the Collector shall
realise the amount in accordance with the law relating to
recovery of arrears of land revenue, as if such warrant
were a certificate issued under such law: Provided that no
such warrant shall be executed by the arrest or detention in
prison of the offender.”

“431. Money ordered to be paid recoverable as fine
Any money (other than a fine) payable by virtue of any
order made under this Code, and the method of recovery
of which is not otherwise expressly provided for, shall be
recoverable as if it were a fine:

Provided that section 421 shall, in its application to
an order under section 359, by virtue of this section, be
construed as if in the proviso to sub- section (1) of section
421, after the words and figures” under section 357″, the
words and figures” or an order for payment of costs under
section 359″ had been inserted.”

(Emphasis supplied)

Crl.Ref.No.1/2016 Page 24 of 89

30. Given the questions referred to us, we may also extract
hereunder the extent of the rule making power of the High Court under
Section 477 of the Cr.P.C. which reads thus :

“477. Power of High Court to make rules –

(1) Every High Court may, with the previous approval of
the State Government, make rules–

(a) as to the persons who may be permitted to act as
petition-writers in the Criminal Courts subordinate to it;

(b) regulating the issue of licences to such persons, the
conduct of business by them, and the scale of fees to be
charged by them.

(c) providing a penalty for a contravention of any of the
rules so made and determining the authority by which such
contravention may be investigated and the penalties
imposed;

(d) any other matter which is required to be, may be,
prescribed.

(2) All rules made under this section shall be published in
the Official Gazette.”

(Emphasis supplied)

31. The Delhi High Court has on 11th August, 2005 notified the
“Mediation And Conciliation Rules 2004” to guide mediation in
Delhi. We extract hereunder the relevant extract, as amended, thereof:

“(TO BE PUBLISHED IN PART IV OF DELHI GAZETTE
EXTRAORDINARY)
HIGH COURT OF DELHI : NEW DELHI
NOTIFICATION

Crl.Ref.No.1/2016 Page 25 of 89
No.171/Rules/DHC Dated: 11th August, 2005
In exercise of the rule making power under Part X of the Code of
Civil Procedure, 1908 (5 of 1908) and clause (d) of sub-section (2) of
Section 89 of the said Code and all other powers enabling it in this
behalf, the High Court of Delhi hereby makes the following rules :-

MEDIATION AND CONCILIATION RULES, 2004
Rule 1 : Title
“The Rules will apply to all mediation and conciliation connected
with any suit or other proceeding pending in the High Court of
Delhi or in any court subordinate to the High Court of Delhi. The
mediation in respect of any suit or proceeding pending before the
High Court of Delhi or any other Court or Tribunal may be referred
to the Delhi High Court Mediation and Conciliation Centre or any
other Mediation Centre set up by Legal Services Authorities. Upon
such a reference being made to Delhi High Court Mediation and
Conciliation Centre, the same will be governed by the Charter of the
Delhi High Court Mediation and Conciliation Centre and to those
mediation proceedings, the present Rules will apply mutatis
mutandi.” These Rules shall be called the Mediation and
Conciliation Rules, 2004.

Rule 2: Appointment of Mediator/Conciliator

(a) Parties to a suit or other proceeding may agree on the name of
the sole mediator/conciliator for mediating between them. …

        xxx                          xxx                           xxx
Rule 3 : Panel of mediators/conciliators
xxx xxx xxx

(b)(i) The District Sessions Judge shall, for the purpose of
appointing the mediator/conciliator to mediate between the parties in
the suits or proceedings prepare a panel of the
mediators/conciliators within a period of thirty days of the
commencement of these rules and shall submit the same to the High
Court for approval. On approval of the said panel by the High Court,
with or without modification, which shall be done within thirty days
of the submission of the panel by the District Sessions Judge, the
same shall be put on the Notice Board.

xxx xxx xxx

Crl.Ref.No.1/2016 Page 26 of 89
Rule 24 : Settlement agreement

a) Where an agreement is reached between the parties in regard to
all the issues in the suit or proceeding or some of the issues, the
same shall be reduced to writing and signed by the parties or their
constituted attorney. If any counsel has represented the parties, the
conciliator/mediator may obtain his signature also on the settlement
agreement.

(b) The agreement of the parties so signed shall be submitted to the
mediator/conciliator who shall, with a covering letter signed by him,
forward the same to the Court in which the suit or proceeding is
pending.

(c) Where no agreement is arrived at between the parties, before the
time limit stated in Rule 18 of where, the mediator/conciliator is of
the view that no settlement is possible, he shall report the same to
the Court in writing.

Rule 25 : Court to fix a date for Recording settlement and passing
decree

(a) On receipt of any settlement, the Court shall fix a date of
hearing normally within seven days but in any case not beyond a
period of fourteen days. On such date of hearing, if the Court is
satisfied that the parties have settled their dispute(s), it shall pass a
decree in accordance with terms thereof.

(b) If the settlement dispose of only certain issues arising in the suit
or proceeding, on the basis of which any decree is passed as stated in
Clause (a), the Court shall proceed further to decide remaining
issues."

(Emphasis supplied)

IV. Scope of Section 89 of the Code of Civil Procedure, 1908

32. Mediation as a mode of alternate dispute settlement thus finds
statutory recognition in Section 89 of the Code of Civil Procedure.

33. Valuable light is thrown on the interpretation of Section 89 in
the judicial pronouncements rendered by the Supreme Court of India

Crl.Ref.No.1/2016 Page 27 of 89
in (2003) 1 SCC 49, Salem Advocate Bar Assn. v. Union of India
(Salem Bar I); (2005) 6 SCC 344, Salem Advocate Bar Assn. v.
Union Of India (Salem Bar II) and (2010) 8 SCC 24, Afcons
Infrastructure Ltd. Anr. v. Cherian Varkey Constructions Co. Pvt.
Ltd.

34. Extensive amendments were effected to the Code of Civil
Procedure by the Legislature by Act 46 of 1999. Amongst the
provisions inserted, was Section 89 which provided for settlement of
disputes outside the court through use of alternate dispute redressal
mechanisms. Several writ petitions came to be filed before the
Supreme Court of India challenging the amendments effected to the
Code of Civil Procedure by the Amendment Act 46 of 1999 and
Amendment Act 22 of 2002. Amongst these was W.P.(C)No.496/2000
titled Salem Advocate Bar Assn. v. Union of India. This writ petition
came to be decided, along with connected writ petitions, by way of the
judgment dated 25th October, 2002 reported at (2003) 1 SCC 49,
Salem Advocate Bar Assn. v. Union of India (commonly known as
Salem Bar I). So far as the amendments and insertion of Section 89 of
the Code of Civil Procedure was concerned, the Supreme Court
observed that Section 89 was a new provision and even through
arbitration or conciliation had been in place as modes of settling the
disputes, this had not really reduced the burden of the courts. The
court was of the view that modalities had to be formulated for the
manner in which Section 89 as well as other provisions which had
been introduced by way of amendments, may have to be operated. For

Crl.Ref.No.1/2016 Page 28 of 89
this purpose, a Committee was constituted to ensure that the
amendments made became effective and resulted in quicker
dispensation of justice.

35. This was followed by a later pronouncement in the same case
reported at (2005) 6 SCC 344, Salem Advocate Bar Assn. v. Union Of
India (commonly referred to as Salem Bar II), whereby the Supreme
Court further clarified the position holding as follows :

"57. A doubt has been expressed in relation to clause (d) of
Section 89(2) of the Code on the question as to finalisation of the
terms of the compromise. The question is whether the terms of
compromise are to be finalised by or before the mediator or by
or before the court. It is evident that all the four alternatives,
namely, arbitration, conciliation, judicial settlement including
settlement through the Lok Adalat and mediation are meant to be
the action of persons or institutions outside the court and not
before the court. Order 10 Rule 1-C speaks of the "Conciliation
Forum" referring back the dispute to the court. In fact, the court
is not involved in the actual mediation/conciliation. Clause (d)
of Section 89(2) only means that when mediation succeeds and
parties agree to the terms of settlement, the mediator will report
to the court and the court, after giving notice and hearing to the
parties, "effect" the compromise and pass a decree in
accordance with the terms of settlement accepted by the parties.
Further, in this view, there is no question of the court which
refers the matter to mediation/conciliation being debarred from
hearing the matter where settlement is not arrived at. The judge
who makes the reference only considers the limited question as to
whether there are reasonable grounds to expect that there will be
a settlement, and on that ground he cannot be treated to be
disqualified to try the suit afterwards, if no settlement is arrived
at between the parties.

xxx xxx xxx

62. When the parties come to a settlement upon a reference
made by the court for mediation, as suggested by the Committee

Crl.Ref.No.1/2016 Page 29 of 89
that there has to be some public record of the manner in which
the suit is disposed of and, therefore, the court has to first
record the settlement and pass a decree in terms thereof and if
necessary proceed to execute it in accordance with law. It
cannot be accepted that such a procedure would be unnecessary.
If the settlement is not filed in the court for the purpose of
passing of a decree, there will be no public record of the
settlement. It is, however, a different matter if the parties do not
want the court to record a settlement and pass a decree and feel
that the settlement can be implemented even without a decree.
In such eventuality, nothing prevents them in informing the
court that the suit may be dismissed as a dispute has been
settled between the parties outside the court."

(Emphasis by us)

36. In (2010) 8 SCC 24, Afcons Infrastructure Ltd. Anr. v.

Cherian Varkey Constructions Co. Pvt. Ltd., the Supreme Court was
called upon to consider the scope of Section 89 of the CPC. Certain
errors by the draftsman were noted in Section 89 of the CPC. In this
judgment, the court further interpreted the statute to implement the
spirit, object and intendment of the provisions. We may usefully refer
to para 25 of the judgment in this regard, which reads as follows:

"25. In view of the foregoing, it has to be concluded
that proper interpretation of Section 89 of the Code
requires two changes from a plain and literal reading of
the section. Firstly, it is not necessary for the court, before
referring the parties to an ADR process to formulate or
reformulate the terms of a possible settlement. It is
sufficient if the court merely describes the nature of
dispute (in a sentence or two) and makes the reference.
Secondly, the definitions of "judicial settlement" and
"mediation" in clauses (c) and (d) of Section 89(2) shall
have to be interchanged to correct the draftsman's error.

Crl.Ref.No.1/2016 Page 30 of 89

Clauses (c) and (d) of Section 89(2) of the Code will read
as under when the two terms are interchanged:

(c) for "mediation", the court shall refer the same to a
suitable institution or person and such institution or
person shall be deemed to be a Lok Adalat and all the
provisions of the Legal Services Authorities Act, 1987 (39
of 1987) shall apply as if the dispute were referred to a
Lok Adalat under the provisions of that Act;

(d) for "judicial settlement", the court shall effect a
compromise between the parties and shall follow such
procedure as may be prescribed.

The above changes made by interpretative process shall
remain in force till the legislature corrects the mistakes,
so that Section 89 is not rendered meaningless and
infructuous."

(Emphasis supplied)

37. With regard to anomalies in Section 89 of the CPC, the
Supreme Court has thus held that where the court has referred the
matter to mediation, the mediator shall be deemed to be a Lok Adalat
under the Legal Services Act. For cases covered under Section 89 of
the CPC, it is thus abundantly clear that the mediated settlement and
settlement before "another Judge", would have the same efficacy and
binding status as an award of the Lok Adalat which is deemed to be a
decree.

38. The Supreme Court has also stipulated that mediated settlement
would have to be placed before the courts concerned for recording of
the settlement and disposal of the case. We extract hereunder para 39
of Afcons wherein this is discussed :

Crl.Ref.No.1/2016 Page 31 of 89

"39. Where the reference is to a neutral third party
("mediation" as defined above) on a court reference,
though it will be deemed to be reference to Lok Adalat, as
the court retains its control and jurisdiction over the
matter, the mediation settlement will have to be placed
before the court for recording the settlement and disposal.
Where the matter is referred to another Judge and
settlement is arrived at before him, such settlement
agreement will also have to be placed before the court
which referred the matter and that court will make a
decree in terms of it."

(Emphasis supplied)

As a result of the pronouncement in Afcons, Section 89 of the
C.P.C. thus stands modified to the extent noted above.

39. So far as the procedure to be adopted by a court upon reference
of the disputes in a civil case to an ADR mechanism is concerned, the
same stands further considered in Afcons. The relevant portion of the
judgment is reproduced as under :

"43 We may summarise the procedure to be adopted by a
court under Section 89 of the Code as under:

(a) When the pleadings are complete, before framing
issues, the court shall fix a preliminary hearing for
appearance of parties. The court should acquaint itself with
the facts of the case and the nature of the dispute between
the parties.

(b) The court should first consider whether the case falls
under any of the category of the cases which are required
to be tried by courts and not fit to be referred to any ADR
processes. If it finds that the case falls under any excluded
category, it should record a brief order referring to the
nature of the case and why it is not fit for reference to ADR

Crl.Ref.No.1/2016 Page 32 of 89
processes. It will then proceed with the framing of issues
and trial.

(c) In other cases (that is, in cases which can be referred to
ADR processes) the court should explain the choice of five
ADR processes to the parties to enable them to exercise
their option.

(d) The court should first ascertain whether the parties are
willing for arbitration. The court should inform the parties
that arbitration is an adjudicatory process by a chosen
private forum and reference to arbitration will permanently
take the suit outside the ambit of the court. The parties
should also be informed that the cost of arbitration will
have to be borne by them. Only if both parties agree for
arbitration, and also agree upon the arbitrator, the matter
should be referred to arbitration.

(e) If the parties are not agreeable for arbitration, the
court should ascertain whether the parties are agreeable
for reference to conciliation which will be governed by the
provisions of the AC Act. If all the parties agree for
reference to conciliation and agree upon the conciliator(s),
the court can refer the matter to conciliation in accordance
with Section 64 of the AC Act.

(f) If the parties are not agreeable for arbitration and
conciliation, which is likely to happen in most of the cases
for want of consensus, the court should, keeping in view
the preferences/options of parties, refer the matter to any
one of the other three ADR processes: (a) Lok Adalat; (b)
mediation by a neutral third-party facilitator or mediator;
and (c) a judicial settlement, where a Judge assists the
parties to arrive at a settlement.

(g) If the case is simple which may be completed in a single
sitting, or cases relating to a matter where the legal
principles are clearly settled and there is no personal
animosity between the parties (as in the case of motor
accident claims), the court may refer the matter to Lok
Adalat. In case where the questions are complicated or
cases which may require several rounds of negotiations,
the court may refer the matter to mediation. Where the

Crl.Ref.No.1/2016 Page 33 of 89
facility of mediation is not available or where the parties
opt for the guidance of a Judge to arrive at a settlement, the
court may refer the matter to another Judge for attempting
settlement.

(h) If the reference to the ADR process fails, on receipt of
the report of the ADR forum, the court shall proceed with
hearing of the suit. If there is a settlement, the court shall
examine the settlement and make a decree in terms of it,
keeping the principles of Order 23 Rule 3 of the Code in
mind.

(i) If the settlement includes disputes which are not the
subject-matter of the suit, the court may direct that the
same will be governed by Section 74 of the AC Act (if it is a
conciliation settlement) or Section 21 of the Legal Services
Authorities Act, 1987 (if it is a settlement by a Lok Adalat
or by mediation which is a deemed Lok Adalat). If the
settlement is through mediation and it relates not only to
disputes which are the subject-matter of the suit, but also
other disputes involving persons other than the parties to
the suit, the court may adopt the principle underlying
Order 23 Rule 3 of the Code. This will be necessary as
many settlement agreements deal with not only the disputes
which are the subject-matter of the suit or proceeding in
which the reference is made, but also other disputes which
are not the subject-matter of the suit.

(j) If any term of the settlement is ex facie illegal or
unenforceable, the court should draw the attention of
parties thereto to avoid further litigations and disputes
about executability."

(Emphasis by us)

40. In para 44, the Supreme Court has also laid down certain
consequential aspects which have to be borne in mind while giving
effect to Section 89 of the Code. Para 44 of the judgment is
reproduced as under :

Crl.Ref.No.1/2016 Page 34 of 89

"44. The court should also bear in mind the following
consequential aspects, while giving effect to Section 89 of
the Code:

(i) If the reference is to arbitration or conciliation, the
court has to record that the reference is by mutual consent.
Nothing further need be stated in the order-sheet.

(ii) If the reference is to any other ADR process, the court
should briefly record that having regard to the nature of
dispute, the case deserves to be referred to Lok Adalat, or
mediation or judicial settlement, as the case may be. There
is no need for an elaborate order for making the
reference.

(iii) The requirement in Section 89(1) that the court should
formulate or reformulate the terms of settlement would only
mean that the court has to briefly refer to the nature of
dispute and decide upon the appropriate ADR process.

(iv) If the Judge in charge of the case assists the parties
and if settlement negotiations fail, he should not deal with
the adjudication of the matter, to avoid apprehensions of
bias and prejudice. It is therefore advisable to refer cases
proposed for judicial settlement to another Judge.

(v) If the court refers the matter to an ADR process (other
than arbitration), it should keep track of the matter by
fixing a hearing date for the ADR report. The period
allotted for the ADR process can normally vary from a
week to two months (which may be extended in exceptional
cases, depending upon the availability of the alternative
forum, the nature of case, etc.). Under no circumstances
the court should allow the ADR process to become a tool
in the hands of an unscrupulous litigant intent upon
dragging on the proceedings.

(vi) Normally the court should not send the original
record of the case when referring the matter to an ADR
forum. It should make available only copies of relevant
papers to the ADR forum. (For this purpose, when
pleadings are filed the court may insist upon filing of an
extra copy). However if the case is referred to a court

Crl.Ref.No.1/2016 Page 35 of 89
annexed mediation centre which is under the exclusive
control and supervision of a judicial officer, the original
file may be made available wherever necessary."

(Emphasis by us)

41. In para 45, the court had clarified that these were guidelines
subject to such changes as the concerned court may deem fit with
reference to the special circumstances of the case.

There is thus complete clarity on the manner in which a court
must proceed when making a reference to mediation.

V. Statutory power to refer matters for dispute resolution and
effect of a settlement

42. We have extracted above Section 19 of the Legal Services Act,
1987 providing for the organization of Lok Adalats. The Lok Adalats
have the jurisdiction under sub-section 5 of Section 19 to determine
and to arrive at a compromise or settlement between the parties to a
dispute in respect of :

(i)     any case pending before, or
(ii) any matter which is falling within the jurisdiction of, and is not

brought before, any court for which the Lok Adalat is
organized.

Provided that the Lok Adalat shall have no jurisdiction in
respect of any case or matter relating to an offence not compoundable
under the law.

Thus so far as criminal cases are concerned, a Lok Adalat has
jurisdiction over only such criminal matters that relate to offences

Crl.Ref.No.1/2016 Page 36 of 89
compoundable by law i.e. under Section 320 of the Cr.P.C. or under
any special enactment.

It is also to be noted that under this enactment, it is also
specifically provided that "court" means a "civil, criminal or revenue
court".

43. So far as cognizance of cases by Lok Adalats are concerned, the
same is taken in accordance with Section 20 of the enactment. This
may be by agreement between the parties or upon one party making an
application. It can also be by way of a reference by the court.

44. By virtue of Section 21 of the Legal Services Act, an award
made by the Lok Adalats shall be final and binding and no appeal
shall lie in any court against it. The award is deemed to be "decree of
civil court" or, as the case may be, "an order of any other court".

The statute therefore, makes no distinction between an award in
a civil or criminal case.

45. So far as the civil suits which are tried in accordance with the
provisions of Code of Civil Procedure are concerned, the mandate of
Section 89 of the C.P.C. enables the court to refer the parties for
settlement of disputes outside the court including for judicial
settlement to Lok Adalats and mediation.

46. Order X of the C.P.C. provides the modalities for implementing
the mandate of Section 89 CPC.

Crl.Ref.No.1/2016 Page 37 of 89

47. Additionally the provisions of the Arbitration and Conciliation
Act, 1996 enable reference of matters where there is an arbitration
agreement, for dispute resolution by arbitration and conciliation.

48. The Code of Criminal Procedure, 1973 and the Negotiable
Instruments Act, 1881 unfortunately contain no provisions for
reference of the matters thereunder to alternate dispute resolution
mechanisms.

49. As the Code of Civil Procedure would have no application to
criminal proceedings to which the Code of Criminal Procedure
applies, Section 89 of the C.P.C. cannot and would not, in terms, apply
to the proceedings under Section 138 of the NI Act.

VI. Power of criminal courts to refer cases to mediation

50. We have found that, though the Code of Civil Procedure
contains a specific provision in Section 89 of the C.P.C. enabling
reference of matters to alternate dispute redressal, however, so far as
criminal cases are concerned, it is amply clear that the Code of
Criminal Procedure does not contain any express statutory provision
enabling the criminal court to refer the parties to a forum for alternate
dispute resolution including mediation. The same is the position
regarding cases under the NI Act. Therefore, the question which first
begs an answer is whether the criminal court can in any manner refer
parties before it to dispute resolution by mediation.

51. In para 18 of Afcons, the Supreme Court has given illustrations
of certain categories of cases that were normally not considered

Crl.Ref.No.1/2016 Page 38 of 89
suitable for alternate dispute resolution processes. Prosecution for
criminal offences has been mentioned as not suitable. The judgment
also notes that the categorization enumerated is merely illustrative and
not inflexible. As the legal validity of mediation in criminal
compoundable cases was not specifically in question, there is thus no
authoritative judicial pronouncement prohibiting the same.

52. Out of the alternate dispute redressal mechanisms adopted by
this country's legal system, the mediation movement as a reliable
mechanism, has gained both acceptability and popularity. In an article
titled "Mediation : Constituents, Process and Merit"
(http://gujarathighcourt.nic.in/mediation/sbs1.htm) authored by S.B.
Sinha, J. (Retd. Judge of the Supreme Court of India), it has been
noted that unlike litigation and arbitration, which consists of formal
evidentiary hearings and a final adjudication, mediation was a semi-
formal negotiation aimed at allowing parties to settle disputes, not
only amicably but also economically and expeditiously by a process of
self and participatory determination. It is noted that mediation as a
method of dispute resolution was not a unique or new concept and that
it had in fact evolved through long standing traditions, was being used
by tribes and villages across our country long before it came to be
statutorily recognized in the recent past. The roots of mediation have
been traced back to texts such as "Kautilya's Arthashastra" as well as
the Panchayati Raj system. The references to Lord Krishna's
mediation between Kauravas and Pandavas during the Mahabharata
are legendary.

Crl.Ref.No.1/2016 Page 39 of 89

53. Mediation undoubtedly provides an efficient, effective, speedy,
convenient and inexpensive process to resolve disputes with dignity,
mutuality, respect and civility where parties participate in arriving at a
negotiated settlement rather than being confronted with a third party
adjudication of their disputes. The very fact that it enables warring
parties to sit across the table and negotiate, even if unsuccessful in
dispute resolution, undergoing the process creates an atmosphere of
harmony and peace in which parties learn to 'agree to disagree'.

54. The examination of the statutory regime and the practice
governing mediation shows that the genesis of the mediation may rest
on a court referral whereby the court refers the parties in a pending
case, with their consent, to mediation. However, the availability of
mediation as a platform to negotiate a settlement does not rest on a
court referral. The parties are enabled to approach the mediation
centre or the mediator even without the court order in what is referred
to as 'pre-litigation mediation' which is really an effort to resolve the
dispute before filing a case to explore the possibility of dispute
resolution without court intervention. Inasmuch as we are not
concerned with the consequences of a settlement in a pre-litigation
mediation or the manner of its enforceability, we do not propose to
dwell on it in this judgment.

55. Mr. J.P. Sengh, Senior Advocate would emphasize before us
that it is the parties who are referred to the mediation, and, not the lis
before the court. It is contended that the power to refer parties to
mediation is irrespective of the nature of the case before the court, and

Crl.Ref.No.1/2016 Page 40 of 89
that it could be civil or criminal. We find that inasmuch as it is the
parties who are referred to mediation, this would be the correct legal
position.

56. We have extracted above the provisions of Section 320 of the
Cr.P.C. Section 320 of the Cr.P.C. enumerates and draws a distinction
between offences as compoundable, either between the parties or with
the leave of the court. This provision clearly permits and recognizes
the settlement of specified criminal offences. Settlement of the issue(s)
is inherent in this provision envisaging compounding. The settlement
can obviously be only by a voluntary process inter se the parties. To
facilitate this process, there can be no possible exclusion of external
third party assistance to the parties, say that of neutral mediators or
conciliators.

57. Therefore, 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.

Crl.Ref.No.1/2016 Page 41 of 89

VII. Process to be followed in reference of above disputes in
criminal law to mediation

58. So what is the process to be followed in disputes under criminal
law? So far as criminal matters are concerned, Section 477 of the
Cr.P.C. enables the High Court to make rules regarding any other
matter which is required to be prescribed. The Mediation and
Conciliation Rules stand notified by the Delhi High Court in exercise
of the rule making power under Part X of the Code of Civil Procedure,
Section 89(2)(d) of the C.P.C. as well as "all other powers enabling
the High Court" in this behalf. The Rules therefore, clearly provide
for mediation not only in civil suits, but also to "proceeding pending
in the High Court of Delhi or in any court subordinate to the High
Court of Delhi". So far as Delhi is concerned, these rules would
apply to mediation in a matter referred by the court concerned with a
criminal case as well as proceedings under Section 138 of the NI Act.

VIII. Dispute resolution encouraged in several cases by the
Supreme Court in non-compoundable cases as well

59. We note that there have been several instances when the
Supreme Court has approved exercise of inherent powers under
Section 482 of the Cr.P.C. by the High Court for quashing criminal
cases on account of compromise/settlement even though they are not
included in the list of compoundable cases under Section 320 of the
Cr.P.C. In (2012) 10 SCC 303, Gian Singh v. State of Punjab, it was
held that this was in exercise of statutory power of the High Court
under Section 482 of the Cr.P.C. The relevant extract of the judgment
is reproduced as under :

Crl.Ref.No.1/2016 Page 42 of 89

"61. ... But the criminal cases having overwhelmingly
and predominatingly civil flavour stand on a different
footing for the purposes of quashing, particularly the
offences arising from commercial, financial, mercantile,
civil, partnership or such like transactions or the offences
arising out of matrimony relating to dowry, etc. or the
family disputes where the wrong is basically private or
personal in nature and the parties have resolved their
entire dispute. In this category of cases, the High Court
may quash the criminal proceedings if in its view, because
of the compromise between the offender and the victim,
the possibility of conviction is remote and bleak and
continuation of the criminal case would put the accused
to great oppression and prejudice and extreme injustice
would be caused to him by not quashing the criminal case
despite full and complete settlement and compromise with
the victim. In other words, the High Court must consider
whether it would be unfair or contrary to the interest of
justice to continue with the criminal proceeding or
continuation of the criminal proceeding would
tantamount to abuse of process of law despite settlement
and compromise between the victim and the wrongdoer and
whether to secure the ends of justice, it is appropriate that
the criminal case is put to an end and if the answer to the
above question(s) is in the affirmative, the High Court
shall be well within its jurisdiction to quash the criminal
proceeding."

(Emphasis supplied)

60. In a recent pronouncement dated 4th October, 2017, reported at
2017 SCC OnLine SC 1189 Parabatbhai Aahir @ Parbatbhai
Bhimsinhabhai Karmur and Ors Vs State of Gujarat and Anr a
three-Judge bench of the Supreme Court speaking through D.Y.

Chandrachud, J. cited with approval, inter alia, the judgment in Gian
Singh reiterating that in exercise of its inherent jurisdiction under

Crl.Ref.No.1/2016 Page 43 of 89
Section 482 of the Cr.P.C, the High Court is empowered to quash
FIRs/Criminal Proceedings emanating from non-compoundable
offences if the ends of justice and the facts of the case, so warrant.
While, so approving the Supreme Court, laid down the exposition of
the law in the form of exhaustive guidelines which are extracted thus:

'(i) Section 482 preserves the inherent powers of the High
Court to prevent an abuse of the process of any court or to
secure the ends of justice. The provision does not confer new
powers. It only recognises and preserves powers which
inhere in the High Court;

(ii) The invocation of the jurisdiction of the High Court to
quash a First Information Report or a criminal proceeding
on the ground that a settlement has been arrived at between
the offender and the victim is not the same as the invocation
of jurisdiction for the purpose of compounding an offence.
While compounding an offence, the power of the court is
governed by the provisions of Section 320 of the Code of
Criminal Procedure, 1973. The power to quash under
Section 482 is attracted even if the offence is non-
compoundable.

(iii) In forming an opinion whether a criminal proceeding
or complaint should be quashed in exercise of its jurisdiction
under Section 482, the High Court must evaluate whether the
ends of justice would justify the exercise of the inherent
power;

(iv) While the inherent power of the High Court has a wide
ambit and plenitude it has to be exercised; (i) to secure the
ends of justice or (ii) to prevent an abuse of the process of
any court;

Crl.Ref.No.1/2016 Page 44 of 89

(v) The decision as to whether a complaint or First
Information Report should be quashed on the ground that the
offender and victim have settled the dispute, revolves
ultimately on the facts and circumstances of each case and
no exhaustive elaboration of principles can be formulated;

(vi) In the exercise of the power under Section 482 and
while dealing with a plea that the dispute has been settled,
the High Court must have due regard to the nature and
gravity of the offence. Heinous and serious offences
involving mental depravity or offences such as murder, rape
and dacoity cannot appropriately be quashed though the
victim or the family of the victim have settled the dispute.
Such offences are, truly speaking, not private in nature but
have a serious impact upon society. The decision to continue
with the trial in such cases is founded on the overriding
element of public interest in punishing persons for serious
offences;

(vii) As distinguished from serious offences, there may be
criminal cases which have an overwhelming or
predominant element of a civil dispute. They stand on a
distinct footing in so far as the exercise of the inherent
power to quash is concerned;

(viii) Criminal cases involving offences which arise from
commercial, financial, mercantile, partnership or similar
transactions with an essentially civil flavour may in
appropriate situations fall for quashing where parties have
settled the dispute;

(ix) In such a case, the High Court may quash the
criminal proceeding if in view of the compromise between
the disputants, the possibility of a conviction is remote and
the continuation of a criminal proceeding would cause
oppression and prejudice; and

Crl.Ref.No.1/2016 Page 45 of 89

(x) There is yet an exception to the principle set out in
propositions (viii) and (ix) above. Economic offences
involving the financial and economic well-being of the state
have implications which lie beyond the domain of a mere
dispute between private disputants. The High Court would be
justified in declining to quash where the offender is involved
in an activity akin to a financial or economic fraud or
misdemeanour. The consequences of the act complained of
upon the financial or economic system will weigh in the
balance.'

61. The judicial precedent in (2013) 5 SCC 226, K. Srinivas Rao v.
D.A. Deepa is in the context of a complaint filed by the respondent
wife under Section 498A of the Indian Penal Code, against the
appellant husband and his family members, the offence under Section
498A of the IPC being non-compoundable. Noting that mediation, as
a method of alternative dispute redressal had got legal recognition,
observations regarding settlements of matrimonial disputes were made
in paras 39 and 46 by the Supreme Court to the courts dealing with
matrimonial matters which read thus :

"39. Quite often, the cause of the misunderstanding in a
matrimonial dispute is trivial and can be sorted out.
Mediation as a method of alternative dispute resolution has
got legal recognition now. We have referred several
matrimonial disputes to mediation centres. Our experience
shows that about 10% to 15% of matrimonial disputes get
settled in this Court through various mediation centres. We,
therefore, feel that at the earliest stage i.e. when the
dispute is taken up by the Family Court or by the court of
first instance for hearing, it must be referred to mediation
centres. ...

Crl.Ref.No.1/2016 Page 46 of 89

xxx xxx xxx

44. We, therefore, feel that though offence punishable
under Section 498-A IPC is not compoundable, in
appropriate cases if the parties are willing and if it
appears to the criminal court that there exist elements of
settlement, it should direct the parties to explore the
possibility of settlement through mediation. This is,
obviously, not to dilute the rigour, efficacy and purport of
Section 498-A IPC, but to locate cases where the
matrimonial dispute can be nipped in bud in an equitable
manner. The Judges, with their expertise, must ensure that
this exercise does not lead to the erring spouse using
mediation process to get out of clutches of the law. During
mediation, the parties can either decide to part company on
mutually agreed terms or they may decide to patch up and
stay together. In either case for the settlement to come
through, the complaint will have to be quashed. In that
event, they can approach the High Court and get the
complaint quashed. If, however, they choose not to settle,
they can proceed with the complaint. In this exercise, there
is no loss to anyone. If there is settlement, the parties will
be saved from the trials and tribulations of a criminal case
and that will reduce the burden on the courts which will be
in the larger public interest. Obviously, the High Court
will quash the complaint only if after considering all
circumstances it finds the settlement to be equitable and
genuine. Such a course, in our opinion, will be beneficial
to those who genuinely want to accord a quietus to their
matrimonial disputes.

xxx xxx xxx

46. We, therefore, issue directions, which the courts
dealing with the matrimonial matters shall follow.

xxx xxx xxx
46.2. The criminal courts dealing with the complaint
under Section 498-A IPC should, at any stage and
particularly, before they take up the complaint for
hearing, refer the parties to mediation centre if they feel

Crl.Ref.No.1/2016 Page 47 of 89
that there exist elements of settlement and both the parties
are willing. However, they should take care to see that in
this exercise, rigour, purport and efficacy of Section 498-A
IPC is not diluted. Needless to say that the discretion to
grant or not to grant bail is not in any way curtailed by this
direction. It will be for the court concerned to work out the
modalities taking into consideration the facts of each case.
46.3. All mediation centres shall set up pre-litigation
desks/clinics; give them wide publicity and make efforts to
settle matrimonial disputes at pre-litigation stage."

(Emphasis supplied)

62. Therefore, the Supreme Court has recognized the permissibility
of the High Court's quashing the criminal prosecutions in exercise of
their inherent jurisdiction under Section 482 of the Cr.P.C. on a
consideration of the subject matter of the cases. The Supreme Court
has accepted compromises in non-compoundable offences upon
evaluation of the genuineness, fairness, equity and interests of justice
in continuing with the criminal proceedings relating to non-

compoundable offences, after settlement of the entire dispute
especially in offences arising from "commercial, financial, civil,
partnership" or such like transactions or relating to matrimonial or
family disputes which are private in nature.

IX. Nature of proceedings under Section 138 of the NI Act

63. Before proceeding with the examination of the questions under
reference, it is necessary to examine the spirit, intendment and object
of the incorporation of Section 138 of the NI Act, the Preamble
whereof states "Whereas it is expedient to define and amend the law

Crl.Ref.No.1/2016 Page 48 of 89
relating to promissory notes, bills of exchange and cheques". It is
therefore, evident that Section 138 of the NI Act was introduced to
inculcate faith in the efficacy of banking operations and credibility in
transacting business of negotiable instruments (Ref.: (2003) 3 SCC
232, Goaplast P. Ltd. V. Chico Ursula D'Souza Anr.).

64. In (2011) 4 SCC 593, Kaushalya Devi Massand v. Roopkishore
Khore, the Supreme Court drew the following distinction between the
traditional criminal offences and the offence under Section 138 of the
NI Act observing thus :

"11. Having considered the submissions made on behalf of
the parties, we are of the view that the gravity of a
complaint under the Negotiable Instruments Act cannot
be equated with an offence under the provisions of the
Penal Code, 1860 or other criminal offences. An offence
under Section 138 of the Negotiable Instruments Act,
1881, is almost in the nature of a civil wrong which has
been given criminal overtones."

(Emphasis supplied)

65. We also find useful the observations of the Supreme Court in
(2012) 1 SCC 260, R. Vijayan v. Baby wherein the court was
determining an issue in respect of compensation when fine is imposed
as the sentence or it forms part of the sentence. In this
pronouncement, the Supreme Court noted that cases arising under
Section 138 of the NI Act are really "civil cases masquerading as
criminal cases". The statutory object in effect appears to be both
punitive as also compensatory and restitutive in regard to cheque
dishonouring cases. The judgment notes that Chapter XVII of the

Crl.Ref.No.1/2016 Page 49 of 89
enactment is a unique exercise which bears the dividing line between
civil and criminal jurisdictions and that it provides a single forum to
enforce a civil and criminal remedy.

66. In this regard, the observations of the Supreme Court in (2010)
5 SCC 663, Damodar S. Prabhu v. Sayed Babalal H also shed
valuable light, relevant extract whereof is as below :

"17. In a recently published commentary, the following
observations have been made with regard to the offence
punishable under Section 138 of the Act [cited from: Arun
Mohan, Some thoughts towards law reforms on the topic of
Section 138, Negotiable Instruments Act--Tackling an
avalanche of cases (New Delhi: Universal Law Publishing Co.
Pvt. Ltd., 2009) at p. 5]:

"... Unlike that for other forms of crime, the
punishment here (insofar as the complainant is concerned)
is not a means of seeking retribution, but is more a means
to ensure payment of money. The complainant's interest
lies primarily in recovering the money rather than seeing
the drawer of the cheque in jail. The threat of jail is only a
mode to ensure recovery. As against the accused who is
willing to undergo a jail term, there is little available as
remedy for the holder of the cheque.

If we were to examine the number of complaints filed
which were 'compromised' or 'settled' before the final
judgment on one side and the cases which proceeded to
judgment and conviction on the other, we will find that the
bulk was settled and only a miniscule number continued."

18. It is quite obvious that with respect to the offence of
dishonour of cheques, it is the compensatory aspect of the
remedy which should be given priority over the punitive
aspect. There is also some support for the apprehensions
raised by the learned Attorney General that a majority of
cheque bounce cases are indeed being compromised or
settled by way of compounding, albeit during the later stages

Crl.Ref.No.1/2016 Page 50 of 89
of litigation thereby contributing to undue delay in justice
delivery. The problem herein is with the tendency of litigants
to belatedly choose compounding as a means to resolve their
dispute. Furthermore, the written submissions filed on behalf
of the learned Attorney General have stressed on the fact that
unlike Section 320 CrPC, Section 147 of the Negotiable
Instruments Act provides no explicit guidance as to what stage
compounding can or cannot be done and whether
compounding can be done at the instance of the complainant
or with the leave of the court."

(Emphasis by us)

67. It is quite apparent 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,
intendment and object is to provide compensation and ensure
restitution as well which aspects must received priority over
punishment. The proceedings under Section 138 of the NI Act are
therefore, distinct from other criminal cases. It is well settled that they
are really in the nature of a civil wrong which has been given criminal
overtones.

X. Permissibility of settlement of offence under Section 138 of
the NI Act

68. So far as the offence/proceedings under Section 138 of the NI
Act are concerned, the Legislature has provided Section 147 which
specifically stipulates that "every offence punishable under this Act
shall be compoundable". It is important to note that Section 147 of
the statute contains a non-obstante provision and is applicable

Crl.Ref.No.1/2016 Page 51 of 89
notwithstanding anything contained in the Code of Criminal
Procedure. Therefore, irrespective of and apart from the offences
stipulated under Section 320 of the Cr.P.C., Section 147 of the NI Act
makes the offence under Section 138 of the NI Act specifically
compoundable.

69. The impact of the non-obstante clause in Section 147 of the NI
Act has been considered by the High Court of Gujarat in the judgment
reported at (2005) CriLJ 431, Rameshbhai Somabhai Patel v.
Dineshbhai Achalanand Rathi wherein the court held thus:

"8. The victim of the offence can compound the offence
notwithstanding anything contained in Cr. P.C. 1973. In
other words, the parties can settle the alleged criminal
wrong and conclude their dispute under adjudication and
request the Court where it is pending to pass appropriate
order viz: order of acquittal. Undisputedly, the petitioner
accused has approached this Court for scrutiny of the
legality and validity of the order of conviction and sentence
and, therefore, the original complainant can positively
appear before this Court and say that he has compounded
the offence with the accused and now he has not to pursue
the remedy, that he is not interested in proceeding with the
complaint and to see that the accused is sent to the prison.
The effect of the same would be practically or say similar to
a withdrawal from the prosecution with or without any
qualification. So, the original complainant if comes to the
Court and says that he is withdrawing himself from
prosecution on account of compromise and he has
compounded the matter, then obviously the conviction and
sentence shall have to be annulled/set aside. Considering
the language of the section, even there is no scope for the
Court to consider whether such a request should be
accepted or not. No formal permission to compound the
offence is required to be sought for.

Crl.Ref.No.1/2016 Page 52 of 89

9. Considering the language of Section 147 of the N.I. Act,
it is not necessary to consider the scheme of Section 320
of CrPC, but to appreciate the questions posed, it can still
be looked into other relevant provision. Section 320 of
CrPC divides compoundable offences in two different parts
by Sub-section (1). and Sub-section (2). Subsequent
subsections deal with other contingencies, qualifications or
embargoes. But Section 147 of the N.I. Act says that
offence shall be compoundable and it does not provide for
any other or further qualification or embargo like Sub-
section (2) of Section 320 of CrPC. The parties can
compound the offence as if the offence is otherwise
compoundable. Thus, the offence is made straightaway
compoundable like the case described under Sub-section
(1) of Section 320 of CrPC. Subsection (9) of Section 320
of CrPC has no room to play because of non
obstante clause in Section 147 of the N.I. Act. ....

10. The declaration placed before the Court and the
presence of the original complainant respondent No. 1
today before the Court takes me to a conclusion that the say
of the complainant should be accepted that he has
withdrawn from prosecution because he has compounded
the offence out of the Court. As per the settled legal
position, the effect of compounding of the offence is that
of acquittal."

(Emphasis by us)

70. On this aspect, valuable light is thrown on this issue also in the
pronouncement of the Supreme Court in Damodar S. Prabhu's case
wherein the Supreme Court has laid down the guidelines while
interpreting Section 138 and 147 of the NI Act to encourage litigants
in cheque dishonouring cases to opt for compounding during early
stages of the litigation to ease choking of the criminal justice system.

To encourage this, a graded scheme of imposing costs on parties who
unduly delay compounding of the offence and for controlling filing of

Crl.Ref.No.1/2016 Page 53 of 89
the complaints in multiple jurisdictions relatable to same transactions
has been proscribed. We extract hereunder the relevant directions of
the Supreme Court in this regard :

"21. ... In view of this submission, we direct that the
following guidelines be followed:

THE GUIDELINES

(i) In the circumstances, it is proposed as follows:

(a) That directions can be given that the writ of
summons be suitably modified making it clear to the
accused that he could make an application for
compounding of the offences at the first or second
hearing of the case and that if such an application is
made, compounding may be allowed by the court
without imposing any costs on the accused.

(b) If the accused does not make an application for
compounding as aforesaid, then if an application
for compounding is made before the Magistrate at a
subsequent stage, compounding can be allowed
subject to the condition that the accused will be
required to pay 10% of the cheque amount to be
deposited as a condition for compounding with the
Legal Services Authority, or such authority as the
court deems fit.

(c) Similarly, if the application for compounding is
made before the Sessions Court or a High Court in
revision or appeal, such compounding may be
allowed on the condition that the accused pays 15%
of the cheque amount by way of costs.

(d) Finally, if the application for compounding is
made before the Supreme Court, the figure would
increase to 20% of the cheque amount."

(Emphasis supplied)

Crl.Ref.No.1/2016 Page 54 of 89

71. The court has however, observed in this judgment that Section
147 of the Act did not carry any guidance on how the court will
proceed with the compounding of the offence under the enactment and
that the scheme legislatively contemplated under Section 320 of the
Cr.P.C. cannot be followed in the strict sense. It was to overcome the
hurdle because of the legislative vacuum that the graded scheme was
provided to give some guidance and to save valuable time of the
courts.

72. In this regard, reference may also usefully be made to the
pronouncement of the Supreme Court reported at (2014) 5 SCC 590,
Indian Banks Association Ors. v. Union of India wherein the court
observed thus :

"21. This Court in Damodar S. Prabhu v. Sayed Babalal
H. [(2010) 5 SCC 663 : (2010) 2 SCC (Civ) 520 : (2010) 2
SCC (Cri) 1328] laid down certain guidelines while
interpreting Sections 138 and 147 of the Negotiable
Instruments Act to encourage litigants in cheque
dishonour cases to opt for compounding during early
stages of litigation to ease choking of criminal justice
system; for graded scheme of imposing costs on parties
who unduly delay compounding of offence; and for
controlling of filing of complaints in multiple jurisdictions
relatable to same transaction, which have also to be borne
in mind by the Magistrate while dealing with cases under
Section 138 of the Negotiable Instruments Act."

(Emphasis by us)

73. The above further reinforces the position 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

Crl.Ref.No.1/2016 Page 55 of 89
resolution methods including mediation. On the contrary, the
guidelines laid down by the court in Damodar S. Prabhu
unequivocally encourage settlement. Mediation, as a mechanism for
dispute resolution and arriving at a settlement automatically gets
reinforced so far as a case under Section 138 of the NI Act is
concerned.

XI. Mediation and Conciliation Rules, 2004 - notified the Delhi
High Court

74. Mediation in Delhi is guided by the Mediation and Conciliation
Rules, 2004. These Rules source the rule making power to "Part X
and Clause (d) of sub-section (2) of Section 89" of the Code of Civil
Procedure, 1908 as well as "all other powers enabling" the High Court
of Delhi to make such Rules.

75. The Delhi Mediation and Conciliation Rules, 2004 apply to all
mediations and conciliations connected with "any suit or other
proceedings pending in the High Court of Delhi or in any other court
subordinate to the High Court of Delhi". These rules further state that
mediation in respect of any "suit or proceeding pending before the
High Court or any other court or tribunal" may be referred to the
Delhi High Court Mediation and Conciliation Centre or any other
mediation centre set up by the Legal Services Authorities Act, 1987.

76. In this regard, we may advert to Article 227 of the Constitution
of India as well as Section 477 of the Cr.P.C. which enables the High
Court to make such rules.

Crl.Ref.No.1/2016 Page 56 of 89

77. The Mediation and Conciliation Rules, 2004 stand notified by
the High Court of Delhi which would guide the process to be followed
even in references to mediation arising under Section 138 of the N.I.
Act.

XII. Impact of settlement of disputes in a complaint under Section
138 Negotiable Instruments Act by virtue of Lok Adalat under
the Legal Services Authorities Act, 1987

78. Given the reference under examination, it is therefore, necessary
to examine what would be the impact of a settlement of disputes in a
complaint under Section 138 of the NI Act before the Lok Adalat
constituted under the Legal Services Authorities Act, 1987? This
issue was the subject matter of consideration before the Supreme
Court in the judgment reported at (2012) 2 SCC 51, K. Govindam
Kutty Menon v. C.D. Shaji. The Kerala High Court had taken a view
that when a criminal case is settled at a Lok Adalat, the award passed
by it has to be treated only as an order of the criminal court and that it
cannot be executed as a decree of the civil court. This finding was
overturned by the Supreme Court. We extract hereunder the
observations of the Supreme Court in paras 12, 13 and 26 :

"12. Unfortunately, the said argument was not acceptable
to the High Court. On the other hand, the High Court has
concluded that when a criminal case is referred to the Lok
Adalat and it is settled at the Lok Adalat, the award
passed has to be treated only as an order of that criminal
court and it cannot be executed as a decree of the civil
court. After saying so, the High Court finally concluded
that "an award passed by the Lok Adalat on reference of a
criminal case by the criminal court as already concluded
can only be construed as an order by the criminal court

Crl.Ref.No.1/2016 Page 57 of 89
and it is not a decree passed by a civil court" and
confirmed the order of the Principal Munsif who declined
the request of the petitioner therein to execute the award
passed by the Lok Adalat on reference of a complaint by the
criminal court.

13. On going through the Statement of Objects and
Reasons, definition of "court", "legal service" as well as
Section 21 of the Act, in addition to the reasons given
hereunder, we are of the view that the interpretation
adopted by the Kerala High Court in the impugned order
is erroneous.

xxx xxx xxx

26. From the above discussion, the following propositions
emerge:

(1) In view of the unambiguous language of Section 21
of the Act, every award of the Lok Adalat shall be
deemed to be a decree of a civil court and as such it is
executable by that court.

(2) The Act does not make out any such distinction
between the reference made by a civil court and a
criminal court.

(3) There is no restriction on the power of the Lok
Adalat to pass an award based on the compromise
arrived at between the parties in respect of cases
referred to by various courts (both civil and criminal),
tribunals, Family Court, Rent Control Court, Consumer
Redressal Forum, Motor Accidents Claims Tribunal and
other forums of similar nature.

(4) Even if a matter is referred by a criminal court
under Section 138 of the Negotiable Instruments Act,
1881 and by virtue of the deeming provisions, the
award passed by the Lok Adalat based on a
compromise has to be treated as a decree capable of
execution by a civil court."

(Emphasis by us)

Crl.Ref.No.1/2016 Page 58 of 89

79. The judgment of the Supreme Court reported at (2014) 10 SCC
690 Madhya Pradesh State Legal Services Authority v. Prateek Jain
in Civil Appeal No. 8614/2014 decided on 10 th September, 2014, also
brings forth that even when cases under Section 138 of the NI Act
were settled before the Lok Adalat, the guidelines in Damodar S.

Prabhu are to be followed, with modifications, if any, qua reduction
of costs if necessary. In para 23 of the judgment, the court stated the
legal position thus :

"23. Having regard thereto, we are of the opinion that even
when a case is decided in the Lok Adalat, the requirement of
following the Guidelines contained in Damodar S.
Prabhu [Damodar S. Prabhu v. Sayed Babalal H., (2010) 5
SCC 663 : (2010) 2 SCC (Civ) 520 : (2010) 2 SCC (Cri)
1328] should normally not be dispensed with. However, if
there is a special/specific reason to deviate therefrom, the
court is not remediless as Damodar S. Prabhu [Damodar S.
Prabhu v. Sayed Babalal H., (2010) 5 SCC 663 : (2010) 2
SCC (Civ) 520 : (2010) 2 SCC (Cri) 1328] itself has given
discretion to the court concerned to reduce the costs with
regard to specific facts and circumstances of the case, while
recording reasons in writing about such variance. Therefore,
in those matters where the case has to be decided/settled in
the Lok Adalat, if the court finds that it is a result of positive
attitude of the parties, in such appropriate cases, the court
can always reduce the costs by imposing minimal costs or
even waive the same. For that, it would be for the parties,
particularly the accused person, to make out a plausible case
for the waiver/reduction of costs and to convince the court
concerned about the same. This course of action, according
to us, would strike a balance between the two competing but
equally important interests, namely, achieving the objectives
delineated in Damodar S. Prabhu [Damodar S.
Prabhu v. Sayed Babalal H., (2010) 5 SCC 663 : (2010) 2
SCC (Civ) 520 : (2010) 2 SCC (Cri) 1328] on the one hand

Crl.Ref.No.1/2016 Page 59 of 89
and the public interest which is sought to be achieved by
encouraging settlements/resolution of case through the Lok
Adalats on the other hand."

(Emphasis by us)

80. The Supreme Court has thus declared the legal position that the
Legal Services Authorities Act did not make out any distinction
between the reference made by a civil court and a criminal court.

Upon settlement before the Lok Adalat even in a criminal case, the
award of the Lok Adalat has to be treated as a decree capable of
execution by a civil court. The guidelines contained in Damodar S.
Prabhu are required to be followed even upon such settlement subject
to the discretion to the court concerned to reduce/wave the costs with
regard to the specific facts and circumstances of the case.

XIII. What is the procedure to be followed if in a complaint case
under Section 138 of the NI Act, a settlement is reached in
mediation?

81. So what would be the appropriate procedure for recording a
settlement reached by the parties upon their referral to mediation
during the pendency of a complaint under Section 138 of the NI Act?

82. The above discussion would show that proceedings under
Section 138 of the NI Act stand categorized as quasi-civil. In order to
provide meaningful interpretation and to do complete justice in such
proceedings, criminal courts are known to have often utilized the
principles in the Code of Civil Procedure in such cases. These include
the summary proceedings for maintenance under Section 125 of the
Cr.P.C. as well as the proceedings under Section 145 of the Cr.P.C.

Crl.Ref.No.1/2016 Page 60 of 89

83. In this regard, reference may usefully be made to a judgment of
the High Court of Madhya Pradesh reported at
MANU/MP/1150/2012, Sunitabai v. Narayan. The court in this
revision petition was considering a challenge to a trial court order
rejecting an application for amendment of pleadings in proceedings
under Section 125 of the Cr.P.C. While considering the permissibility
of amendment of the petition under Section 125 of the Cr.P.C., the
court held thus :

"06. As per settled preposition, the proceeding under Section
125 of the Cr.P.C. is treated to be a quasi-civil proceeding
and in such premises, the provisions of Order 6 Rule 17 of
the CPC or some other provision of such Code could not be
applied strictly but whenever the specific provision in this
regard is not available in the special enactment then in that
position, Court may adopt the principal (sic:principle) laid
down by the Apex Court either in the civil case or in the
criminal case. In such premises, if the present matter is
examined in the light of the decision of the Apex Court in the
matter of P. Venkateswarlu v. Motor General
Traders reported in AIR 1975 Supreme Court 1409 holding
that the parties have right to amend the pleadings on the
basis of the subsequent event which has come into existence
during pendency of the suit, then the aforesaid application of
amendment deserves to be allowed by allowing this
revision."

(Emphasis by us)
Thus the court permitted application of the principles which
bind a civil court regarding amendment of pleadings, to proceedings
under Section 125 of the Cr.P.C. treated as quasi civil in nature and
permitted its amendment.

Crl.Ref.No.1/2016 Page 61 of 89

84. In a decision dated 3rd February, 2010 in Crl.R.C.No.780/2006
entitled Chinnappaiyan v. Chinnathayee, a Single Judge of the
Madras High Court held that:

"...though a petition under Section 125 (1) of the Code is
made before the criminal court - as defined under Section
6 of the Code essentially, the right that is decided by the
said Court is purely civil in nature. Therefore,
undoubtedly, the order made by the Magistrate
under Section 125 (1) of the Code for maintenance is the
culmination of such a civil right of an individual.
But, Section 125(3) of the Code empowers the Court to
impose a sentence of imprisonment, in the event of failure
to obey such order made under Section 125(1) of the Code.
To this extent, the proceeding is criminal in nature. To put
it comprehensively, a proceeding initiated under Section
125 of the Code is quasi-civil and quasi-criminal. The
Hon'ble Supreme Court has held so in several judgments.
Regarding the procedure for making claim before the Court
for maintenance, what is filed under Section 125 (1) of the
Code is pure and simple a petition and not a complaint as
defined in Section 2(d) of the Code. This would again
indicate that a proceeding under Section 125 of the Code
is treated as a quasi-civil and quasi criminal proceeding."

(Emphasis furnished)

85. In the context of proceedings under Section 145 of the Cr.P.C.,
in 1963 CriLJ 491, Madansetty Tirpataiah v. Stats S.I.P. Atmakur,
the High Court of Andhra Pradesh was considering a revision petition
challenging the order of the Sub-Divisional Magistrate whereby the
petitioner's application for inter alia filing additional documents was
rejected. The court was therefore, called upon to rule on jurisdiction
of the SDM to permit filing of documents at a late stage. While

Crl.Ref.No.1/2016 Page 62 of 89
considering such question, the court also observed on the nature of the
proceedings and held thus :

"6. Further, to my mind, proceedings under Section 145 of
the Cr PC are more or less of a quasi-civil nature. So that
on analogy of Civil Suit, in cases under this Section if
within the time fixed by the Magistrate, the party is not in a
position to file documents in his possession which support
his claim, and he is able to satisfy the Court that for
sufficient and valid reasons he could not file the said
documents with in the prescribed time, it would be open to
the Magistrate in the ends of justice to allow a party to file
the said documents.

7. It is no doubt true that there is no provision in the
Criminal Procedure Code analogous to Civil Procedure,
for filing of documents at a late stage, but having regard
to the nature of the proceedings in the ends of justice such
exercise of discretion cannot entirely be ruled out.

               xxx                 xxx                xxx."
(Emphasis by us)

86. Thus 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.

87. In the present case, 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.

Crl.Ref.No.1/2016 Page 63 of 89

88. It is reported that even if a mediated settlement agreement is
reached, generally criminal complaints under Section 138 of the NI
Act are withdrawn/compounded by the complainants only after receipt
of the entire amount(s) agreed as part of the settlement. The criminal
courts thus necessarily have to keep the complaint pending, awaiting
the implementation of the negotiated settlement.

89. The present reference manifests that 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. This has enabled many accused to divert the complaint
to mediation only with the intent to effectively delay the proceedings
under Section 138 of the NI Act.

90. Mr. Siddharth Aggarwal, ld. amicus curiae has placed certain
judicial precedents on this aspect before us. In (2013) SCC OnLine
Del 124, Hardeep Bajaj v. ICICI Bank Ltd., the petitioner had
entered into an amicable settlement dated 26th May, 2012 for payment
to the respondent bank in mediation undertaken during the pendency
of the complaint under Section 138 of the NI Act to make payment of
Rs.9,08,800/- in full and final settlement of the bank claim in monthly
installments of Rs.1,50,000/- commencing from 26th May, 2012, the
last of which was payable on 26th October, 2012. Without abiding
with the settlement, the petitioner approached the ld. MM for
modifying the settlement. The ld. MM noticed that the petitioner had
violated the successive undertakings given by him and dismissed the
application for modification with costs. The petitioner approached

Crl.Ref.No.1/2016 Page 64 of 89
this court by way of a revision petition which was dismissed. In para
10 of the judgment, the ld. Single Judge of this court has noted that
"once the settlement reached is accepted by the court or an
undertaking is given, it becomes binding on the parties".

91. In (2015) SCC OnLine Del 7309, Manoj Chandak v. Tour
Lovers Tourism (India) Pvt. Ltd., the respondent failed to honour the
mediated settlement dated 26th July, 2013 reached in complaints under
Section 138 of the NI Act, 1881. Instead, after three months, it filed
an application for reconsideration of the settlement on the ground that
the signatures of its authorized representatives were forcibly obtained
and that he had no instructions to agree to the terms of the settlement.
This application was allowed by the trial court by the order dated 25 th
April, 2014 and the parties were again referred to mediation. A
challenge was laid regarding the voluntariness of the mediated
settlement. The learned Single Judge therefore, held that "since
question of fact are being raised regarding voluntariness of the
mediated settlement, therefore, it would be appropriate that an
opportunity is granted by trial court to respondents to lead evidence to
show that the mediated settlement was not a voluntary one".

92. In yet another pronouncement reported at (2015) SCC OnLine
Del 9334, M/s Arun International v. State of Delhi Anr., a
settlement regarding the subject matter of the complaint under Section
138 of the NI Act was reached before the Court annexed mediation
centre in the Rohini District Courts which was placed before the
magistrate in the pending proceedings. The court recorded the

Crl.Ref.No.1/2016 Page 65 of 89
statement of the respondent no.2 admitting the claim of the
complainant and seeking an adjournment to pay the agreed amount.
Two years were sought by the respondent no.2 from the the 25th
November, 2013 being the date of making of the statement before the
ld. Metropolitan Magistrate. Vide order dated 16th February, 2015, the
ld. Metropolitan Magistrate returned the complaints for want of
territorial jurisdiction, in view of the ratio of the Supreme Court in the
pronouncement of Dashrath Rupsingh Rathore v. State. The ld.
Single Judge held that the order dated 16th February, 2015 was illegal
and contrary to law, in view of the fact that the matter stood settled
before the Mediation Centre as also that the decision in Dashrath
Rupsingh Rathore was inapplicable, the complaint cases having gone
to the stage of Section 145(2) of the Cr.P.C. In para 7, the learned
Single Judge had observed that "it is settled law and even otherwise
the settlement of the mediation as well is deemed to be a decree and
cannot be challenged".

In view of the above enunciation of the law, this position is not
legally correct.

93. Our attention is also drawn to the pronouncement of the ld.
Single Judge of the Kerala High Court in the judgment reported at
(2014) 3 KLJ 637, Sreelal v. Murali Menon Anr. The petitioner in
this case was the complainant in a complaint under Section 138 of the
NI Act. On the date for evidence, on the request of the accused, the
matter was referred for mediation where a settlement dated 17th
February, 2014 was reached and six months time was given for

Crl.Ref.No.1/2016 Page 66 of 89
payment. In the settlement, the parties had agreed that in default, the
complainant was allowed to proceed with the case and, if the amount
was paid, then the complainant would have to withdraw the case.
While the petitioner/complainant was willing to wait the agreed period
for payment, the respondent was insisting that the mediated agreement
had the effect of an award; that the petitioner was not entitled to
proceed with the case; and that his remedy was to execute the
agreement as if it was an award under the Legal Services Act. In paras
12 and 13 of the judgment, the court has explained the alternative
dispute resolution process in cases under Section 138 of the NI Act
thus :

"12. Then, the question is what is to effect of mediation
agreement in a criminal matter. Admittedly, if the matter is
referred for mediation, the mediator is not acting neither
as Adalath nor as an Arbitrator or Conciliator to resolve
the disputes by passing an award either under the
provisions of Legal Services Authorities Act or under the
provisions of the Arbitration and Conciliation Act. Even if,
the matter is referred in a civil case for mediation under S.
89 of the Code of Civil Procedure, even then, the mediator
is not passing any judgment, but he is only facilitating the
parties to arrive at the settlement and help them to draw the
mediation agreement and after the agreement is signed by
the parties, and counter signed by the Advocates, then, it
will be forwarded to the Court which referred the matter
and that Court will pass a decree on the basis of the
agreement applying the principle under O. 23 R. 3 of
Code of Civil Procedure accordingly. Till, the seal of the
court is affixed on the agreement, and a decree is passed
on that basis that agreement, it has no legal effect in the
eye of law. So, even if a mediation agreement reaches the
criminal court, agreeing to settle the issue on certain

Crl.Ref.No.1/2016 Page 67 of 89
terms, the criminal court cannot rely on that agreement
and pass a civil decree, relegating the parties to get the
amount realized by filing execution petition before the Civil
Court and it can only on the basis of the evidence either
convict or acquit the accused and if the case is
compounded, if it is a compoundable offence, then it can
record compounding and that compounding will have the
effect of an acquittal under S. 320(8) of Code of Criminal
Procedure.

13. Further, the counsel for the respondent relied on the
decision reported in Govindankutty Metion v. Shaji (2011
(4) KLT 857 (SC)) and argued that since the matter is
referred for mediation and the parties have settled the
dispute in the mediation, then it will have the effect of a
civil decree and the complainant cannot proceed with the
criminal case and he can only execute the award as though
it is a civil decree. It is true that in the decision relied on by
the counsel for the respondent namely, Govindankutty
Menon's case (supra), the Hon'ble Supreme Court has held
that if the case under S. 138 of the Negotiable Instruments
Act is referred to Adalath by a criminal court and if the
matter is settled in the Adalath, then by virtue of the
deeming provision, an award passed by the Adalath based
on the compromise has to be treated as a decree capable
of execution by a civil court. In that case, a case under S.
138 of the Negotiable Instruments Act was referred to
Adalath constituted under the Legal Services Authorities
Act by a Criminal Court and in the Adalath, parties have
agreed on terms and provided time for payment of the
amount and that compromise was recorded and
accordingly an award was passed in the Adalath and the
criminal case was closed. When, the complainant filed an
execution petition before the Munsiff s Court for realisation
of the amount and the Munsiff dismissed the execution
petition on the ground that Criminal Court cannot pass a
civil decree even in Adalath which was affirmed by this
court but when that was challenged before the Hon'ble
Supreme Court, the Hon'ble Supreme Court reversed the

Crl.Ref.No.1/2016 Page 68 of 89
finding and held that by virtue of the deeming provision
under S. 21 of the Legal Services Authorities Act, even, in
cases under S. 138 of the Negotiable Instruments Act if a
compromise was accepted and an award has been passed
in the Adalath, then that will have the effect of a civil
decree and that can be executed through civil court as
though it is a decree of a civil court. The facts are different
in this case as already discussed, the mediation cannot be
treated at par with Lok Adalath as mediator has no power
to pass any award as provided under the Legal Services
Authorities Act. So the dictum is not applicable to the
facts in this case."

(Emphasis by us)
In view of the position in legislation, the court had declared the
correct legal position that mediation cannot be treated at par with the
Lok Adalat and that the mediator has no power to pass an award as a
Lok Adalat which is deemed to be a decree under the Legal Service
Authority Act, 1987.

94. In para 14, the Kerala High Court considered the question as to
whether such agreement could be treated as evidence in a criminal
matter. While answering this question, it was observed by the court
that even if the complainant had agreed in the mediation to settle the
matter for a lesser amount than the amount mentioned in the cheque, it
could not be said that the actual amount due is the amount agreed in
the mediation. Para 14 of the judgment reads as follows :

"14. Then, the question is whether the agreement entered into
between the parties in a mediation can be treated as evidence
in a criminal matter. It may be mentioned here, unless the
agreement is accepted by the court and a decree is passed
under S. 89 of the Code of Criminal Procedure r/w O. 23 R. 3

Crl.Ref.No.1/2016 Page 69 of 89
of Code of Civil Procedure, that will have no effect, unless
that has been converted into a conciliation agreement based
on which an award is passed by the Conciliator under the
provisions of the Arbitration and Conciliation Act. Further, it
is the cardinal principle in the mediation that whatever
transpired in the mediation cannot be disclosed even before the
court of law and that cannot be called upon to be produced as
evidence as well as it will affect the confidentiality of the things
transpired in the process of mediation. So the party who did not
honour the settlement which was effected in the process of
mediation, then, is not entitled to use the same as evidence
before the court and agreement also cannot be marked in
evidence as it has no legal effect unless it is accepted by the
court and a decree is passed under S. 89 r/w O. 23 R. 3 of the
Code of Civil Procedure. That cannot be possible in a
Criminal Court. Further even if the party had agreed to settle
the matter for a lesser amount than the amount mentioned in
the cheque in the mediation, it cannot be said that, that was the
amount payable as in the mediation, parties can forgo so many
things for the purpose of achieving harmony between the
parties and restore their relationship. So the amounts arrived
in a mediation also cannot be used as evidence for coming to
the conclusion that the amount mentioned in the cheque is
not the real amount due, and the complainant is not entitled
to maintain the action on the basis of that cheque. The court
has to allow the parties to adduce evidence ignoring the
mediation agreement and dispose of the case on the basis of
evidence adduced by parties as it should not be put in evidence
in view of the bar under rules 20, 21 and 22 of the Civil
Procedure (Alternative Disputes Resolution) Rules Kerala 2008
which reads as follows:--

Rule 20:-- Confidentiality, disclosure and inadmissibility
of information--

(1) The mediator shall not disclose confidential
information concerning the dispute received from any
party to the proceedings unless permitted in writing
by the said party.

Crl.Ref.No.1/2016 Page 70 of 89

(2) Parties shall maintain confidentiality in respect of
events that transpired during mediation and shall not
rely on or introduce the said information in any other
proceedings as to:

(a) views expressed by a party in the course of the
mediation proceedings;

(b) documents obtained during the mediation which
were expressly required to be treated as
confidential or other notes, drafts or information
given by parties or mediators;

(c) Proposals made or views expressed by the
mediator.

(d) Admission made by a party in the course of
mediation proceedings.

(e) The fact that a party had or had not indicated
willingness to accept a proposal.

(3) There shall be no stenographic or audio or video
recording of the mediation proceedings.

Rule 21:-- Privacy- Mediation sessions and meetings are
private; only the concerned parties or their counsel or
authorised representatives can attend. Other persons may
attend only with the permission of the parties or with the
consent of the mediator.

Rule 22:-- Immunity- No mediator shall be held liable for
anything bona fide or omitted to be done by him during the
mediation proceedings for civil or criminal action nor shall
he be summoned by any party to the suit to appear in a court
of law to testify in regard to information received by him or
action taken by him or in respect of drafts or records
prepared by him or shown to him during the mediation
proceedings."

95. It was held by the court that the agreement arrived at in the
mediation cannot be used as the evidence to contend that the amount
mentioned in the cheque was not the real amount. In these

Crl.Ref.No.1/2016 Page 71 of 89
circumstances, the party violating the mediation agreement, cannot use
the same as evidence before the court and that the agreement has no
legal effect unless it has been "accepted by the court and a decree is
passed under Section 89 r/w Order 23 Rule 3 of the Code of Civil
Procedure." which was not possible in a criminal court.

96. So far as mediation in Delhi is concerned, in the "Mediation
and Conciliation Rules, 2004", Rule 20 is concerned with
"confidentiality, disclosure and inadmissibility of information",
Rule 21 mandates privacy in the mediation sessions while Rule 22
prescribes immunity from civil/criminal proceedings to the mediator
for anything done bona fide or omitted to be done during the
mediation proceedings.

97. In cases under Section 138 of the NI Act, judicial reinforcement
of this sound principle is to be found in the encouragement by the
Supreme Court to settlements of the disputes between parties at early
stages. This is in keeping with the legislative mandate of Section 147,
so that the spirit, intendment and object of this statutory provision can
be effectively realized.

98. We have noted above that Section 147 of the NI Act has made
the offence under Section 138 of the NI Act compoundable.
Proceedings under Section 138 of the NI Act have been considered as
quasi civil by the courts. Therefore, in principle, the procedure which
applies to recording a settlement in civil cases could guide the
procedure to be followed and be applied for recording a settlement
between the parties to a complaint under Section 138 of the NI Act.

Crl.Ref.No.1/2016 Page 72 of 89

Guidance on this aspect is provided by the provisions of Order XXIII
Rule 3 of the CPC and the practice followed by the civil courts upon a
compromise arrived at between the parties to a suit.

99. So far as the statutory provision is concerned, Order XXIII Rule
3 of the CPC reads as follows :

"3. Compromise of suit.- Where it is proved to the
satisfaction of the court that a suit has been adjusted wholly
or in part by any lawful agreement or compromise in
writing and signed by the parties, or where the defendant
satisfies the plaintiff in respect of the whole or any part of
the subject matter of the suit, the court shall order such
agreement, compromise or satisfaction to be recorded, and
shall pass a decree in accordance therewith so far as it
relates to the parties to the suit, whether or not the subject
matter of the agreement, compromise or satisfaction is the
same as the subject matter of the suit: -

Provided that where it is alleged by one party and denied by
the other than an adjustment or satisfaction has been
arrived at, the court shall decide the question; but no
adjournment shall be granted for the purpose of deciding the
question, unless the court, for reasons to be recorded, thinks
fit to grant such adjournment."

(Emphasis by us)

100. The Code of Criminal Procedure as well as the NI Act have
provided only for compounding of offences. No procedure regarding
the manner in which a settlement agreement required to be placed or
considered by the court has been provided.

101. Reference can usefully be made to certain pronouncements
under the Code of Civil Procedure, wherein the Legislature has

Crl.Ref.No.1/2016 Page 73 of 89
provided Rule 3 of Order XXIII, which specifically provides for
"Compromise of suits". The Legislature has prescripted that if it is
"proved to the satisfaction of the court" that a suit has been adjusted
wholly or in part by any "lawful agreement or compromise in writing
and signed by the parties", the court shall order such agreement or
compromise to be recorded and shall pass a decree in accordance
thereof, so far as it relates to the parties in the suit. It is important to
note that Order XXIII Rule 3 of the CPC permits the consideration of
the agreement, whether or not the subject matter of the agreement or
compromise is the same as the subject matter of the suit. While the
Code of Civil Procedure would have no application to the proceedings
which are guided by the Criminal Procedure Code, however, given the
legislative vacuum, there appears to be no reason as to why the
principles which apply to consideration of a settlement under Order
XXIII Rule 3 of the CPC cannot be applied for consideration of a
settlement which is the subject matter of consideration by a court
under Section 320 of the Cr.P.C. or Section 147 of the NI Act. The
principles of Rule 3 or Order XXIII of the C.P.C., as laid in judicial
pronouncements, can be summarized thus:

(i) For a compromise to be held to be binding, it has to be signed
either by the parties or by their counsels or both, failing which
Order XXIII Rule 3 of the CPC would not be applicable.
(Ref. : (1988) 1 SCC 270, Gurpreet Singh v. Chatur Bhuj
Goel; (2009) 6 SCC 194, Sneh Gupta v. Devi Sarup Ors.)

Crl.Ref.No.1/2016 Page 74 of 89

(ii) Order XXIII Rule 3 of the CPC casts an obligation on the court
to be satisfied that the settlement agreement is lawful and is in
writing and signed by the parties or by their counsels.
(Ref. : (1978) 2 SCC 179, Suleman Noormohamed Ors. v.
Umarbhai Janubhai; (2006) 1 SCC 148, Amteshwar Anand v.
Virender Mohan Singh Ors.).

(iii) An obligation is cast on the court under Order XXIII Rule 3 of
the CPC to order the agreement to be recorded and pass a
decree in accordance thereof.

(Ref. : (2006) 1 SCC 148, Amteshwar Anand v. Virender
Mohan Singh Ors. (paras 26 and 27)).

(iv) A consent decree is really a contract between the parties with
the seal of the court superadded to it.

(Ref. : (1969) 2 SCC 201, Baldevdas Shivlal Anr. v.
Filmistan Distributors (India) P. Ltd. Ors.; (2002) 100
DLT 278, Hindustan Motors Ltd. v Amritpal Singh Nayar
Anr.; (2007) 14 SCC 318, Parayya Allayya Hittalamani v. Sri
Parayya Gurulingayya Poojari Ors.).

(v) A consent decree may operate as an estoppel as well.

[Ref. : AIR 1956 SC 346, Raja Sri Sailendra Narayan Bhanja
Deo v. State of Orissa; (2007) 14 SCC 318, Parayya Allayya
Hittalamani v. Sri Parayya Gurulingayya Poojari Ors.
(para 15)].

Crl.Ref.No.1/2016 Page 75 of 89

102. The practice followed by the civil court before whom the
settlement in writing, duly signed by the parties, is placed, is to record
the statements of parties confirming that the settlement was entered
into voluntarily, without any force, pressure or undue influence; that it
contained the actual terms of the settlement; and undertakings of the
parties to remain bound by the terms thereof. Upon being satisfied
that the settlement was voluntary and lawful, the civil court takes it on
record accepting the undertaking and passing a decree in terms
thereof.

103. In the pronouncement of the Allahabad High Court reported at
AIR 1930 All 409 : 1929 SCC OnLine All 140, Emperor v. Jhangtoo
Barai Anr., the court was considering whether there was in fact a
composition of the offence or not? It was observed that the best
possible evidence was that of the document signed by the parties
which was in the handwriting of the complainant himself that the
composition was correct. In para 6, it was also observed that if all the
parties were present in court, it was entirely unnecessary for any
verification of such composition. The court noted that "The
complainant was literate. He signed the document in his own writing.
It must presumed, unless it is proved to the contrary, that the
complainant well understood the one small paragraph that appeared
in the document. In any case, the only verification that was required
was a simple question to the parties whether they signed the document
and whether they understood its contents. There can be no doubt that
on that day there was a valid composition within the meaning of

Crl.Ref.No.1/2016 Page 76 of 89
section 345 of the Code of Criminal Procedure before the court. It was
therefore the duty of the Magistrate upon that day, and without any
unnecessary delay, to have pronounced an acquittal. I am clear that it
is incompetent for any person, once having entered into a valid
composition, to withdraw from it."

104. Binding the parties to a settlement agreement entered into
through a formal mediation process and being held accountable for
honouring the same is really enforcing the legislative mandate in
enacting Sections 138 and 147 of the NI Act i.e. to ensure an
expeditious time bound remedy for recovery of the cheque amounts.
Breach of a lawful entered agreement would not only frustrate the
parties to the mediation, but would be opposed to the spirit,
intendment and purpose of Section 138 of the NI Act and would defeat
the ends of justice. The courts cannot permit use of mediation as a
tool to abuse judicial process.

105. There is no legal prohibition upon a criminal court seized of
such complaint, to whom a mediated settlement is reported, from
adopting the above procedure. Application of the above enunciation
of law to a mediation arising out of a criminal case manifests that a
settlement agreement would require to be in writing and signed by the
parties or their counsels. The same has to be placed before the court
which has to be satisfied that the agreement was lawful and consent of
the parties was voluntary and not obtained because of any force,
pressure or undue influence. Therefore, the court would record the
statement of the parties or their authorized agents on oath affirming

Crl.Ref.No.1/2016 Page 77 of 89
the settlement, its voluntariness and their undertaking to abide by it in
the manner followed by the civil court when considering a settlement
placed before it under Order XXIII Rule 3 of the CPC. The court
would thereafter pass an appropriate order accepting the agreement,
incorporating the terms of the settlement regarding payment under
Section 147 of the NI Act and the undertakings of the parties. The
court taking on record the settlement stands empowered to make the
consequential and further direction to the respondent to pay the money
in terms of the mediated settlement and also direct that the parties
would remain bound by the terms thereof.

106. In having so proceeded, there is a satisfaction of the
voluntariness and legality of the terms of the settlement of the court
and acceptance of the terms thereof as well as a specific order in terms
thereof. Consequently, the amount payable under the settlement,
would become an amount payable under an order of the criminal
court.

107. So far as the disputes beyond the subject matter of the litigation
is concerned, upon the settlement receiving imprimatur of the court,
such settlement would remain binding upon the parties and if so
ordered, would be subject to the orders of the court.

XIV. Breach of such settlement accepted by the court -

consequences?

108. The instant reference has resulted because of the failure of the
court to have recorded the settlement and undertakings binding the
accused person in the complaint under Section 138 of the NI Act to

Crl.Ref.No.1/2016 Page 78 of 89
abide by the settlement arrived at during mediation. There can be no
manner of doubt that once a settlement is reported to the court and
made the basis of seeking the court's indulgence, the parties ought not
to be able to resile from such a position. So what is the remedy
available to a complainant if the respondent commits breach of the
mediation settlement and defaults in making the agreed payments?

109. Let us examine as to whether the legislature has provided any
mechanism in the Cr.P.C. for recovery of monetary amounts.

110. We have extracted Section 421 of the Cr.P.C. above which
provides the mechanism to recover fines, by issuing a warrant for the
levy of the amount by attachment and sale of any movable property
belonging to the offender and/or by issuing a warrant authorizing the
realization of amounts as arrears of land revenue from movable and
immovable property of the defaulter.

111. In the event of either party resiling from the agreed upon
settlement which has received the imprimatur of the court, the party
attempting to breach the settlement and undertaking cannot be
permitted to avoid making the payment. Such party also should not be
allowed to violate such undertaking given to the opposite side as well
as the court.

112. In (2009) 6 SCC 652, Vijayan v. Sadanandan K. Anr., it was
held that Section 431 read with Section 421 of the Cr.P.C. is
applicable to recovery of compensation ordered under Section 357(5).

Crl.Ref.No.1/2016 Page 79 of 89

113. Section 431 Cr.P.C., also extracted above, provides if any
money, other than a fine, is payable by virtue of any order made under
the Cr.P.C., the method of recovery whereof is not expressly provided
for, shall be recoverable in terms of Section 421 Cr.P.C.

114. 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.

115. In proceedings where settlement is permitted under Section 320
of the Cr.P.C., it would be an order thereunder.

116. Where proceedings are disposed on settlement terms by the
High Court, it would be an order passed in exercise of jurisdiction
under Section 482 of the Cr.P.C. Upon breach of such order and non-
payment of the agreed amounts, the same may be recoverable in terms
of Section 431 read with Section 421 Cr.P.C.

117. In addition, if the party has tendered an undertaking to abide by
the terms of the agreement, which stands accepted by the court, in the
event of breach of the undertaking, action and consequences under the
Contempt of Courts Act could also follow.

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XV. Reference answered

118. In view of the above, the reference made by the ld. Metropolitan
Magistrate by the order dated 13th January, 2016 (extracted in para 1
above) is answered thus :

Question I : What is the legality of referral of a criminal
compoundable case (such as on u/s 138 of the NI Act) to mediation?

It is legal to refer a criminal compoundable case as one under
Section 138 of the NI Act to mediation.

Question II : Can the Mediation and Conciliation Rules, 2004
formulated in exercise of powers under the CPC, be imported and
applied in criminal cases? If not, how to fill the legal vacuum? Is
there a need for separate rules framed in this regard (possibly u/s
477 of the CrPC)?

The Delhi Mediation and Conciliation Rules, 2004 issued in
exercise of the rule making power under Part-10 and Clause (d) of
sub-section (ii) of Section 89 as well as all other powers enabling the
High Court of Delhi to make such rules, applies to mediation arising
out of civil as well as criminal cases.

Question III : In cases where the dispute has already been referred
to mediation - What is the procedure to be followed thereafter? Is
the matter to be disposed of taking the very mediated settlement
agreement to be evidence of compounding of the case and dispose of
the case, or the same is to be kept pending, awaiting compliance
thereof (for example, when the payments are spread over a long
period of time, as is usually the case in such settlement agreements)?

In the context of reference of the parties, in a case arising under
Section 138 of the NI Act, to mediation is concerned, the following
procedure is required to be followed :

Crl.Ref.No.1/2016 Page 81 of 89

III (i) When the respondent first enters appearance in a
complaint under Section 138 of the NI Act, before proceeding further
with the case, the Magistrate may proceed to record admission and
denial of documents in accordance with Section 294 of the Cr.P.C.,
and if satisfied, at any stage before the complaint is taken up for
hearing, there exist elements of settlement, the magistrate shall inquire
from the parties if they are open to exploring possibility of an
amicable resolution of the disputes.

III (ii) If the parties are so inclined, they should be informed by
the court of the various mechanisms available to them by which they
can arrive at such settlement including out of court settlement; referral
to Lok Adalat under the Legal Services Authorities Act, 1987; referral
to the court annexed mediation centre; as well as conciliation under
the Arbitration and Conciliation Act, 1996.

III (iii) Once the parties have chosen the appropriate mechanism
which they would be willing to use to resolve their disputes, the court
should refer the parties to such forum while stipulating the prescribed
time period, within which the matter should be negotiated (ideally a
period of six weeks) and the next date of hearing when the case should
be again placed before the concerned court to enable it to monitor the
progress and outcome of such negotiations.

III (iv) In the event that the parties seek reference to mediation,
the court should list the matter before the concerned mediation
centre/mediator on a fixed date directing the presence of the
parties/authorized representatives before the mediator on the said date.

Crl.Ref.No.1/2016 Page 82 of 89

III (v) If referred to mediation, the courts, as well as the
mediators, should encourage parties to resolve their overall disputes,
not confined to the case in which the reference is made or the subject
matter of the criminal complaint which relates only to dishonouring of
a particular cheque.

III (vi) The parties should endeavour to interact/discuss their
individual resolutions/proposals with each other as well and facilitate
as many interactions necessary for efficient resolution within the
period granted by the court. The parties shall be directed to appear
before the mediator in a time bound manner keeping in view the time
period fixed by the magistrate.

III (vii) In the event that all parties seek extension of time beyond
the initial six week period, the magistrate may, after considering the
progress of the mediation proceedings, in the interest of justice, grant
extension of time to the parties for facilitating the settlement. For the
purposes of such extension, the magistrate may call for an interim
report from the mediator, however keeping in mind the confidentiality
attached to the mediation process. Upon being satisfied that bona fide
and sincere efforts for settlement were being made by the parties, the
magistrate may fix a reasonable time period for the parties to appear
before the mediator appointing a next date of hearing for a report on
the progress in the mediation. Such time period would depend on the
facts and circumstances and is best left to the discretion of the
magistrate who would appoint the same keeping in view the best
interest of both parties.

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Contents of the settlement

III (viii) If a settlement is reached during the mediation, the
settlement agreement which is drawn-up must incorporate :

(a) a clear stipulation as to the amount which is agreed to be
paid by the party;

(b) a clear and simple mechanism/method of payment and the
manner and mode of payment;

(c) undertakings of all parties to abide and be bound by the
terms of the settlement must be contained in the agreement to
ensure that the parties comply with the terms agreed upon;

(d) a clear stipulation, if agreed upon, of the penalty which
would enure to the party if a default of the agreed terms is
committed in addition to the consequences of the breach of the
terms of the settlement;

(e) an unequivocal declaration that both parties have executed
the agreement after understanding the terms of the settlement
agreement as well as of the consequences of its breach;

(f) a stipulation regarding the voluntariness of the settlement
and declaration that the executors of the settlement agreement
were executing and signing the same without any kind of force,
pressure and undue influence.

III (ix) The mediator should forward a carefully executed
settlement agreement duly signed by both parties along with his report
to the court on the date fixed, when the parties or their authorized
representatives would appear before the court.

Crl.Ref.No.1/2016 Page 84 of 89

Proceedings before the court

III (x) The magistrate would adopt a procedure akin to that
followed by the civil court under Order XXIII of the C.P.C.
III (xi) The magistrate should record a statement on oath of the
parties affirming the terms of the settlement; that it was entered into
voluntarily, of the free will of the parties, after fully understanding the
contents and implications thereof, affirming the contents of the
agreement placed before the court; confirming their signatures
thereon. A clear undertaking to abide by the terms of the settlement
should also be recorded as a matter of abundant caution.
III (xii) A statement to the above effect may be obtained on
affidavit. However, the magistrate must record a statement of the
parties proving the affidavit and the settlement agreement on court
record.

III (xiii) The magistrate should independently apply his judicial
mind and satisfy himself that the settlement agreement is genuine,
equitable, lawful, not opposed to public policy, voluntary and that
there is no legal impediment in accepting the same.
III (xiv) Pursuant to recording of the statement of the parties, the
magistrate should specifically accept the statement of the parties as
well as their undertakings and hold them bound by the terms of the
settlement terms entered into by and between them. This order should
clearly stipulate that in the event of default by either party, the amount
agreed to be paid in the settlement agreement will be recoverable in
terms of Section 431 read with Section 421 of the Cr.P.C.

Crl.Ref.No.1/2016 Page 85 of 89

III (xv) Upon receiving a request from the complainant, that on
account of the compromise vide the settlement agreement, it is
withdrawing himself from prosecution, the matter has to be
compounded. Such prayer of the complainant has to be accepted in
keeping with the scheme of Section 147 of the NI Act. (Ref.:(2005)
CriLJ 431, Rameshbhai Somabhai Patel v. Dineshbhai Achalanand
Rathi)
At this point, the trial court should discharge/acquit the accused
person, depending on the stage of the case. This procedure should be
followed even where the settlement terms require implementation of
the terms and payment over a period of time.

III (xvi) In the event that after various rounds of mediation, the
parties conclude that the matter cannot be amicably resolved or
settled, information to this effect should be placed before the
magistrate who should proceed in that complaint on merits, as per the
procedure prescribed by law.

III (xvii) The magistrate should ensure strict compliance with the
guidelines and principles laid down by the Supreme Court in the
pronouncement reported at (2010) 5 SCC 663, Damodar S. Prabhu v.
Sayed Babalal H and so far as the settlement at the later stage is
concerned in (2014) 10 SCC 690 Madhya Pradesh State Legal
Services Authority v. Prateek Jain.

III (xvii) We may also refer to a criminal case wherein there is an
underlying civil dispute. While the parties may not be either permitted
in law to compound the criminal case or may not be willing to

Crl.Ref.No.1/2016 Page 86 of 89
compound the criminal case, they may be willing to explore the
possibility of a negotiated settlement of their civil disputes. There is
no legal prohibition to the parties seeking mediation so far as the
underlying civil dispute is concerned. In case a settlement is reached,
the principles laid down by us would apply to settlement of such
underlying civil disputes as well.

In case reference in a criminal case is restricted to only an
underlying civil dispute and a settlement is reached in mediation, the
referring court could require the mediator to place such settlement in
the civil litigation between the parties which would proceed in the
matter in accordance with prescribed procedure.

Question IV : If the settlement in Mediation is not complied with - is
the court required to proceed with the case for a trial on merits, or
hold such a settlement agreement to be executable as a decree?

In case the mediation settlement accepted by the court as above
is not complied with, the following procedure is required to be
followed :

IV (i) In the event of default or non-compliance or breach of the
settlement agreement by the accused person, the magistrate would
pass an order under Section 431 read with Section 421 of the Cr.P.C.
to recover the amount agreed to be paid by the accused in the same
manner as a fine would be recovered.

IV (ii) Additionally, for breach of the undertaking given to the
magistrate/court, the court would take appropriate action permissible
in law to enforce compliance with the undertaking as well as the

Crl.Ref.No.1/2016 Page 87 of 89
orders of the court based thereon, including proceeding under Section
2(b) of the Contempt of Courts Act, 1971 for violation thereof.

Question V : If the Mediated Settlement Agreement, by itself, is
taken to be tantamount to a decree, then, how the same is to be
executed? Is the complainant to be relegated to file an application
for execution in a civil court? And if yes, what should be the
appropriate orders with respect to the criminal complaint case at
hand. What would be the effect of such a mediated settlement vis-à-
vis the complaint case?

V (i) The settlement reached in mediation arising out of a criminal
case does not tantamount to a decree by a civil court and cannot be
executed in a civil court.

However, a settlement in mediation arising out of referral in a
civil case by a civil court, can result in a decree upon compliance with
the procedure under Order XXIII of the C.P.C. This can never be so
in a mediation settlement arising out of a criminal case.

XVI. Result

119. The present reference, under Section 395(2) of the CrPC, is
answered in the above terms.

120. We place on record our deep appreciation for the amici curiae:
Mr. J.P. Sengh, Senior Advocate; Ms. Veena Ralli, Advocate and Mr.
Siddharth Agarwal, Advocate, who have rendered indispensable and
worthy assistance to us, in this matter.

Crl.Ref.No.1/2016 Page 88 of 89

121. Let the record of Complaint Case Nos.519662/2016 and
519664/2016 be forthwith returned to the trial court, which shall
proceed in the matter, in accordance with law.

ACTING CHIEF JUSTICE

ANU MALHOTRA, J.

OCTOBER 17, 2017/aj

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