Section 138 proceedings may be quashed after full payment where the underlying dispute no longer survives.

The petitioners obtained financial assistance from Canara Bank for establishing a vegetable-processing project, comprising a term loan of ₹300 lakhs and a cash-credit facility of ₹225 lakhs, repayable by 16 August 2017.

To meet a project-funding shortfall, the petitioners applied to the respondent under the Venture Capital Assistance Scheme. The respondent sanctioned ₹49.40 lakhs and entered into an agreement with petitioner no. 1. Petitioner no. 2 issued a blank cheque as security, and the sanctioned amount was disbursed into petitioner no. 1’s bank account.

The respondent subsequently filled in the date on the cheque as 31 December 2017 and presented it for encashment. The cheque was dishonoured on 2 January 2018 with the endorsement “drawer’s signature differs.” After issuing a legal notice dated 25 January 2018, the respondent instituted a complaint under Section 138 of the Negotiable Instruments Act, 1881, resulting in summoning orders dated 29 June 2018.

The petitioners invoked Section 482 of the Code of Criminal Procedure, 1973, seeking quashing of the complaint and consequential proceedings.

During the proceedings before the High Court, the petitioners undertook to pay the cheque amount, interest and penalty, filed a payment schedule, and made payments pursuant to the Court’s directions. By the time of final adjudication, the entire cheque amount of ₹49.40 lakhs had been paid and accepted by the respondent.

1. Whether the complaint under Section 138 of the Negotiable Instruments Act, 1881, and the consequential criminal proceedings should be quashed under Section 482 CrPC after the entire cheque amount had been paid to and accepted by the complainant?

2. Whether continuation of the proceedings, in light of the settlement/payment and the prolonged pendency of the complaint, would serve the legislative purpose of Chapter XVII of the Negotiable Instruments Act?

The Court exercised its inherent jurisdiction under Section 482 of the Code of Criminal Procedure, 1973, to prevent abuse of process and secure the ends of justice.

It applied Chapter XVII of the Negotiable Instruments Act, 1881, particularly Sections 138 to 148, which seeks to enhance the credibility of cheques, promote financial discipline, and impose penal consequences for cheque dishonour while safeguarding honest drawers.

The Court relied on the legislative object that cheque-dishonour proceedings are intended to secure timely resolution of payment disputes and restore confidence in cheques as substitutes for cash, rather than perpetuate criminal litigation after the underlying liability has been discharged.

The Court noted that the dispute originated in 2018, the complainant’s evidence had not commenced, and the proceedings had remained stayed pursuant to the High Court’s order.

Since the petitioners had paid the entire cheque amount of ₹49.40 lakhs and the respondent had accepted the payment, the underlying monetary dispute substantially no longer survived.

Applying the object of Chapter XVII of the NI Act, the Court held that continuing the prosecution would result in prolonged and unproductive litigation, rather than advance financial discipline or the credibility of cheque transactions.

In these circumstances, quashing the proceedings under Section 482 CrPC was considered appropriate in the interests of justice.

The quashing was made subject to the petitioners depositing costs of ₹5,00,000 in the respondent’s bank account within two weeks of pronouncement and furnishing proof of such deposit to the Registry within one week thereafter.

The pending application was also disposed of.