Dayawati versus Yogesh Kumar Gosain

CC No. 2429/15 & 2430/15 (two connected matters)

13.01.2016
ORDER OF REFERENCE UNDER SECTION 395 OF THE CRPC

1. The present case brings to the fore, a seminal question of

law facing magisterial courts today, especially those dealing
with cases u/s 138 of the Negotiable Instruments Act, 1883
[hereinafter

NI

Act].

The

question

is

the

legal

permissibility of referring a complaint case u/s 138 of

the NI Act for amicable settlement through Mediation,
and the legal implications of breach of a mediation
settlement agreement'.
2.

Before embarking on a discussion on the issue, it would be

apposite to briefly pen down, the life of this litigation and
factual background in which this question has arose.
Factual Background

3. It all started with a complaint case u/s 138 of the NI Act, filed
by the complainant. Complainant claims to have supplied
fire-fighting goods and equipment to the accused on
different dates and different quantities. On account of
regularity of dealings between the accused and the
complainant, a regular ledger account was maintained

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between the complainant and the accused. As per the

ledger account, the accused is stated to be under a liability
of Rs. 55,99,600/- towards the complainant (as on
07.04.2014). In part discharge of such liability, the accused
is stated to have issued two account payee cheques to the
complainant, of Rs. 11,00,000 (Cheque No. 365406 dated
01.12.2014) and Rs. 16,00,000/- (Cheque No. 563707 dated
28.11.2014) each. Much to complainants dismay, both the
cheques got dishonoured on account of insufficiency of
funds. This constrained the complainant to serve a legal
demand notice on the accused, which when went unheeded,
led to the filing of the two complaint cases u/s 138 of the NI
Act, presently under consideration.
4. Record reveals that the cases were initially filed before the
Ld.Metropolitan Magistrate, New Delhi District, Patiala
House Courts, Delhi. During those proceedings, the
accused and complainant had expressed an intention to
amicably settle the case, and the court, in the interests of a
pacific resolution of the conflict, referred the matter to the
Mediation & Conciliation Centre of the Honble High Court of
Delhi. On 15.04.2015 the matter was taken up at the
Mediation Cell, and parties deliberated on the modalities of
the payment and the matter was further adjourned in the
mediation cell to 14.05.2015. After negotiations, the parties
settled their dispute and drew up a settlement agreement
dated 14.05.2015, under which the accused undertook to
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pay a sum of Rs. 55,54,600/- to the complainant as full and

final

settlement

amount,

in

different

installments,

in

accordance with a payment schedule agreed mutually. It

was undertook that the complainant would withdraw the
cases after receipt of the entire amount. Both the parties
undertook to comply with the terms of the settlement. The
agreement was drew up and signed by both the parties
along-with their respective counsels.
5. The accused however, failed to comply with the settlement;
Although, he was under an obligation to pay a sum of Rs.
11,00,000/- as first installment on 25.06.2015, he paid a
sum of Rs. 5,00,000/- only to the complainant. No
justification was given by the accused for non compliance of
the mediation settlement and the Ld.Predecessor judge
observed vide order dated 30.06.2015 that mediation
settled (sic : settlement has) failed. Let the matter be
proceeded on merit, put up on 14.08.2015. Record reveals
that even thereafter, two more opportunities were given by
the Ld.Predecessor of this Court, for the accused to comply
with the settlement, however, in view of continued noncompliance, the matter was listed for framing of notice on
28.09.2015 and a trial on merits.
6. Before the matter could proceed any further, on account of
the

promulgation

of

the

Negotiable

Instruments

(Amendment) Ordinance, 2015, the cases were transferred

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to the present court, since the complainant maintains his

bank account within the jurisdiction of the present court.
The Present application and contentions
7.

Immediately on receipt of the case by the present court, An

application came to be filed on behalf of the complainant
seeking

enforcement

of

the

Mediation

Settlement

Agreement dated 14.05.2015.

8. Ld.Counsel for the Complainant relies on Hardeep Bajaj v.
ICICI (2013 SCC OnLine Del 124), Manoj Chandak v. M/s
Tour Lovers Tourism (India) Pvt Ltd. 2015 SCC OnLine
Del 7309 & M/s. Arun International, 2015 SCC OnLine
Del 9334, to argue that a mediation settlement is binding on
the parties. He submits that the settlement agreement in this
case was arrived-at after long negotiations and various
meetings and ought to be complied-with by the accused. It is
further argued that the mediation settlement was never
repudiated by the accused or challenged on the grounds of
being vitiated for lack of free consent or any other ground.
The accused having paid part of the first installment, has
also acted upon the mediation settlement and cannot be
allowed to wriggle-free of his obligations under the same.
9.

Per contra, Ld.Counsel for the Accused argues that the

settlement agreement is not binding, primarily for two

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reasons :Firstly, on account of the settlement amount being exorbitant

and onerous; He argues that the cheques in question with
respect to which the cases were filed were of a total amount
of Rs. 27,00,000/- and the settlement amount is of Rs.
55,54,600/- . He argues, that this by itself, is evidence that
the agreement is unfair and arbitrary and therefore not
binding on the accused;
It is further argued 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 and the
same bore the imprimatur of the court. He argues that the
absence of such a statement in this case completly denudes
the settlement agreement of its binding nature and efficacy.
10. In view of the fact that this question has arose not just in this
case but a plethora of other cases pending in this court, I
have gone through the record carefully and have heard the
parties at great length, in order to examine the legal
position.
Legal Principles - Analysis and Question of law
11. It is clear that this case raises some very fundamental
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questions relating to enforceability of mediation settlements

in cases u/s 138 of the NI Act. The question becomes
extremely important, having regard to the increased reliance
on Mediation as an ADR mechanism for speedy and
qualitative disposal of cases. Guidance of the Honble High
Court is necessitated with a view to ensure a legal
framework permitting and streamlining the referral of cases
u/s 138 of the NI Act to mediation; to ensure sanctity of
mediation; and to further ensure that mediation is not used
as a means to delay and protract trials by recalcitrant
accused persons, who enter into mediation agreements
voluntarily, only to back out later; merely with a view to gain
time. With this idea in mind, the court makes a humble
attempt to flag the legal provisions/judgments concerning
this issue.
12. Beginning at the beginnings, the first question relates to the
legality of the very first order of mediation referral in a case
u/s 138 of the NI Act.
13. At the very outset, it may be flagged that criminal
compoundable cases can be referred to Lok Adalats under
the Legal Services Authorities Act, 1987 and a Lok Adalat
award is executable as a decree per se. This position is also
clarified by the Honble Supreme Court in K.N.Govindan
Kutty Menon V. C.D.Shaji,(2012) 2 SCC 51, wherein it was
held by the Honble Supreme Court that if a case u/s 138 of
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Page No. 6 of 16

the NI Act is referred to Lok Adalat by a criminal court and if

the matter is settled in the Lok Adalat, then by virtue of the
deeming provision u/s Section 21 of the Act, an award
passed by the Adalat based on the compromise has to be
treated as a decree capable of execution by a civil court.
14. This is the well established position. However, the Legal
Services Authority Act, 1987 applies only with respect to a
Lok Adalat and does not provide for mediation.
15. In civil cases, Section 89 of Code of Civil Procedure
provides mediation as one of the Alternative Disputes
Resolution mechanisms, for settling the issues between the
parties in an efficacious and expeditious manner. In what
can be termed the locus classicus on the subject - Afcons
Infrastructure Limited and another V Cherian Varkey
Constructions Company Private Limited, (2010) 8 SCC
24, the Honble Supreme Court has laid down an illustrative
category of cases where mediation is normally not
permissible and those where the same is permissible as a
form of dispute resolution :27. The following categories of cases are
normally considered to be not suitable
for ADR process having regard to their
nature:
(i) Representative suits under Order 1 Rule
8 CPC which involve public interest or
interest of numerous persons who are not
parties before the court. (In fact, even a
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Page No. 7 of 16

compromise in such a suit is a difficult

process requiring notice to the persons
interested in the suit, before its
acceptance).
(ii) Disputes relating to election to public
offices (as contrasted from disputes
between two groups trying to get control
over the management of societies, clubs,
association, etc.).
(iii) Cases involving grant of authority by the
court after enquiry, as for example, suits for
grant of probate or letters of administration.
(iv) Cases involving serious and specific
allegations of fraud, fabrication of
documents,
forgery,
impersonation,
coercion, etc.
(v) Cases requiring protection of courts, as
for example, claims against minors, deities
and mentally challenged and suits for
declaration of title against the Government.
(vi) Cases involving prosecution for
criminal offences.
28. All other suits and cases of civil nature
in particular the following categories of
cases (whether pending in civil courts or
other special tribunals/forums) are normally
suitable for ADR processes:
(i) All cases relating to trade, commerce
and contracts, including

disputes arising out of contracts

(including all money claims);
disputes relating to specific performance;

disputes between suppliers and

customers;

disputes between bankers and

customers;

disputes between developers/builders

and customers;
disputes between landlords and
tenants/licensor and licensees;
disputes between insurer and insured;
(ii) All cases arising from strained or soured
relationships, including
disputes relating to matrimonial causes,
maintenance, custody of children;
disputes relating to partition/division
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among family members/coparceners/coowners; and

disputes relating to partnership among
partners.
(iii) All cases where there is a need for
continuation of the pre-existing relationship
in spite of the disputes, including
disputes between neighbours (relating to
easementary
rights,
encroachments,
nuisance, etc.);

disputes between employers and

employees;

disputes
among
members
of
societies/associations/apartment
owners'
associations;
(iv) All cases relating to tortious liability,
including
claims for compensation in motor
accidents/other accidents; and
(v) All consumer disputes, including

disputes
where
trader/supplier/manufacturer/service
provider is keen to maintain
business/professional
reputation
credibility or product popularity.

a
his
and

The above enumeration of suitable

and unsuitable categorisation of cases
is not intended to be exhaustive or rigid.
They are illustrative, which can be
subjected to just exceptions or additions
by the court/tribunal exercising its
jurisdiction/discretion in referring a
dispute/case to an ADR process.

16. Therefore, on a bare reading of the above, it appears

that recourse to mediation in criminal cases is generally
disfavoured. However, the above embargo on mediation in
criminal cases, it appears, was not meant to be an absolute
one. The categorisation of cases by the court is merely
illustrative and not a rigid and inflexible rule. The last
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paragraph of the decision is suggestive of the fact.

Furthermore, since the question of legal validity mediation in
a criminal compoundable case never arose directly in
Afcons (supra), the observations of the court do not seem to
be binding in their nature and do not constitute it's ratio.
Furthermore, the possibility of carving out an exception in a
certain category of criminal cases is not completely ruled
out. Infact, the examples are not far to seek. Courts have
been increasingly referring criminal cases u/s 498A IPC to
mediation and such a practise also bears the imprimatur of
the Honble Supreme Court in a variety of cases. An
analogy, therefore, can be drawn to cases u/s 138 of the NI
Act especially in light of the fact that the Honble Supreme
Court has also observed that cases u/s 138 of the NI Act
are quasi-criminal in nature. In practise, courts are
increasingly referring such matters for mediation, albeit
without a legal basis, as this order endeavors to
demonstrate. In no case the first principles or legality of
such a referral have been examined.
Since the Legal Services Authorities Act and Section 89 of
the CPC do not cover the situation of mediation in a
compoundable criminal case, the legal sanctity of mediation
has to be looked elsewhere.
17. In Delhi, Mediation and Conciliation Rules, 2004 are in
force vide notification No-171/Rules/DHC dated 11.08.2005.
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Page No. 10 of 16

The Hon'ble High Court of Delhi has made certain

modifications in Rule-1 vide notification No.-158/Rules/DHC
dated 06.07.2006 to the following effect:
"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 & Conciliation
Centre or any other Mediation Centre set up
by Legal Services Authorities. Upon such a
reference being made to Delhi High Court
Mediation & Conciliation Centre, the same
will be governed by the Charter of the Delhi
High Court Mediation & Conciliation Centre
and to those mediation proceedings, the
present Rules will apply mutatis mutandis."

The use of Expression "other proceeding" is normally

invoked to justify and legalise referral of a criminal
compoundable case to mediation. However, what is lost
sight of is that the Mediation and Conciliation Rules, 2004
have been made in exercise & pursuance of powers under
the Code of Civil Procedure, 1908. The preamble to the
Mediation and Conciliation Rules, 2004 makes this amply
clear in the following words :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

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Therefore, there is a clear vacuum insofar as rules

governing mediation in criminal compoundable cases are
concerned. The Mediation and Conciliation Rules, 2004, it
is clear, have been made with respect to civil proceedings.
On account of these rules, the legal position is relatively
clear in civil cases as the broad rules for mediation, role of
the mediator, procedure on receipt of case from mediation,
consequences of, and the enforcement of settlement
agreement have been laid down elaborately, in ample
details. According to the rules, in order for the settlement
agreement to have finality, it has to bear the imprimatur of
the court. Rule 25 of the Mediation and Conciliation Rules,
2004 lays down the procedure for adoption of the mediation
settlement agreement in the form of an executable decree :"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."

18. It is therefore clear that on receipt of the settlement

agreement and after being satisfied as to the voluntariness
of the agreement, the civil court has to pass a consent
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decree within terms of Or. XXIII R 3A of the CPC. The

decree, needless to state, is executable per se.
However, the above Rule is incompatible with a mediation
settlement agreement in criminal cases, as a criminal court
cannot pass a decree, much less execute the same.
19. This raises questions as to the very legality of referral
to mediation and

also the enforceability of mediation

settlement, in case of a default, which, unfortunately, is

extremely common-place.
20. In this regard, there are divergent views : The Honble
High Court of Kerala in Sreelal v. Murali Menon & Anr, Crl.
MC. No. 1864/2014 (Date of Decision : 10.07.2014, has
held that in such a case, the court has no option but to
proceed for a trial on merits. The Court held that in absence
of compounding of the case by the parties, the matter has to
be decided on merits, after a full-blown trial and the
question of guilt or innocence of the accused has to be
adjudicated, eschewing the factum of settlement totally from
consideration as the same cannot be used as a piece of
evidence. A meaningful reading of the case reveals that the
court was of the opinion that, though criminal compoundable
cases could be referred to Lok Adalat under the Legal
Services Authority Act, 1987, they could not be referred to
mediation in absence of a specific legal authority to that
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effect. The Honble Court was of the opinion that in case

where mediation is employed, it has to be seen in its limited
role as a facilitator of compounding of an offence. If the
offence is compounded, then, the proceedings end and the
accused is to be acquitted of the offence. However, in case
of

default

in

compliance

of

settlement/terms

of

compounding, no legal sanctity can be attached to the

mediation settlement and the matter has to proceed for a
trial on merits.
21. As opposed to this, The Honble High Court of Delhi in
Manoj Chandak v. M/s Tour Lovers Tourism (India) Pvt
Ltd.

2015

SCC

OnLine

Del

7309

&

M/s.

Arun

International, 2015 SCC OnLine Del 9334, has held that

settlement in Mediation Centre in a case u/s 138 of the NI
Act is binding and is to be treated as an executable decree.
In Arun International (supra) the Honble High Court held the
mediation settlement agreement to be binding and directed
the Magistrate to pass appropriate judgment on the basis of
the mediation settlement.
Reference Order
22. In view of the above discussion, the following questions of
law are referred to the Honble High Court of Delhi, for kind
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Page No. 14 of 16

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 ? and if yes, what
should be the appropriate orders with respect to the
criminal complaint case at hand. What would be the
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effect of such a mediated settlement vis-a-vis the

complaint case?
Guidance on these questions by the Honble High Court is
necessitated to resolve this legal conundrum. There is a need
for guidelines laying down the legal basis of referral of criminal
compoundable cases to mediation, the procedure to be adopted
by the mediators/mediation institution, and also laying down the
aftermath of mediation proceedings, its enforceability and
procedure to be adopted by a criminal court on receipt of a
mediation settlement agreement and consequences of breach
thereof. The guidance of the Honble High Court, on these
points, shall go a long way to streamline, render effective, and
preserve the sanctity of use of mediation as a form of ADR in
criminal compoundable cases such as ones u/s 138 of the NI
Act.
The office attached to this court is directed to send this
Reference Order to the Ld.Registrar General, Honble High
Court of Delhi in appropriate manner and through proper
channel, for kind guidance and consideration.

(BHARAT CHUGH)
MM-(NI Act)-Central-01/THC/Delhi
13.01.2016

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