Supreme Court Quashes Cheque Bounce Conviction After Parties Reach Settlement Through Mediation.


16 October 2025 Cheque Bounce >> Debt Recovery   |   Mediation & Alternative Dispute Resolution >> Miscellaneous  

The Supreme Court of India has dismissed the conviction of Ugen Dorjee Bhutia in a case of cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881, upon consideration of the amicable settlement the parties had arrived at through mediation. The order, made on October 16, 2025, by a bench headed by Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh, is another example of the country's top court promoting resolution through alternative dispute mechanisms in cases of commercial and financial disputes.

The case was based on a complaint by Pankaj Agarwal, that Bhutia had taken a loan of Rs. 20 lakh and then drawn a cheque for the same amount, which got dishonoured by the bank. After trial, the Chief Judicial Magistrate had held Bhutia guilty and sentenced him for three months' simple imprisonment and a fine of Rs. 24 lakh. The order was subsequently altered by the Sessions Court, which erased the imprisonment but upheld the fine and ordered a one-year jail term in default. The order of the Sessions Court was later upheld by the High Court of Sikkim, which resulted in an appeal to the Supreme Court.


 


 
 

The appeal lay pending for some time when the parties agreed to try a mediated settlement. At the behest of the Supreme Court's reference, the two sides completed mediation and signed their agreement on July 22, 2025. According to the terms, Bhutia settled Rs. 20 lakh with Agarwal in full and final settlement of all claims. The respondent, in turn, undertook not to misuse any cheques previously misplaced by the appellant and to assist him in withdrawing statutory deposits made before lower courts in related proceedings.

Noting this overall settlement, the Supreme Court noted that Section 147 of the NI Act specifically makes provision for compounding of offences under Section 138. As the dispute was left wholly settled, the Court held that there was no criminal liability that remained. Therefore, it reversed the conviction and sentence recorded by the lower courts against Bhutia. The settlement was ordered to be included in the order.

The ruling reflects the court's focus on facilitating compounding and amicable resolution of cheque dishonour cases, which form a large part of India's criminal docket. By specifically acknowledging mediated settlements, the Court continues to promote an even-handed strategy—Closing financial disputes without extending criminal prosecution.


Section 138, Negotiable Instruments Act - 1881  

Section 147, Negotiable Instruments Act - 1881  

Negotiable Instruments Act, 1881