Delhi District Court
Dayawati vs Yogesh Kumar Gosain on 13 January, 2016
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 Dayawati versus Yogesh Kumar Gosain Page No. 1 of 16 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 complainant's 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 Hon'ble 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 Dayawati versus Yogesh Kumar Gosain Page No. 2 of 16 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 non- compliance, 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 Dayawati versus Yogesh Kumar Gosain Page No. 3 of 16 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 Dayawati versus Yogesh Kumar Gosain Page No. 4 of 16 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 Dayawati versus Yogesh Kumar Gosain Page No. 5 of 16 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 Hon'ble 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 Hon'ble Supreme Court in K.N.Govindan Kutty Menon V. C.D.Shaji,(2012) 2 SCC 51, wherein it was held by the Hon'ble Supreme Court that if a case u/s 138 of Dayawati versus Yogesh Kumar Gosain 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 Hon'ble 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 Dayawati versus Yogesh Kumar Gosain 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 Dayawati versus Yogesh Kumar Gosain Page No. 8 of 16 among family members/coparceners/co-
owners; 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 a trader/supplier/manufacturer/service provider is keen to maintain his business/professional reputation and credibility or product popularity.
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 Dayawati versus Yogesh Kumar Gosain Page No. 9 of 16 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 Hon'ble 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 Hon'ble 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.
Dayawati versus Yogesh Kumar Gosain 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..."
Dayawati versus Yogesh Kumar Gosain Page No. 11 of 16 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 Dayawati versus Yogesh Kumar Gosain Page No. 12 of 16 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 Hon'ble 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 Dayawati versus Yogesh Kumar Gosain Page No. 13 of 16 effect. The Hon'ble 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 Hon'ble 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 Hon'ble 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 Hon'ble High Court of Delhi, for kind consideration and guidance :-
Dayawati versus Yogesh Kumar Gosain 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 Dayawati versus Yogesh Kumar Gosain Page No. 15 of 16 effect of such a mediated settlement vis-a-vis the complaint case?
Guidance on these questions by the Hon'ble 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, it's 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 Hon'ble 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, Hon'ble 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 Dayawati versus Yogesh Kumar Gosain Page No. 16 of 16