Money Already Recovered in Civil Case Can Be Adjusted in Cheque Bounce U/S 138 NI Act - Must Prevent Double Recovery for Same Cheque: Delhi High Court

“There is no bar in applying the reverse analogy under Section 357(5) CrPC” — Criminal Compensation May Be Reduced If Civil Recovery Has Been Made - In a nuanced and precedent-influencing decision, the Delhi High Court ruled that where both civil and criminal proceedings arise from the same dishonoured cheque, the amount already recovered in civil execution must be adjusted against the compensation imposed in criminal conviction under Section 138 of the Negotiable Instruments Act, 1881.

Justice Manoj Kumar Ohri observed that permitting separate and full recoveries in parallel civil and criminal actions for the same transaction would result in unjust enrichment and violate principles of equity. The Court held that the default imprisonment imposed for non-payment of compensation under criminal law must be proportionately reduced once part of the compensation has already been recovered through civil proceedings.

The Court ordered the immediate release of the appellant, who had already served the proportionately adjusted term of default sentence.

“Section 357(5) CrPC Permits Adjustment of Compensation — Its Logic Must Apply in Reverse to Prevent Duplication of Recovery”

The case arose out of proceedings under Section 138 NI Act initiated by complainant Asad Raza against Mohd. Umar, in respect of dishonoured cheques issued in a business transaction. While the Trial Court initially sentenced Umar to two months’ simple imprisonment and ₹1.5 crore as compensation, the Sessions Court, on enhancement plea, increased the imprisonment to one year and the default sentence for non-payment to six months.

However, the same transaction was also subject to a civil suit, decreed in favour of the complainant in 2017. Pursuant to execution proceedings, ₹33,10,000 had already been recovered.

Appealing before the High Court, the convict did not press the challenge on merits of conviction or sentence but urged the Court to adjust the ₹33.1 lakh recovered in the civil proceedings towards the compensation in criminal proceedings, and to proportionately reduce the six-month default sentence under Section 69 of the Indian Penal Code, 1860.

The High Court agreed, stating:

“Since Section 357(5) CrPC allows the Court to adjust any amount paid or compensation received in criminal proceedings in any subsequent civil suit relating to the same matter, there is no bar in applying the reverse analogy.”

The Court adopted a purposive construction of Section 357(5) and held that when civil and criminal proceedings share the same cause of action, recovery in one must reflect in the other. Referring to the Punjab & Haryana High Court’s ruling in Vivek Sahni v. Kotak Mahindra Bank Ltd., it noted that:

“It is not the intention of the legislature that if some part of the cheque amount has already been recovered in separate proceedings, may be civil proceedings, the amount ordered to be deposited as compensation or fine shall still be liable to be deposited without adjustment.”

“Where Part of Compensation is Paid, Default Sentence Must Be Proportionately Reduced” — Court Applies Section 69 IPC to Cheque Dishonour Prosecution

In a critical application of Section 69 IPC, the Court held that when partial compensation has been paid, the default sentence imposed for non-payment of full amount must be proportionately reduced.

Justice Ohri explained that Section 69 IPC provides a mechanism for termination of imprisonment in default of fine where part-payment has been made. In this case, since ₹33.1 lakh represented 22% of the total compensation of ₹1.5 crore, the Court held:

“The default sentence of 6 months is reduced by a similar proportion, i.e., by around 39 days. Since the remaining sentence is less than 39 days, the appellant has already undergone the reduced default sentence.”

Accordingly, the Court directed that the appellant be released forthwith, unless required in any other case.

“Default Imprisonment for Non-Payment of Compensation is Legally Valid” — Court Reaffirms Supreme Court Ruling in Vijayan v. Sadanandan K.

Another important legal aspect addressed by the Court was the legitimacy of default sentence for non-payment of compensation under Section 357(3) CrPC. While this provision does not expressly permit such default punishment, the Court emphasized that a combined reading of Section 357(3) CrPC, Section 431 CrPC, and Section 64 IPC fills the gap.

Referring to the Supreme Court’s ruling in Vijayan v. Sadanandan K., the Court quoted:

“The provisions of Sections 357(3) and 431 CrPC, when read with Section 64 IPC, empower the Court, while making an order for payment of compensation, to also include a default sentence in case of non-payment of the same.”

Thus, the High Court reaffirmed that the power to impose default imprisonment for unpaid compensation is firmly embedded in the statutory framework and upheld by the apex court.

This judgment provides critical clarity on the interaction between civil recovery and criminal compensation in cheque dishonour matters. It establishes that double recovery for the same cause of action is impermissible, and that courts are well within their rights to adjust amounts recovered in civil suits against criminal compensation.

By extending the logic of Section 357(5) CrPC in reverse and applying Section 69 IPC to reduce punishment proportionately, the Court has ensured procedural fairness, protection against double jeopardy, and balance in penal policy.

The ruling sets a precedent for all future cases where part-payment of compensation occurs through a civil decree, and the accused faces criminal consequences for the same underlying cheque transaction.

Date of Decision: November 1, 2025