compounding and settlement between the parties, taking into consideration the aim and object of the provisions of the Act. If the matter in relation to which the cheque had been issued has been settled between the parties, such settlement be given effect to keeping in mind the object of introducing the relevant provisions of the Act; the court can note the same and record the settlement between the parties.18
OBJECT OF SECTION 138
The object of bringing section 138 on the statute is to inculcate faith
in the efficacy of banking operations and credibility in transacting business on negotiable instruments. It is to enhance the acceptability of cheque in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficient arrangements made by the drawer, with adequate safeguards to prevent harassment of honest drawers. If the cheque is dishonoured for insufficiency of funds in the drawer’s account or if it exceeds the amount arranged to be paid from that account, the drawer is to be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.
2.14 In KSL & Industries Ltd. V. Mannalal Khandelwal19, the Bombay High Court observed:
Employees’ State Insurance Corporation v. A. P. Heavy Machinery and Engg. Ltd. 2005 Cri. L. J. 1080 (A. P.). 2005 Cri. L. J. 1201 (Bombay). 18 19