Delhi High Court refuses to revive a cheque dishonour case after the bank’s counsel represented that dues were fully paid, reaffirming the importance of counsel statements and Lok Adalat settlements.
The Delhi High Court has declined to revive a cheque dishonour complaint after the complainant bank’s counsel had twice represented before judicial forums that the dispute had been settled and that the cheque amount had been received in full. The Court held that the bank could not subsequently adopt a completely different position and seek restoration of the criminal proceedings after a substantial delay.
The judgment highlights the importance of statements made by advocates before courts and Lok Adalats and underscores the need for litigants to ensure that their counsel has clear and accurate instructions before making settlement-related submissions.
Background of the Case:
The matter arose from a loan transaction involving Equitas Small Finance Bank Ltd. and the respondents, who had obtained a loan of approximately ₹14.50 lakh in March 2021. As security for the loan, the borrowers had mortgaged immovable property and had also issued a post-dated cheque in favour of the bank.
The loan account was subsequently classified as a Non-Performing Asset (NPA) on August 3, 2023. The bank thereafter initiated recovery measures and issued a notice under Section 13(2) of the SARFAESI Act, demanding payment of the outstanding dues.
The bank subsequently presented the post-dated cheque on January 8, 2024. However, the cheque was dishonoured on January 18, 2024, with the bank receiving the return remark “Refer to Drawer.”
After the borrowers failed to make payment despite the statutory demand notice, the bank instituted criminal proceedings under Sections 138 and 142 of the Negotiable Instruments Act, 1881, relating to cheque dishonour.
Counsel Represented That the Dues Had Been Paid:
The subsequent proceedings before the Magistrate became crucial to the case.
On August 8, 2024, during the pendency of the cheque dishonour complaint, the bank’s counsel informed the Judicial Magistrate that the dispute had been settled. Counsel further represented that the bank had received the full and final payment towards the cheque amount.
Based on this representation, the matter was referred to the National Lok Adalat.
The same position was subsequently reiterated before the Lok Adalat on September 14, 2024. The bank’s counsel represented that the settlement amount had been received to the bank’s satisfaction and requested that the criminal proceedings be compounded.
Consequently, the complaint was disposed of as compounded under Section 147 of the Negotiable Instruments Act, and the respondents were acquitted.
Bank Later Sought Revival of the Complaint:
The bank subsequently changed its position.
Around 13 months after the Lok Adalat proceedings, the bank sought restoration of the cheque dishonour complaint. It claimed that its earlier counsel had misunderstood the instructions and had mistakenly represented before the Magistrate and Lok Adalat that the dues had been fully paid.
According to the bank, there had actually been no settlement, no discharge of liability and no payment towards satisfaction of the cheque amount.
The bank therefore sought recall of the Lok Adalat award and revival of the original complaint.
The Judicial Magistrate rejected the application, observing that the criminal court did not possess jurisdiction to review or alter the earlier order in the manner sought by the bank.
The bank then approached the Delhi High Court.
Delhi High Court Examines the Counsel’s Statements:
Before the High Court, the bank argued that the statement made by its former counsel should not bind it because the counsel had allegedly acted without proper instructions or authority.
The bank also maintained that its counsel had misunderstood the communication regarding the borrowers’ willingness to resolve the dispute and had consequently made an incorrect statement about payment and settlement.
Justice Saurabh Banerjee, however, was not persuaded by the bank’s subsequent explanation.
The Court noted that the representation regarding settlement and receipt of payment was not an isolated statement. It had been made on two separate occasions and before two different forums—first before the Judicial Magistrate and subsequently before the National Lok Adalat.
The Court also took note of the considerable delay in challenging the earlier proceedings.
Court Refuses to Permit a Change of Stand:
The High Court held that the bank could not subsequently introduce a new version to overcome the voluntary and uncontroverted statements made by its counsel before the judicial forums.
The Court observed that the bank had waited for a considerable period before seeking to undo the consequences of the statements made on its behalf.
According to the Court, permitting such a course in the circumstances would undermine the sanctity of statements made by counsel during judicial proceedings and could adversely affect the confidence placed in advocates by courts and litigants.
The High Court therefore refused to interfere with the Lok Adalat proceedings.
Decision of the Delhi High Court:
The Delhi High Court dismissed the bank’s writ petition in limine and declined to recall the Lok Adalat award or restore the cheque dishonour complaint.
As a result, the earlier settlement and compounding of the proceedings under Section 147 of the Negotiable Instruments Act continued to remain effective.
The case was Equitas Small Finance Bank Ltd. v. Mrs. Nirmala Bai Shanthilal & Ors., W.P.(CRL) No. 2380 of 2026, decided by Justice Saurabh Banerjee of the Delhi High Court. The reported decision is dated September 24, 2026.
Key Legal Takeaway
The judgment serves as an important reminder for banks, financial institutions and other litigants involved in cheque dishonour and recovery proceedings.
Statements made by an advocate before a court or Lok Adalat can have significant legal consequences, particularly where the advocate represents that the dispute has been settled and payment has been received.
A litigant cannot ordinarily wait for a prolonged period and then seek to reverse the consequences of repeated representations merely by claiming that counsel misunderstood instructions.
The decision also demonstrates the importance of maintaining clear communication between financial institutions and their legal representatives, particularly in settlement negotiations and Lok Adalat proceedings.
For banks and creditors pursuing Section 138 of the Negotiable Instruments Act proceedings, the ruling reinforces the need to verify settlement instructions, payment status and authority before making any statement that may result in compounding or disposal of the complaint.
Case Details:
Case: Equitas Small Finance Bank Ltd. v. Mrs. Nirmala Bai Shanthilal & Ors.
Court: Delhi High Court
Case No.: W.P.(CRL) No. 2380 of 2026
Judge: Justice Saurabh Banerjee
Subject: Cheque Dishonour / Section 138, Negotiable Instruments Act
Key Issue: Whether a cheque dishonour complaint could be revived after the bank’s counsel had represented before the Magistrate and Lok Adalat that the dues had been fully settled.
Decision: Writ petition dismissed; Lok Adalat award and compounding of the complaint left undisturbed.