Compensatory Aspect of Cheque Bounce Cases Must Be Given Priority Over Punishment: Punjab & Haryana High Court

Fine in Cheque Bounce Cases Should Be Equal to or More Than Cheque Amount, Plus Interest - In a significant ruling Punjab & Haryana High emphasized that while sentencing under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), courts must prioritize compensation to the complainant over punitive measures. The Court criticized the trial court’s failure to impose adequate compensation and observed, “The primary objective of Section 138 NI Act is not merely to punish the drawer of the dishonoured cheque, but to ensure that the payee is compensated for the financial loss suffered.”

The case arose from a complaint filed by Rajwinder Singh against Jugjit Kaur, who had issued a cheque of ₹19,00,000 dated 02.04.2015, drawn on State Bank of Patiala, Goniana Mandi. The cheque, given in lieu of a financial transaction, was dishonoured upon presentation with the remark ‘Account Closed.’ Despite a legal notice dated 15.04.2015, the petitioner failed to make the payment, leading to criminal proceedings under Section 138 of the NI Act.

The Judicial Magistrate, Bathinda, convicted the petitioner and sentenced her to two years of rigorous imprisonment (RI) with a fine of ₹10,000 but did not award any compensation. The Additional Sessions Judge, Bathinda, upheld this decision, following which the petitioner filed a revision petition before the High Court.

“Punishment Cannot Be an End in Itself; Compensation to the Complainant Is the Real Remedy”
The High Court took a firm stance against the lack of compensation awarded by the trial court. Justice N.S. Shekhawat observed, “While punishment may deter future wrongs, it does not remedy the loss suffered by the complainant. The law under Section 138 NI Act mandates that the courts should impose fines sufficient to compensate the payee.”

The Court expressed its displeasure at the trial court’s meager fine of ₹10,000, despite the cheque amount being ₹19,00,000 and the dishonour occurring ten years ago. Justice Shekhawat pointed out, “The purpose of Section 138 is not merely to punish but to ensure that commercial credibility is upheld. A sentence that does not include compensation to the payee fails to meet the object of the legislation.”

“Fine Must Be Equal to or More Than the Cheque Amount, Along With Interest”
The High Court relied on Supreme Court precedents to underline that the fine imposed in cheque bounce cases must be at least equal to the cheque amount, along with interest. The Court referred to Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663, where the Supreme Court held that “the compensatory aspect of a cheque bounce case must be given precedence over the punitive aspect.”

Citing R. Vijayan v. Baby (2012) 1 SCC 260, the High Court emphasized that courts should “uniformly impose fines equivalent to at least the cheque amount plus reasonable interest, to prevent injustice to the complainant.” The Court also quoted Suganthi Suresh Kumar v. Jagdeeshan (2002) 2 SCC 420, in which the Supreme Court had observed, “The very object of Section 138 NI Act would stand defeated if courts impose nominal fines without ensuring that the complainant is reimbursed.”

High Court’s Directions: “Courts Must Ensure That No Payee Walks Away Uncompensated”
Reprimanding the lower courts for failing to consider the compensatory aspect of the law, the Punjab & Haryana High Court remanded the case back to the trial court for reconsideration of sentencing. The Court directed that:

•    The fine imposed must be equivalent to at least the cheque amount of ₹19,00,000, with 6% interest from 2015 until the date of conviction.
•    The petitioner is to be released on bail until the fresh sentencing order is passed.
•    The trial court must ensure that its sentence upholds the compensatory nature of Section 138 NI Act.
The Court also directed the Registrar General to circulate this judgment to all judicial officers in Punjab and Haryana, emphasizing that “in cases of cheque dishonour, courts must not lose sight of the victim’s financial loss.”

The Punjab & Haryana High Court’s ruling serves as a stern reminder that Section 138 NI Act is not just about punishing offenders but about restoring financial losses suffered by complainants. The Court made it clear that a sentence under Section 138 must include compensation that is proportionate to the cheque amount. Justice Shekhawat concluded with a strong message: “When a cheque is dishonoured, the real damage is financial. Courts must, therefore, make compensation a rule, not an exception.”

Date of Decision: 10 March 2025