Compensatory Nature of Section 138 NI Act Permits Compounding Even at Revisional Stage: Madras High Court

Madras High Court set aside the conviction and sentence of Natarajan under Section 138 of the Negotiable Instruments Act, 1881, after he reached a settlement with the complainant, Mani @ Sundharamoorthy. Justice Shamim Ahmed, presiding over the case, emphasized that Section 147 of the NI Act, being a special provision, overrides procedural limitations under the Code of Criminal Procedure, 1973, and allows offences to be compounded at any stage of proceedings.

The case arose from a dishonoured cheque of ₹20,00,000/- issued by the petitioner, Natarajan, to the respondent, Mani @ Sundharamoorthy. The cheque was returned unpaid with the memo "Drawer's Signature Differs." Despite legal notice, the petitioner failed to pay the amount, leading to a complaint under Section 138 NI Act.

The Judicial Magistrate, Fast Track Court, Kallakurichi, convicted Natarajan, sentencing him to one year of simple imprisonment and ordering compensation of ₹20,00,000/-. This judgment was upheld by the III Additional Sessions Judge, Villupuram. Natarajan subsequently filed a criminal revision before the High Court.

During the pendency of the revision, the parties amicably resolved their dispute, with the petitioner agreeing to pay ₹19,00,000/- as full and final settlement. A Joint Memorandum of Compromise was submitted to the Court.

Justice Shamim Ahmed acknowledged the compensatory nature of Section 138 NI Act, which primarily aims to ensure payment to the complainant rather than impose punitive sanctions. The Court cited precedents, including Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, to emphasize that compounding of offences is permissible even at the revisional stage.

The judgment reiterated that Section 147 of the NI Act, with its overriding effect, allows the Court to approve settlements irrespective of procedural constraints under Section 320 of the CrPC.

The Court annulled the conviction and sentence passed by the lower courts, acquitting Natarajan based on the settlement. The decision highlighted the importance of securing justice and ensuring that the primary purpose of the NI Act—compensation—is fulfilled.

This judgment underscores the judiciary's commitment to resolving cheque dishonour cases through settlements, reflecting the NI Act's emphasis on compensatory justice over punitive measures.

Date of Decision: January 3, 2025