Offence Under Section 138 NI Act Can Be Compounded Even After Conviction: Himachal Pradesh High Court Acquits Accused Following Settlement

“Section 147 NI Act Overrides Section 320(9) CrPC – Post-Conviction Compounding is Legally Permissible”, - In a significant judgment Himachal Pradesh High Court quashed the conviction and sentence of the petitioner under Section 138 of the Negotiable Instruments Act, 1881, after noting that the complainant had accepted full payment of the cheque amount and did not wish to prosecute the matter further.

Justice Sushil Kukreja observed that in light of Section 147 of the NI Act, which permits compounding of offences “notwithstanding anything contained in the Code of Criminal Procedure,” courts are empowered to permit compounding even at the revisional or appellate stage, including post-conviction.

The Court held that the conviction of the petitioner could be set aside upon compromise, emphasizing that “there is no legal impediment to compounding the offence under Section 138 once parties have amicably settled the matter, even after conviction.”

The petitioner Nirjal Attri had borrowed a sum of ₹3,90,000 from the complainant Rajay Shakti in May 2024 and issued a cheque bearing No. 000011 dated 19.08.2014 drawn on Bank of Baroda, Ghumarwin Branch, Bilaspur District, in discharge of his liability. The cheque was dishonoured on presentation with the remark “insufficient funds.” Upon failure of the petitioner to comply with the demand notice dated 08.10.2014, the complainant filed a complaint under Section 138 of the NI Act before the Chief Judicial Magistrate, Hamirpur.

The Trial Court, by its judgment dated 01.06.2018, convicted the petitioner and sentenced him to six months’ rigorous imprisonment and directed him to pay compensation of ₹3,90,000. The appellate court, vide judgment dated 20.04.2021, upheld the conviction but modified the sentence to six months’ simple imprisonment. Aggrieved, the petitioner filed a criminal revision under Sections 397 and 401 CrPC before the High Court.

During the pendency of the revision, the parties settled the matter. The petitioner deposited ₹1,32,500 before the Trial Court and the remaining ₹2,57,500 in the Registry of the High Court, thereby covering the full cheque amount. Consequently, an application was filed under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, seeking permission to compound the offence.

Legal Issues and Judicial Determination

The primary question before the Court was whether an offence under Section 138 of the NI Act can be compounded after conviction and during revision, and whether such compounding would justify setting aside the conviction.

Justice Sushil Kukreja referred to Section 147 of the Negotiable Instruments Act, which states: “Notwithstanding anything contained in the Code of Criminal Procedure, every offence punishable under this Act shall be compoundable.”

Relying on the Supreme Court’s authoritative pronouncement in Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, the Court observed that Section 147, being a special provision, overrides Section 320(9) of the CrPC, which otherwise bars compounding of offences not specified under the IPC.

Justice Kukreja quoted the apex court’s holding in Damodar Prabhu: “Since Section 147 was inserted by way of an amendment to a special law, the same will override the effect of Section 320(9) of the CrPC…”

The Court also cited K. Subramanian v. R. Rajathi, (2010) 15 SCC 352, where the Supreme Court allowed compounding of a Section 138 NI Act offence even after the accused had undergone part of the sentence, upon proof that full cheque amount had been paid and compromise duly executed.

On the basis of these principles, the Court held that the parties’ settlement, recorded during the proceedings, legally warranted the setting aside of the conviction. The complainant Rajay Shakti had categorically stated before the Court that the entire cheque amount had been received and he had no objection to the matter being compounded.

Accepting the compromise, the Court ordered: “The impugned judgment of conviction dated 01.06.2018 and the order of sentence dated 07.08.2018 passed by the learned Chief Judicial Magistrate, Hamirpur, which was affirmed/modified by the learned Sessions Judge, Hamirpur, on 20.04.2021, are quashed and set aside and the petitioner-accused is acquitted of the charge framed under Section 138 of the Act.”

The Court also directed the Registry and the Trial Court to release the deposited amounts of ₹2,57,500 and ₹1,32,500 respectively in favour of the complainant after proper verification.

While Section 147 of the NI Act permits compounding, the Supreme Court in Damodar S. Prabhu had laid down guidelines for imposing graded compounding costs, to be deposited with the Legal Services Authorities, depending on the stage of litigation. Ordinarily, an application made at the revisional stage would attract a 15% fee of the cheque amount.

However, the petitioner’s counsel submitted that the petitioner was a person of limited means. The Court invoked its discretion under the guidelines, noting that “the competent court can reduce the costs with regard to the specific facts and circumstances of a case.”

Accordingly, the Court directed: “The petitioner is directed to deposit a token compounding fee of ₹10,000/- only with the H.P. State Legal Services Authority, Shimla, within four weeks from today.”

The Himachal Pradesh High Court reaffirmed the legal position that compounding of offences under Section 138 NI Act is permissible at any stage, even after conviction, provided the complainant consents and full payment is made. The Court emphasized that Section 147 of the NI Act overrides CrPC limitations and highlighted the importance of promoting settlements in cheque dishonour cases to reduce pendency and foster reconciliation.

This judgment serves as a reiteration of the principle that special legislation enabling compounding must be construed liberally to fulfil the object of restitution and avoid prolonged incarceration for monetary disputes that have been amicably resolved.

Date of Decision: 23 May 2025