S.147 NI Act Is A Special Law, Overrides S.320 CrPC; Offence Can Be Compounded At Any Stage Even After Dismissal Of Appeal: Madras High Court

"In reference to offence under section 138 of N.I. Act read with section 147 of the said Act, the parties are at liberty to compound the matter at any stage even after the dismissal of the revision/appeal." Madras High Court, in a significant judgment, has reaffirmed that Section 147 of the Negotiable Instruments Act (NI Act) is a special provision that overrides the general provisions of the Code of Criminal Procedure regarding the compounding of offences.

A single bench of Justice Shamim Ahmed observed that since the primary object of the NI Act is compensatory and not punitive, the court can exercise its inherent powers to record a compromise even after a conviction has been upheld by the appellate court.

The court noted that the non-obstante clause in Section 147 of the NI Act ensures that its provisions prevail over anything contrary in the CrPC, allowing parties to bring a quietus to their disputes at any stage of the litigation.

The petitioner, Kandasamy, was convicted under Section 138 of the NI Act for the dishonour of a cheque worth Rs. 10 Lakhs issued to the respondent, Murugesan. He was sentenced to six months of simple imprisonment and ordered to pay a compensation of Rs. 11 Lakhs, a decision which was subsequently confirmed by the Principal District and Sessions Judge, Ariyalur. While the petitioner was serving his sentence in Central Prison, Trichy, the parties entered into a joint compromise memo after the entire amount was settled.

The primary question before the court was whether the High Court, while exercising its revisional jurisdiction, could nullify a conviction confirmed by the appellate court based on a subsequent compromise between the parties. The court also examined the statutory interplay between Section 147 of the NI Act and Section 320 of the CrPC.

Section 147 NI Act Overrides General Provisions Of CrPC

The Court emphasized that Section 147 of the NI Act begins with a non-obstante clause, which is used to communicate that the provision shall prevail despite anything to the contrary in other legal provisions. It was observed that a dispute under Section 138 of the NI Act can be settled by way of compromise irrespective of the scheme laid down under Section 320 (1), (2), or (6) of the CrPC.

The bench noted that while Section 320 CrPC deals mainly with procedural aspects, the status of that scheme remains under the general law of procedure. As per the accepted propositions of statutory interpretation, a special law like the NI Act would necessarily prevail over a general law like the CrPC in matters concerning its specific subject.

"The special law would prevail over general law. The parties, in reference to offence under Section 138 N.I. Act read with Section 147 of the said Act, are at liberty to compound the matter at any stage even after the dismissal of the proceedings."

Object Of NI Act Is Primarily Compensatory, Not Punitive

Referring to the Supreme Court’s landmark decisions in Damodar S. Prabhu vs. Sayed Babalal H and M/s Meters and Instruments Private Limited vs. Kanchan Mehta, the High Court highlighted that an offence under Section 138 is primarily a civil wrong. The court observed that the threat of imprisonment is intended only as a mode to ensure the recovery of the cheque amount.

The bench further reasoned that the complainant's interest lies primarily in recovering the money rather than seeing the drawer in jail. It was held that when a complainant acknowledges that they have been duly compensated, the court should exercise its discretion to close the proceedings and discharge the accused to serve the ends of justice.

Compounding Permissible At Revisional Stage To Secure Ends Of Justice

Justice Shamim Ahmed rejected the contention that there cannot be a compromise once the litigation reaches the revisional level. The Court held that even a convict undergoing imprisonment remains eligible to compound the matter. It was observed that the High Court has the power to intervene to do substantial justice and avoid a miscarriage of justice, especially when the spirit of compromise has been established between the parties.

The court noted that relegated the parties to approach the Supreme Court after an out-of-court settlement would be contrary to the progressive principle of providing "justice at the doorstep." This pragmatic approach, the court held, constitutes a "special circumstance" allowing for compounding under Section 147 of the NI Act.

"The phrase 'justice at the doorstep' has taken the court to think and reach to a conclusion that it can be considered and looked into as one of such special circumstances for the purpose of compounding the offence under section 147 of the N.I. Act."

Distinction Between NI Act Offences And IPC Property Offences

The court clarified that this principle of liberal compounding applies specifically to the NI Act because Section 138 is distinctly different from normal offences under Chapter XVII of the Indian Penal Code. It noted that unlike property crimes under the IPC, there is no formal embargo in Section 147 of the NI Act that would prevent compounding at an advanced stage of litigation or after the dismissal of an appeal.

Finally, taking into account that the parties had settled the dispute amicably, the Court allowed the compounding of the offence. The impugned conviction and sentence passed by the trial court and confirmed by the appellate court were modified and annulled. The petitioner was ordered to be released from jail forthwith.

The High Court allowed the Criminal Revision Case in terms of the Joint Compromise Memo. It held that the conviction and sentence imposed on the petitioner stand annulled, and he shall be treated as acquitted. The court directed the prison authorities to release the petitioner immediately without imposing any further conditions.

Date of Decision: 06 July 2026