Section 138 NI Act | Compounding Of Offence In Appeal Does Not Mandatorily Require Payment Of Costs If Complainant Consents: Punjab & Haryana High Court

"The law laid down in the aforementioned judgment cannot be regarded as a binding precedent, as every case must be considered on its own facts. In the present case, we are inclined to hold that the direction imposing costs on the appellant, to be paid to the Legal Services Authority cannot be sustained in the eye of law" Punjab & Haryana High Court, in a ruling dated 17 September 2026, held that the imposition of costs for compounding an offence under Section 138 of the Negotiable Instruments Act, 1881, is not an immutable requirement, especially when the complainant consents to the composition and waives any further claim.

A bench of Justice Ramesh Chander Dimri observed that while guidelines exist for the imposition of costs to discourage frivolous litigation, courts retain the discretion to waive such costs based on the specific facts and the parties' settlement.

The petitioner was convicted under Section 138 of the NI Act by the trial court, receiving a sentence of two years of rigorous imprisonment and compensation of Rs. 8,00,000. During the pendency of his appeal before the Sessions Court, the petitioner sought to compound the offence and requested a waiver of the statutory costs associated with the composition. The Sessions Court rejected this application, prompting the petitioner to approach the High Court under its revisional jurisdiction.

The court was tasked with determining whether the cost-imposition guidelines for compounding Section 138 NI Act offences, as laid down by the Supreme Court in Sanjabij Tari, are rigid or whether they allow for judicial discretion. The court also examined whether the waiver of such costs is permissible when both parties have reached an amicable settlement and the complainant explicitly consents to the waiver.

The court analyzed the evolution of compounding guidelines, referencing the Supreme Court's observation in Sanjabij Tari vs. Kishore S. Borcar, which provided a sliding scale of costs based on the stage of litigation. However, the court placed greater emphasis on the subsequent clarification in Rajeev Khandelwal vs. State of Maharashtra, which underscored that such guidelines are not binding precedents that override the specific facts and equities of a case.

Discretion Over Rigid Guidelines

Justice Dimri observed that the primary objective of Section 138 proceedings is the recovery of the cheque amount and the resolution of the dispute between the parties. When the underlying objective is satisfied and the complainant expresses no grievance regarding the waiver of costs, the imposition of additional penalties becomes redundant and contrary to the spirit of amicable settlement.

"The law laid down in the aforementioned judgment cannot be regarded as a binding precedent, as every case must be considered on its own facts."

The court noted that the petitioner had clearly expressed his financial inability to comply with the cost requirements, a factor that, when combined with the complainant's "no objection" statement, renders the recovery of legal costs unnecessary. The bench emphasized that procedural guidelines should not be utilized as tools to impede the resolution of disputes that have already been settled between the parties.

"The direction imposing costs on the appellant, to be paid to the Legal Services Authority cannot be sustained in the eye of law, particularly when the complainant does not want any further amount."

Upon noting that the complainant’s counsel explicitly stated at the Bar that there was no objection to the composition or the waiver of costs, the High Court set aside the order of the Sessions Court. Consequently, the conviction and sentence passed against the petitioner were quashed, and the petitioner was acquitted of the accusation, effectively concluding the litigation between the parties.

Date of Decision: 17 September 2026