Section 138 NI Act Offence Can Be Compounded At Revision Stage Under Section 147 Read With Section 320 CrPC: Punjab & Haryana High Court

"Once a settlement is being effected, then in terms of Section 147 of the Negotiable Instruments Act and Section 320 Cr.P.C., the accused ought to be acquitted as the offence stands compounded." Punjab and Haryana High Court, in a significant ruling, held that an offence under Section 138 of the Negotiable Instruments Act, 1881, can be compounded at the revisional stage following a mutual settlement between the parties.

A single bench of Justice Jasjit Singh Bedi emphasized the necessary statutory interplay between Section 147 of the NI Act and Section 320 of the Code of Criminal Procedure, observing that "once a settlement is being effected... the accused ought to be acquitted as the offence stands compounded."

The accused-petitioner had borrowed a total of Rs. 23,00,000 from the complainant and issued two cheques to discharge the liability, which were subsequently dishonoured for insufficient funds. A trial ensued, resulting in the petitioner's conviction under Section 138 of the NI Act and a sentence of one year imprisonment along with Rs. 22,00,000 in compensation. An appeal before the Additional Sessions Judge abated, leading the petitioner's legal representative to file the present revision petition where the parties eventually reached a compromise for a full and final payment of Rs. 12,00,000.

The primary question before the court was whether an offence under Section 138 of the Negotiable Instruments Act can be compounded at the revisional stage after a mutual settlement is reached. The court was also called upon to determine the legal effect of such compounding under Section 147 of the NI Act read with Section 320 of the Criminal Procedure Code.

Statutory Framework For Compounding

While analyzing the statutory provisions, the court noted the special mechanism created for compounding cheque dishonour cases. The bench observed that the Negotiable Instruments Act provides a specific avenue for settlement, making offences compoundable notwithstanding the strictures of the general criminal procedure. The court highlighted that a mutual compromise between the warring parties effectively neutralizes the penal consequences of the dishonoured cheque.

Interplay Between General And Special Laws

Relying on the precedent set in Ramesh Chander Vs. State of Haryana, the court elucidated how Section 147 of the NI Act operates in tandem with Section 320 of the CrPC. The judgment clarified that while Section 147 of the NI Act declares the offence to be compoundable, the procedural mechanics and the ultimate effect of such compounding are drawn from the CrPC. This harmonious reading ensures that the appellate or revisional courts retain the power to recognize settlements.

"The compounding of the offence under Section 138 can be done during the trial of the case as well as by the High Court or Court of Session while acting in the exercise of its power of revision under Section 401 Criminal Procedure Code."

Revisional Powers To Compound Offences

The bench further clarified that the power to compound is not restricted solely to the trial magistrate. It extends to higher courts exercising their revisional jurisdiction. By referring to Section 320(6) of the CrPC, the court affirmed that the High Court is well within its statutory right to permit the composition of the offence when the parties have resolved their dispute amicably. This approach effectively promotes restorative justice in financial disputes.

Legal Effect Of Composition

Addressing the legal consequences of compounding the offence, the court emphasized the strict mandate of Section 320(8) of the CrPC. The judge reiterated that once an offence is lawfully compounded, it effectively washes away the conviction. The settlement does not merely mitigate the sentence but completely absolves the accused of the criminal charge, resulting in an acquittal.

"Further, under Section 320(8) Criminal Procedure Code the composition of an offence shall have the effect of acquittal of the accused with whom the offence has been compounded."

Acquittal Mandated Upon Settlement

Drawing strength from the coordinate bench ruling in Vatsa Electronics Vs. Pala Ram, Justice Bedi underscored that acquittal is the necessary statutory consequence of a valid settlement. Since the parties voluntarily settled the dispute and handed over the agreed cheque amount, the court found no justification to keep the criminal proceedings alive. The bench concluded that it was a fit case for allowing the parties to compound the offence.

The High Court allowed the revision petition and set aside the judgments of conviction and sentences passed by the lower courts, subject to the deposit of Rs. 25,000 as costs with the High Court Bar Association. Consequently, the petitioner was formally acquitted of the charge under Section 138 of the Negotiable Instruments Act.

Date of Decision: 17 July 2026