Section 138 NI Act Offence Can Be Compounded Even After Conviction; High Court Has Discretion To Waive Costs In Exceptional Cases: Punjab & Haryana HC

"Offence under Section 138 of Negotiable Instruments Act, 1881 can be compounded at all stages of litigation, including when the matter has reached the High Court after having been conclusively dealt with by the Magisterial as also the Sessions Court," Punjab and Haryana High Court, in a significant ruling, has reaffirmed that offences under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) can be compounded at any stage of the proceedings, even after the conviction has been upheld or the appeal dismissed.

A bench of Justice Sumeet Goel observed that the "compensatory aspect" of the remedy must take priority over the "punitive aspect" in cheque bounce cases, allowing for the acquittal of a petitioner who had reached a settlement with the complainant nearly seven years after his conviction.

The petitioners were convicted by the Judicial Magistrate First Class (JMIC), Faridabad, in November 2017 for a cheque bounce case, receiving a sentence of two years' rigorous imprisonment and a compensation order of over Rs. 20 lakh. Their subsequent appeal was dismissed by the Sessions Court for want of prosecution in December 2017. During the pendency of the criminal revision before the High Court, the parties entered into an amicable settlement, with the complainant acknowledging full payment of the compensation amount in December 2024.

The primary question before the court was whether an offence under Section 138 of the NI Act could be compounded at the revision stage after the dismissal of an appeal against conviction. The court also examined whether it could exercise its inherent powers under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) to waive the graded costs usually imposed for delayed compounding as per Supreme Court guidelines.

Compounding Permissible At All Stages Including Revision

The Court examined the interplay between Section 147 of the NI Act and the procedural provisions of the BNSS (formerly CrPC). Justice Goel noted that the statutory framework, when read with recent Supreme Court precedents, leads to the "unequivocal conclusion" that compounding is permissible even after a matter has been conclusively dealt with by lower courts.

The bench emphasized that such an offence can be compromised even after the petitioner-accused has been convicted and his appeal has been dismissed. The court highlighted that Section 138 is essentially a regulatory offence enacted in the public interest to ensure the reliability of negotiable instruments, but its impact remains largely confined to private parties.

"The offence(s) ought to be permitted to be compounded and the petitioner deserves to be acquitted."

Compensatory Aspect Overrides Punitive Aspect

Relying on the Supreme Court’s decision in M/s New Win Export & Anr. vs. A. Subramaniam, the court observed that judicial systems must prioritize the settlement of these disputes. Since a large number of such cases are pending, courts should encourage compounding if parties are willing.

The judgment noted that the primary object of the NI Act is to provide a compensatory remedy. When the complainant has been satisfied and has received the full amount, the punitive element of the law should not be used to unnecessarily prolong the criminal liability of the accused.

Court’s Discretion To Waive Or Reduce Graded Costs

The Court discussed the landmark Damodar S. Prabhu case, which established a graded cost structure for compounding (15% at the High Court stage). It also took note of the recent "tweaking" of these guidelines in Sanjabij Tari vs. Kishore S. Borcar (2025), where the Supreme Court reduced the cost to 7.5% for compounding at the revision or appeal stage.

"Discretion to waive the imposition of costs is not to be invoked as a matter of ordinary course."

However, the Court clarified that it retains the discretion to waive these costs in exceptional and compelling circumstances. While this discretion must be exercised based on reasoned findings, the bench found that the petitioner in this case had been facing the "wrath of criminal litigation" since the year 2011. Given the long duration of the legal battle and the eventual full settlement, the Court chose not to saddle the petitioner with additional costs.

High Court’s Inherent Powers Under Section 528 BNSS

The Court provided an expansive interpretation of its inherent powers under Section 528 of the BNSS (the successor to Section 482 of the CrPC). Justice Goel described these powers as the "life-blood" and "immanent attribute" of the High Court, necessary to prevent the abuse of the process of law.

The bench held that these powers are wide and plenary, intended to secure the ends of justice. It observed that when a dispute is personal in nature and a genuine compromise is reached, the High Court must intervene to quash the conviction to prevent the legal process from becoming a tool of oppression or injustice.

"Without such power(s), a High Court would retain form but lack substance."

The High Court allowed the criminal revision, setting aside the judgment of conviction passed by the JMIC and the order of the Sessions Judge. The petitioner was ordered to be acquitted of all charges following the successful compounding of the offence. No order as to costs was passed in view of the long-standing nature of the litigation.

Date of Decision: 21 April 2026