Section 138 NI Act Offences Can Be Compounded At Any Stage Even After Dismissal Of Revision Or 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. Even a convict undergoing imprisonment... can compound the matter," Madras High Court, in a significant ruling, held that offences under Section 138 of the Negotiable Instruments Act (NI Act) can be compounded at any stage of the proceedings, including after a conviction has been upheld by the appellate court.

A single-judge bench of Justice Shamim Ahmed observed that the primary object of the NI Act is compensatory rather than punitive, and the court must prioritize the recovery of money and the settlement between parties to secure the ends of justice.

The revision petitioner, P. Ramamoorthy, was convicted by the Judicial Magistrate, Udhagamandalam, for dishonouring a cheque of Rs. 3,00,000 and was sentenced to six months of simple imprisonment along with a direction to pay compensation. This conviction was subsequently confirmed by the Sessions Judge, Udhagamandalam, in July 2023. While the criminal revision was pending before the High Court, the petitioner and the complainant entered into a compromise memo, with the complainant agreeing to accept Rs. 2,60,000 as a full and final settlement.

The primary question before the court was whether a conviction and sentence passed by a trial court and confirmed by an appellate court under Section 138 of the NI Act can be nullified by the High Court on the basis of a subsequent compromise. The court also examined the scope of Section 147 of the NI Act in comparison to the general provisions of compounding found in Section 320 of the CrPC.

Compensatory Nature of NI Act Overrides Punitive Aspect

The court emphasized that unlike traditional crimes, an offence under Section 138 of the NI Act is essentially a civil wrong dressed in criminal garb. The bench noted that the complainant's interest lies primarily in recovering the money rather than seeing the drawer of the cheque in jail. The threat of imprisonment is merely a mode to ensure recovery and encourage the credibility of negotiable instruments.

Section 147 NI Act as a Special Provision With Overriding Effect

The High Court observed that Section 147 of the NI Act begins with a non-obstante clause, meaning it prevails over any contrary provisions in the CrPC. While Section 320 of the CrPC deals with procedural aspects of compounding, Section 147 is an affirmative enactment that allows compounding irrespective of the stage of litigation. The court held that the nature of the offence does not change simply because the litigation has reached a revisional stage.

"The scheme of Section 147 of N.I. Act though starts with a non obstante clause, is an affirmative enactment and this is possible to infer from the scheme that has overriding effect on the intention of legislature reflected in section 320 Cr.P.C."

Judicial Precedents on Graded Compounding

The bench relied heavily on the Supreme Court's decision in Damodar S. Prabhu vs. Sayed Babalal H, which provided guidelines for compounding. It noted that while compounding at later stages usually attracts costs to act as a deterrent for delayed settlements, the High Court maintains the inherent power to allow compounding even without strict adherence to these costs if the circumstances, such as the petitioner being a daily wage labourer, warrant such leniency.

Distinction Between NI Act and Property Offences Under IPC

Justice Shamim Ahmed pointed out that Section 138 offences are distinctly different from the property-related offences defined in Chapter XVII of the Indian Penal Code. Because NI Act offences are deemed "economic offences" of a private nature, the court found that there is no formal embargo in Section 147 that prevents parties from settling even after the dismissal of an appeal.

"It can be legitimately argued and inferred and held that in all cases where the Revision Petitioner is able to satisfy this Court that there are special circumstances... invoking inherent power of this court can be modified and cannot be thrown away on that technical argument."

Inherent Power to Prevent Miscarriage of Justice

The court asserted that its inherent powers under Section 482 of the CrPC (or its equivalent in revision) are neither limited nor curtailed by other provisions when it comes to preventing a miscarriage of justice. Since the parties reached an amicable settlement and the complainant expressed no objection to the acquittal, the court held that relegating them back to a lower court would not serve the interests of justice.

"This Court can always take note of any miscarriage of justice and prevent the same by exercising its power. These powers are neither limited, nor curtailed by any other provision of the Code or Act."

Final Directions and Acquittal

Taking into account the compromise and the fact that the petitioner had already been in judicial custody since June 2, 2026, the High Court set aside the judgments of both the trial court and the first appellate court. The court modified the sentence and annulled the conviction, treating the petitioner as acquitted due to the compounding of the offence.

The High Court concluded that the spirit of compromise must be encouraged in cheque bounce cases to bring a quietus to the issue between parties. By prioritizing "justice at the doorstep," the court ordered the immediate release of the petitioner from jail without any further conditions, provided he was not required in any other case.

Date of Decision: 17 June 2026