Section 147 NI Act Makes Offence Compoundable At Any Stage: Karnataka High Court Sets Aside Concurrent Convictions in Cheque Bounce Case After Settlement

“Once Parties Voluntarily Settle, Court Can Permit Compounding Even After Conviction” – In a significant ruling reinforcing the liberal scope of compounding under the Negotiable Instruments Act, the Karnataka High Court permitted compounding of an offence under Section 138 of the Negotiable Instruments Act even after concurrent findings of conviction by the Trial Court and the Appellate Court.

Justice S. Vishwajith Shetty held that in view of Section 147 of the Negotiable Instruments Act, which makes offences under the Act compoundable, the High Court could allow settlement at the revisional stage and set aside the conviction. Consequently, the accused was acquitted and the prison authorities were directed to release him forthwith.

The ruling reiterates that once the complainant acknowledges receipt of the settled amount and confirms that the compromise is voluntary, the Court can give full legal effect to such settlement, even after conviction.

The petitioner-accused, Sri Santhosh Kumar M, had been convicted by the Court of the Principal Senior Civil Judge and CJM, Chikkaballapura, in C.C. No. 439/2023, by judgment dated 27.11.2024, for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881, relating to dishonour of cheque.

The conviction and sentence were subsequently affirmed by the I Additional District and Sessions Judge, Chikkaballapura, in Crl.A. No. 7/2025, by judgment dated 27.09.2025.

Aggrieved by the concurrent findings, the accused approached the High Court by filing a Criminal Revision Petition under Sections 397 and 401 of the Code of Criminal Procedure, read with Sections 438 and 442 of the Bharatiya Nagarik Suraksha Sanhita, 2023, seeking to set aside the conviction and sentence.

During the pendency of the revision petition, the parties arrived at an amicable settlement and filed a joint application under Section 147 of the Negotiable Instruments Act read with Section 359 of the BNSS, seeking permission to compound the offence.

The central legal issue before the High Court was whether, in exercise of its revisional jurisdiction, it could permit compounding of an offence under Section 138 of the Negotiable Instruments Act after the accused had been convicted by both the Trial Court and the Appellate Court.

Section 147 of the Negotiable Instruments Act declares that offences under the Act are compoundable. The provision is widely interpreted to allow compounding at any stage of the proceedings.

The Court noted that both parties, through their counsel, submitted that the dispute had been amicably settled. The complainant agreed to receive Rs.2,25,000/- as full and final settlement against the cheque amount of Rs.3,00,000/-.

The settlement application explicitly stated:

“It is submitted that the subject matter of the cheque amount is Rs.3,00,000/-(Rupees Three Lakhs only) but the parties agreed to settle the matter for Rs.2,25,000/- (Rupees Two Lakhs Twenty Five Thousand only) and accordingly the petitioner has paid Rs.2,25,000/- … by way of cash to the respondent as a full and final settlement and the respondent has acknowledged the receipt of the same before this Hon’ble Court.”

The complainant was present in person before the Court and acknowledged receipt of Rs.2,25,000/- in cash. The Court recorded that the settlement was voluntary and without undue influence or coercion.

Justice Shetty observed:

“Considering the fact that dispute between the parties has been amicably settled during the pendency of this petition, I am of the opinion that the prayer made by the parties to permit them to compound the offence for which petitioner has been convicted and sentenced by the Courts below needs to be granted…”

Thus, the High Court held that once the statutory requirement under Section 147 of the NI Act is satisfied and the settlement is genuine, it is open to the Court to give full legal effect to the compromise, even at the revisional stage.

Compounding for a Lesser Amount – Legally Sustainable

An important aspect of the case was that the original cheque amount was Rs.3,00,000/-, whereas the parties settled for Rs.2,25,000/-.

The Court did not treat this as an impediment to compounding. Once the complainant voluntarily accepted the lesser amount as full and final settlement and acknowledged receipt before the Court, the legal requirement for compounding stood satisfied.

This reaffirms that the Court’s primary concern in compounding under Section 147 is voluntariness and satisfaction of the complainant, not strict recovery of the entire cheque amount.

Effect of Compounding – Setting Aside Conviction and Acquittal

Upon allowing the application under Section 147 of the Negotiable Instruments Act, the High Court set aside the judgments of conviction and sentence passed by the Trial Court and confirmed by the Appellate Court.

The Court ordered:

“Application filed under Section 147 of the N.I.Act is allowed and the parties are permitted to compound the offence…”

“Consequently, the judgment and order of conviction and sentence passed against the petitioner by the courts below are set aside and he is acquitted of the offence punishable under Section 138 of the N.I.Act.”

Since the petitioner was in judicial custody, the Court further directed:

“The Prison Authorities are directed to forthwith release the petitioner from custody.”

This order underscores that once an offence under Section 138 is lawfully compounded, the conviction cannot survive, and the accused is entitled to acquittal.

Revisional Jurisdiction and Power to Give Effect to Settlement

The High Court exercised its powers under Sections 397 and 401 of the Code of Criminal Procedure read with the relevant provisions of the BNSS, 2023.

The decision affirms that revisional jurisdiction is wide enough to set aside concurrent findings of conviction when a lawful compounding takes place under a statutory provision like Section 147 of the NI Act.

The Court thus harmonized procedural law with the substantive right to compound, ensuring that criminal proceedings in cheque bounce matters do not continue unnecessarily once the dispute is settled.

The Karnataka High Court’s ruling reiterates that Section 147 of the Negotiable Instruments Act makes offences under Section 138 compoundable at any stage, including after conviction and during pendency of revision. Where the complainant voluntarily acknowledges receipt of the settled amount and confirms the compromise before the Court, the High Court can permit compounding, set aside concurrent convictions, acquit the accused, and direct immediate release.

The judgment strengthens the compensatory and settlement-oriented nature of cheque dishonour prosecutions and underscores that criminal law should not stand in the way once parties have genuinely resolved their financial dispute.

Date of Decision: 18/02/2026