Section 147 of NI Act Has Overriding Effect over Section 359 BNSS: Madras High Court Permits Compounding of Offence Even After Conviction Is Upheld

“Late Compounding Cannot Be Denied If the Offence Is of Compensatory Nature”— In a pivotal ruling with considerable significance for cheque dishonour litigations under Section 138 of the Negotiable Instruments Act, 1881, the Madras High Court (Madurai Bench) ruled that even after a conviction is confirmed in appeal, the High Court is empowered to compound the offence under Section 147 of the NI Act, declaring that the said special provision prevails over Section 359 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS).

Justice Shamim Ahmed annulled the concurrent findings of guilt passed by the Trial Court and the Appellate Court, after the parties submitted a Joint Memorandum of Compromise acknowledging full payment of the cheque amount.

The Court unequivocally held: “Section 147 of the Negotiable Instruments Act, being a special law with a non obstante clause, shall prevail over the procedural provisions of Section 359 BNSS. The offence under Section 138 NI Act remains compoundable even at the revisional stage.”

The High Court thus set aside the conviction and sentence imposed on the petitioner and ordered that he be treated as acquitted.

“The Object of NI Act Is Not Retribution, But Recovery”— Court Says Criminal Law Should Not Obstruct Settlement in Commercial Disputes

The petitioner was convicted in S.T.C. No. 643 of 2016 for dishonour of a cheque worth ₹2,00,000/-, sentenced to one year of simple imprisonment and a fine. His appeal in C.A. No. 34 of 2022 was dismissed by the IV Additional District Sessions Judge, Madurai. Thereafter, he approached the High Court through a Criminal Revision Petition, during which time both parties reached an amicable settlement.

The court acknowledged the full payment of the cheque amount—₹40,000 deposited earlier, and ₹1,60,000 paid via demand draft—and admitted the Joint Memorandum of Compromise dated 18.09.2025, which recorded the respondent’s satisfaction and waiver of all further claims.

Justice Shamim Ahmed observed: “Unlike that for other forms of crime, the punishment here is not a means of seeking retribution, but is more a means to ensure payment of money. The complainant’s interest lies primarily in recovering the money rather than seeing the drawer of the cheque in jail.”

The Court drew upon the Statement of Objects and Reasons of the Negotiable Instruments Act (Amendment) 2002, which emphasized expeditious disposal and decriminalization of cheque bounce offences through compounding.

“Special Law Prevails Over General Procedure”: High Court Holds Section 147 NI Act Not Subordinate to Section 359 BNSS

The State, represented by the Government Advocate (Criminal Side), opposed the move, arguing that since the appeal had already been dismissed and conviction confirmed, allowing compounding at the revision stage would amount to a judicial override of the appellate process.

However, the Court squarely rejected the contention, declaring that: “The scheme of Section 359 BNSS does not lay down only procedure; but still, the status of the scheme remains under a general law of procedure and as per the accepted proposition of law, the special law would prevail over general law.”

Quoting the Supreme Court’s ruling in Municipal Corporation, Indore v. Ratnaprabha, the Court reiterated that:

“When a special law or statute is applicable to a particular subject, then the same would prevail over a general law with regard to the very subject, is the accepted principle in the field of interpretation of statute.”

The Court further invoked Section 442 BNSS, which provides inherent powers to the High Court to secure the ends of justice.

“There Is No Bar to Compounding After Dismissal of Appeal If Parties Have Settled the Matter in Full”

Rejecting the State’s objection that compounding should be denied post-conviction and post-appeal, the Court clarified that the stage of litigation is not a bar under Section 147 NI Act, and the court has full discretion to allow settlement even late, provided the purpose of the law—compensation—is satisfied.

In this context, the Court referred to the Supreme Court’s landmark decision in Damodar S. Prabhu v. Sayed Babalal H (2010) 2 SCC (Cri) 1328), where it was held:

“Compounding of offence under Section 138 NI Act can be allowed even before the Sessions Court or High Court in revision or appeal, subject to payment of 15% of the cheque amount as cost.”

Similarly, in Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2017), the Supreme Court affirmed that:

“The object of the provision being primarily compensatory, compounding at the initial stage has to be encouraged but is not debarred at later stage subject to appropriate compensation as may be found acceptable to the parties or the Court.”

“Justice at the Revisional Stage Is Justice Nonetheless” – Court Affirms Discretion to Quash Conviction Based on Post-Conviction Compromise

Justice Shamim Ahmed highlighted that settlement should not be thwarted merely because the case reached the revisional stage, especially when no statutory prohibition exists under the special legislation.

He stated: “The nature and character of the offence would not change automatically merely because the litigation has reached the revisional stage. It would be wrong to hold that at the revisional stage, the offence under Section 138 NI Act loses its compoundable character.”

The Court emphasized that its decision was not based on technical arguments, but rather grounded in the objective of achieving substantial justice and ensuring finality to a settled commercial dispute.

Conviction Annulled, Petitioner Acquitted, Case Closed Based on Compromise

Summing up its conclusions, the Court declared: “In view of the observations and in view of the guidelines as laid down in the case of Damodar S. Prabhu and also in view of the observations made in the judgments referred above and taking into account the fact that the parties have settled the dispute amicably by way of compromise, this Court is of the view that the compounding of the offence as required to be permitted.”

Accordingly, the impugned judgments of both the Trial Court and Appellate Court were set aside, and the Revision Petitioner was acquitted.

Date of Decision: 19 September 2025