A late-stage Section 138 compromise may be accepted with costs reduced to 1% of the cheque amount.

The petitioner was convicted under Section 138 of the Negotiable Instruments Act, 1881, for dishonour of a cheque for ₹2,00,000 and sentenced to one year’s rigorous imprisonment, with compensation of ₹2,49,800.

The appellate court affirmed the conviction and sentence.

In revision, the parties filed a compromise application, which the Principal Registrar verified as voluntary and free from coercion; the petitioner had paid the agreed settlement amount to the complainant.

The petitioner sought setting aside of the judgments below and acquittal on the basis of the settlement.

1. Whether the parties’ verified compromise and payment of the settlement amount justified setting aside the conviction and sentence for an offence under Section 138 of the NI Act.

2. Whether costs should be imposed for compounding at the revision stage, and, if so, in what amount.

Section 147 of the NI Act permits compounding of offences under the Act.

In Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, the Supreme Court prescribed graded costs to discourage delayed compounding: ordinarily, compounding in revision or appeal before the Sessions Court or High Court attracts costs of 15% of the cheque amount; however, the competent court may reduce costs in light of the specific facts and circumstances, recording reasons.

The revision was brought under Sections 438 and 442 of the Bharatiya Nagarik Suraksha Sanhita, 2023.

The Court accepted the compromise because it had been verified as voluntary, the petitioner had paid the full settled amount, and the dispute was private in nature, with both parties seeking to end the litigation.

Applying the compounding principles in Damodar S. Prabhu, the Court allowed the revision but, having regard to the stage of settlement, directed the petitioner to pay costs of 1% of the cheque amount—₹2,000—rather than the ordinarily indicated 15% for compounding at the revision stage.

The order does not set out a separate, detailed explanation for the reduction.

The petitioner was directed to deposit ₹2,000 with the State Legal Services Authority, Indore, within ten days.

His bail bonds were to stand discharged subject to compliance; if he failed to deposit the costs, the compromise-based acquittal would not enure to his benefit and he would remain liable to undergo the trial court’s sentence in accordance with law.