A Section 138 conviction may be set aside and accused acquitted upon full voluntary settlement.

The petitioner purchased paddy worth ₹4,64,515 from Respondent No. 2 and issued two post-dated cheques for ₹2,64,500 and ₹2,00,000 towards payment.

Both cheques were dishonoured for insufficiency of funds.

After issuance of a legal notice, Respondent No. 2 instituted Complaint Case No. 1834 of 2019 under Sections 420 IPC and 138 of the Negotiable Instruments Act, 1881 (“NI Act”).

The trial court convicted the petitioner under Section 138 of the NI Act and sentenced him to six months’ rigorous imprisonment and payment of ₹5,00,000 as compensation.

The appellate court affirmed the conviction but reduced the sentence to six months’ simple imprisonment.

During the pendency of the revision, the dispute was referred to mediation.

The parties entered into a Memorandum of Agreement dated 17 April 2026, under which the petitioner agreed to pay ₹6,50,000 to Respondent No. 2.

The petitioner subsequently paid the entire settled amount through UPI, PhonePe and cheque transactions.

Whether the High Court could exercise its inherent jurisdiction to give effect to the parties’ settlement and compound the offence under Section 138 of the NI Act at the revision stage, notwithstanding the concurrent findings of conviction by the subordinate courts?

Whether, upon full payment of the settlement amount and voluntary resolution of the dispute, the petitioner was entitled to have the conviction and sentence set aside and to be treated as acquitted on account of compounding?

Section 147 of the NI Act makes offences under the Act compoundable notwithstanding the provisions of the Code of Criminal Procedure, 1973, and permits compounding at any stage where the parties have voluntarily settled the dispute.

The High Court’s inherent jurisdiction may be exercised to give effect to an order under the CrPC, prevent abuse of the process of court, or otherwise secure the ends of justice, as stated in S.W. Palanitkar v. State of Bihar, (2002) 1 SCC 241.

Relying on Gian Chand Garg v. Harpal Singh, 2025 SCC OnLine SC 2317, including the principles drawn from Gimpex (P) Ltd. v. Manoj Goel and B.V. Seshaiah v. State of Telangana, the Court held that a voluntary settlement in a cheque-dishonour prosecution may be honoured and that courts should not override such compounding.

The Court also relied on P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., (2021) 6 SCC 258, which characterises Section 138 proceedings as essentially civil in nature, despite their criminal form, since they primarily protect the complainant’s financial interest.

The Court acknowledged that both subordinate courts had concurrently found the petitioner guilty and that the scope of interference in revision was therefore limited.

However, the parties had voluntarily entered into a written mediation settlement, and the petitioner had paid the entire agreed amount of ₹6,50,000 to Respondent No. 2.

Since the offence under Section 138 of the NI Act is compoundable and the dispute had been fully resolved, continuing the criminal proceedings would serve no useful purpose.

Exercising its inherent jurisdiction to secure the ends of justice, the Court gave effect to the settlement and accepted the compounding of the offence.

The judgments and orders of conviction and sentence passed by the trial and appellate courts were set aside.

The revision petition was disposed of in terms of the Memorandum of Agreement dated 17 April 2026, and the petitioner was directed to be treated as acquitted on account of compounding of the offence.