A voluntary compromise may set aside a Section 138 conviction at revision, subject to costs.

The applicant challenged the appellate judgment dated 28 February 2023, which had partly allowed his appeal and upheld his conviction under Section 138 of the Negotiable Instruments Act, 1881, sentencing him to six months’ rigorous imprisonment and a fine of ₹2,89,200.

During the revision, the parties amicably settled the dispute; the respondent received the entire amount, and an application for compounding under Section 147 of the Act was filed.

Whether the parties’ settlement and the respondent’s receipt of the amount justified compounding the offence and setting aside the conviction under Section 138 of the Negotiable Instruments Act.

Whether costs should be imposed, and in what amount, given that the compromise was reached at the revision stage.

Section 138 of the Negotiable Instruments Act creates the offence of dishonour of a cheque, while Section 147 makes offences under the Act compoundable.

In Gian Chand Garg v. Harpal Singh & Anr., 2025 LiveLaw (SC) 865, the Court relied on the principle that where the complainant accepts the amount in full and final settlement, the Section 138 proceedings cannot be sustained.

Under Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, delayed compounding may be permitted subject to graded costs; the competent court may vary the suggested scale in light of the case’s circumstances, recording reasons.

The High Court found that the dispute was private, the parties had voluntarily settled it, the respondent had received the entire amount, and both sides wished to end the litigation.

Applying Gian Chand Garg, it accepted the compromise and set aside the judgments below. Because settlement occurred at the revision stage, the Court also applied the cost principles in Damodar S. Prabhu, directing payment of ₹2,000, stated to be 1% of the cheque amount.

He was directed to deposit ₹2,000 with the Secretary, High Court Legal Services Authority, Indore, within ten days; his bail bonds would stand discharged subject to compliance.

If he failed to deposit the amount within that period, the acquittal would not enure to his benefit and he would be liable to undergo the sentence awarded by the Trial Court.

The respondent was granted liberty to withdraw the fine amount deposited by the applicant.