Compounding of Section 138 NI Act Offence in Revision Allowed Subject to Reduced Cost

The applicant, Karan Singh, was convicted by the Judicial Magistrate First Class, Gwalior, under Section 138 of the Negotiable Instruments Act, 1881, and sentenced to imprisonment till the rising of the Court with a compensation of Rs. 8,40,000/-.

This conviction was affirmed by the Fourth Additional Sessions Judge, Gwalior, on 16.12.2025 in Criminal Appeal No. 395/2025.

During the pendency of the present revision before the High Court, the parties entered into an amicable settlement and filed I.A. No. 7968/2026 for compounding the offence.

The factum of the compromise was verified via video conferencing by the Principal Registrar on 18.04.2026.

1. Whether an offence under Section 138 of the Negotiable Instruments Act can be compounded at the revision stage and what conditions/costs should be imposed for such delayed compounding.

2. Whether the applicant is entitled to acquittal and immediate release following the compromise.

The Court applied Section 147 of the Negotiable Instruments Act, 1881, which prescribes that every offence punishable under the Act shall be compoundable.

The Court relied on the guidelines established by the Supreme Court in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663, which mandates a graded scheme of costs for compounding: 10% of the cheque amount at the Magistrate stage, 15% at the Sessions/High Court stage, and 20% before the Supreme Court.

The court retains the discretion to reduce costs based on specific facts and circumstances while recording reasons under Para 25 of the Damodar S. Prabhu judgment.

The Court observed that while the parties reached a voluntary settlement, the compounding occurred at the revision stage, thereby attracting the graded cost scheme to discourage litigation delays.

Since Section 147 of the Act lacks specific procedural guidance, the Court followed the Damodar S. Prabhu framework but exercised its discretionary power to vary the costs.

Given the facts and circumstances—specifically that the applicant was in judicial custody—the Court reduced the compounding cost from the standard 15% (for revision stage) to 5% of the cheque amount to be deposited with the High Court Legal Services Committee.

The Court verified that the compromise was free from coercion, justifying the setting aside of the concurrent findings of the lower courts.

The applicant was acquitted of the offence under Section 138 of the NI Act, subject to the payment of 5% of the cheque amount as costs within 15 days.

The Court ordered the immediate release of the applicant from custody.

The respondent’s application for refund of court fees (I.A. No. 7970/2026) was rejected.