Conviction and proceedings under Section 138 NI Act may be quashed upon settlement between parties.

In brief

The question

Whether the conviction and sentence under Section 138 of the Negotiable Instruments Act, 1881, could be set aside on the basis of a subsequent settlement and compounding between the parties?

The court held

The criminal revision was allowed on the basis of the settlement between the parties.

It also directed

The conviction and sentence dated 12 March 2026 passed by the Judicial Magistrate, Kotdwar, in Criminal Case No. 1606 of 2022, the appellate judgment dated 22 August 2026 passed in Criminal Appeal No. 27 of 2026, and the entire consequential proceedings were quashed qua the revisionist.

The compounding application was disposed of.

As the revisionist was in judicial custody, the Court directed that he be released forthwith, unless required in any other case.

01Facts

The revisionist was convicted under Section 138 of the Negotiable Instruments Act, 1881, by the Judicial Magistrate, Kotdwar, in Criminal Case No. 1606 of 2022. The Magistrate sentenced the revisionist to one year’s simple imprisonment and imposed a fine of ₹7,29,105, with a further three months’ simple imprisonment in default of payment.

¶ 4

The revisionist’s criminal appeal, Criminal Appeal No. 27 of 2026, was dismissed by the 1st Additional Sessions Judge, Kotdwar, on 22 August 2026.

¶ 4

During the pendency of the criminal revision, the revisionist and complainant/respondent no. 2 jointly filed a compounding application supported by affidavits. The revisionist was in judicial custody.

¶ 5

Respondent no. 2 appeared before the High Court, confirmed the settlement, stated that she had received the entire cheque amount, and expressed that she did not wish to pursue the matter further.

¶ 8

02Issues

i.Whether the conviction and sentence under Section 138 of the Negotiable Instruments Act, 1881, could be set aside on the basis of a subsequent settlement and compounding between the parties?

¶ 5–10

ii.Whether, in view of the settlement, continuation of the criminal proceedings would amount to an abuse of the process of law and cause oppression, prejudice, or injustice to the revisionist?

¶ 11

03Law Applied

The Court considered the offence under Section 138 of the Negotiable Instruments Act, 1881.

The Court applied the principles governing settlement and quashing of criminal proceedings laid down by the Supreme Court in Gian Singh v. State of Punjab, (2012) 10 SCC 303, and Narinder Singh v. State of Punjab, (2014) 6 SCC 466.

¶ 10

These authorities recognise that, where the dispute is essentially personal or commercial in nature and the parties have genuinely settled their differences, criminal proceedings may be terminated if their continuation would serve no useful purpose and would amount to an abuse of process, provided the compromise is not contrary to public policy or the lawful composition of society.

¶ 10

Provisions in the judgment · 1 · Linked ones open on LawLens

Negotiable Instruments Act, 1881 Section 138

04Reasoning

The Court found that the dispute arose from a cheque dishonour prosecution and that the complainant had voluntarily entered into a settlement with the revisionist.

The complainant personally appeared, was identified by counsel, confirmed receipt of the entire cheque amount, and stated that she no longer wished to proceed.

¶ 8

Applying the principles in Gian Singh and Narinder Singh, the Court held that the possibility of the proceedings resulting in a meaningful further conviction-related outcome had become remote and bleak after settlement.

¶ 10–11

Continuing the prosecution would instead cause oppression, prejudice, and injustice to the revisionist and would amount to an abuse of the process of law.

¶ 10–11