Conviction Under Section 138 NI Act Set Aside Following Compounding of Offense Post-Settlement During Revision.

The applicant (original accused) was convicted by the Judicial Magistrate First Class, Mahemdabad, in Criminal Case No. 2055 of 2014 for an offense under Section 138 of the Negotiable Instruments Act, 1881. He was sentenced to one year of imprisonment and ordered to pay ₹1,80,000 as compensation.

On appeal, the 4th Additional District and Sessions Judge, Kheda at Nadiad (Criminal Appeal No. 93 of 2018), upheld the conviction but reduced the substantive sentence to six months.

During the pendency of the revision, the applicant and the respondent No. 2 (a credit cooperative bank) reached an amicable settlement, and the entire cheque amount with interest was paid.

1. Whether the court should exercise its revisionary jurisdiction to quash the conviction in light of a settlement reached between the parties during the pendency of the revision

The Court primarily applied Section 147 of the Negotiable Instruments Act, 1881, which explicitly provides that every offense punishable under the Act is compoundable.

The Court also exercised its revisionary powers under Section 397 read with Section 401 of the Code of Criminal Procedure, 1908, and considered the provision for awarding compensation under Section 357 of the Code.

The Court noted that the offense under the Negotiable Instruments Act is regulatory in nature and that Section 147 allows for the compounding of such offenses even at the appellate or revisionary stage.

The Court verified the factum of settlement through an affidavit filed by the Recovery Officer of the respondent bank, who appeared in person to confirm that the cheque amount plus interest had been received on June 23, 2026.

Since the dispute was essentially private and commercial, and the complainant bank expressed no objection to setting aside the conviction following the recovery of funds, the Court reasoned that continuing the sentence would serve no further legal purpose and that the settlement warranted the quashing of the lower courts' orders.

The judgment and order of conviction dated July 16, 2018, passed by the Magistrate and the appellate order dated April 4, 2019, were quashed and set aside. The applicant’s sentence was terminated, and the Record and Proceedings (R&P) were ordered to be sent back to the lower court.