Revision-stage compounding of NI Act offences may be allowed on reduced costs.

The petitioner was convicted under Section 138 of the Negotiable Instruments Act, 1881, for dishonour of a cheque for ₹5,00,000, and sentenced to six months’ rigorous imprisonment and compensation of ₹6,13,000, with a further three months’ rigorous imprisonment in default.

The Sessions Court affirmed the conviction and sentence.

In revision, both parties sought compounding of the offence, stating that they had voluntarily settled the dispute and that the petitioner had paid the settled amount.

The Principal Registrar verified the compromise as voluntary and confirmed payment.

The petitioner sought setting aside of the judgments below and acquittal on the basis of the compromise.

Whether the parties’ verified compromise and payment of the settled amount justified compounding the Section 138 offence and setting aside the conviction and sentence

Whether, given that compounding was sought at the revision stage, the petitioner should be directed to pay costs under the principles in Damodar S. Prabhu v. Sayed Babalal H., and, if so, in what amount

Section 138 of the Negotiable Instruments Act, 1881, creates the offence of cheque dishonour, while Section 147 permits compounding of offences under the Act.

Section 359 of the Bharatiya Nagarik Suraksha Sanhita, 2023, was also invoked in the parties’ applications.

In Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663, the Supreme Court set out a graded costs scheme to encourage early compounding: ordinarily, compounding sought before a Sessions Court or High Court in appeal or revision attracts costs of 15% of the cheque amount; it also recognised that the competent court may reduce costs in the circumstances of a case, recording reasons in writing.

The High Court found that the compromise had been independently verified, was voluntary, and had been performed through payment of the settled amount.

Considering the private nature of the dispute and the parties’ expressed wish to end the litigation, it accepted the compromise and set aside the lower courts’ judgments.

Because the settlement occurred at the revision stage, the Court applied the principles in Damodar S. Prabhu and directed payment of costs.

It fixed the costs at 1% of the cheque amount—₹5,000—rather than the guideline figure stated for revision proceedings.

The petitioner’s bail bonds were to stand discharged upon compliance.

If he failed to deposit the amount within the stipulated period, the acquittal would not enure to his benefit and he would remain liable to undergo the trial court’s sentence.