Section 138 Negotiable Instruments Act offence may be compounded at revision stage upon mutual settlement.

The applicants were originally convicted by the Learned JMFC, Vapi, for an offence punishable under Section 138 of the Negotiable Instruments Act, 1881.

They were sentenced to one year of simple imprisonment and directed to pay a fine of Rs. 1,00,000 (double the cheque amount).

These orders were subsequently confirmed by the 3rd Additional Sessions Judge, Valsad at Vapi, following the dismissal of the applicants’ criminal appeals.

During the pendency of these proceedings, the applicants and the respondent-complainant reached a settlement.

The applicants agreed to pay the cheque amounts, accrued interest, and a consolidated additional sum of Rs. 1,25,000 across three specific revision applications (Nos. 573, 927, and 946 of 2021).

The complainant filed affidavits confirming the settlement and stating no objection to the acquittal of the applicants.

Whether the offence under Section 138 of the NI Act can be compounded at the revision stage based on a settlement between the parties.

Whether the conviction and sentence can be quashed despite the belated stage of settlement, and what costs should be imposed.

Section 138 of the Negotiable Instruments (NI) Act, 1881, regarding the dishonour of cheques, and Section 147 of the NI Act, which provides that every offence punishable under the Act shall be compoundable.

Revisionary jurisdiction under Sections 397 and 401 of the Code of Criminal Procedure, 1973.

Supreme Court precedent in Sanjabij Tari v. Kishore S. Borcar, 2025 INSC 1158, which mandates the imposition of costs (typically 7.5% of the cheque amount) for compounding at a belated stage, while allowing the court discretion to consider specific mitigating circumstances like medical ailments.

The court observed that although the settlement was reached at a very late stage (during revision), the offence under Section 147 of the NI Act is explicitly compoundable.

The court emphasized the primary object of the NI Act, which is to ensure the complainant receives the cheque amount; since the applicants were ready to pay and the complainant had filed an affidavit of consent, the court found no impediment to permitting the compounding.

Regarding the imposition of costs as per the Sanjabij Tari doctrine, the court noted that while costs are generally required for late-stage compounding, it could exercise discretion to deviate from the standard 7.5% rate by taking into account the "prevailing circumstances," specifically the medical ailments suffered by the applicants.

The court determined that the interests of justice would be served by quashing the conviction upon the payment of a modified cost to the State Legal Service Authority.

The applicants were acquitted of the charges under Section 138 of the NI Act and ordered to be set at liberty.

The court directed the applicants to deposit costs of Rs. 10,000 before the State Legal Service Authority within two weeks.

The court ordered that any amounts previously deposited by the applicants with the lower courts be released to the complainant along with accrued interest upon proper verification.