Section 138 NI Act conviction quashed upon settlement in revision subject to compounding costs.

The applicant was convicted by the learned Chief Judicial Magistrate, Anand, on 29.03.2022 for an offence under Section 138 of the Negotiable Instruments (NI) Act, 1881. He was sentenced to two years of simple imprisonment and ordered to pay Rs. 20,00,000 as compensation to the complainant.

This conviction was subsequently upheld by the learned 3rd Additional Sessions Judge, Anand, in an appeal dismissed on 31.07.2023.

The applicant filed the present Criminal Revision Application challenging these orders.

During the pendency of this revision, the parties amicably resolved the dispute, and the applicant paid the full cheque amount through a combination of direct payment and prior court deposits.

An Agreement of Settlement dated 23.08.2024 was executed and placed on record.

1. Whether the conviction and sentence under Section 138 of the NI Act can be quashed and set aside at the revision stage based on an amicable settlement between the parties.

2. Whether the applicant is liable to pay costs for compounding the offence at a belated stage of the litigation.

The court applied Section 138 and Section 147 of the Negotiable Instruments Act, 1881; the latter specifies that every offence punishable under the Act shall be compoundable.

The court relied on the precedent set in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663, which establishes that while compounding is permissible at later stages, it should be subject to the accused paying a graded cost to the Legal Services Authority.

It further referenced Sanjabij Tari v. Kishore S. Borcar, 2025 INSC 1158, regarding the application of the Probation of Offenders Act, 1958, in the context of maintaining convictions during settlements.

The court noted that the offence under Section 138 is essentially a private civil wrong treated as a criminal offence to ensure the credibility of negotiable instruments.

Since the complainant confirmed the receipt of the full amount and expressed a desire not to pursue litigation, the court found that the "grievance stands redressed".

Under Section 147 of the NI Act, compounding is permissible "at any stage".

However, the court observed that the settlement occurred at a "belated stage" before the High Court; thus, according to the guidelines in Damodar S. Prabhu, the applicant must be "saddled with cost" to discourage delays in settlement.

The court determined that a cost of 7.5% of the cheque amount was appropriate given the procedural history.

The quashing is subject to the applicant depositing 7.5% of the cheque amount with the Gujarat State Legal Services Authority.

The court directed the Nazir of the District Court, Anand, to disburse the previously deposited amounts to the complainant and ordered the release of the applicant from custody upon compliance with the cost deposit, provided he is not required for any other offence.