Settlement and payment of cheque amount justify quashing substantive imprisonment under Section 138 NI Act.

The applicant (complainant) filed a private complaint against Respondent No. 2 (a builder) under Section 138 of the Negotiable Instruments (NI) Act after a cheque for Rs. 4,62,000, issued as a refund for a non-delivered flat, was dishonored

The trial court (JMFC, Surat) convicted the respondent, sentencing him to one month of simple imprisonment and a fine of Rs. 5,000

The respondent appealed the conviction, while the complainant filed for enhancement of the sentence

During the pendency of these appeals, the parties entered into a settlement (Exhibit 63), and the respondent paid the full cheque amount in installments

Consequently, the Appellate Court (3rd Additional District Judge, Surat) quashed the sentence of imprisonment but upheld the fine, while dismissing the complainant's plea for enhancement

The applicant then approached the High Court seeking to quash the Appellate Court’s order and restore the imprisonment

1. Whether the Appellate Court erred in quashing the sentence of imprisonment in light of a post-conviction settlement and full payment of the cheque amount

2. Whether the High Court should exercise its revisional jurisdiction to interfere with concurrent findings when the underlying financial dispute has been settled

The court primarily applied Section 138 of the Negotiable Instruments Act, 1881, emphasizing that the offence is quasi-criminal in nature and compoundable

It relied on the principle that the Act’s objective is to ensure the credibility of cheques and facilitate the recovery of money rather than seeking retribution

The court further cited Sanjabij Tari v. Kishore S. Borcar (2025 INSC 1158) regarding the appropriateness of lesser sentences following settlements

Additionally, it applied the limited scope of revisional jurisdiction under Sections 397 and 401 of the CrPC, as defined in Amit Kapoor v. Ramesh Chander (2012 (9) SCC 460), which precludes the re-appreciation of evidence in the absence of perversity

The Court reasoned that since the respondent had paid the full amount of the cheque and the complainant had issued receipts for the same, the primary objective of the NI Act was satisfied

Justice Suthar noted that punishment under this Act is a means to ensure cash-substitute trustworthiness, not a tool for retribution

Because the parties arrived at a settlement agreement (Exhibit 63), the Appellate Court was justified in modifying the sentence to reflect the compromise

The High Court further analyzed its own limitations under revisional jurisdiction, stating that it cannot act as an appellate court to re-interpret evidence unless the lower court's findings are perverse

Finding no such perversity, the Court concluded that the lower court had properly exercised its discretion by prioritizing the settlement over incarceration

It held that the Appellate Court’s decision to quash the imprisonment while maintaining the fine was proper given the settlement and full payment by the accused

The Court directed the record and proceedings to be sent back to the concerned trial court forthwith