Court Holds That Offence Under Section 138 NI Act Can Be Compounded At Any Stage In View Of Section 147 Of Negotiable Instruments Act
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The Himachal Pradesh High Court has permitted compounding of a cheque dishonour case under Section 138 of the Negotiable Instruments Act, 1881, even after the conviction of the accused had been upheld by the High Court. The Court held that where the parties have amicably settled the dispute and the complainant has received the entire compensation amount, the offence can be compounded by exercising powers under Section 147 of the Negotiable Instruments Act.
The order was passed by Justice Sandeep Sharma in Ram Prasad vs Yashpal & Another, decided on 23 July 2026 by the High Court of Himachal Pradesh, Shimla. The proceedings arose from an application filed by the accused seeking permission to compound the offence after entering into a compromise with the complainant.
The Court considered the important legal question as to whether a conviction already confirmed by the appellate and revisional courts can still be set aside when the complainant and accused subsequently settle their dispute. After examining earlier judgments of the Supreme Court and other High Courts, the Court held that Section 147 of the Negotiable Instruments Act gives wide power to courts to permit compounding of offences under Section 138 at any stage of the proceedings.
Background Of The Case
The matter originated from a cheque dishonour complaint filed by the respondent-complainant under Section 138 of the Negotiable Instruments Act. The complainant alleged that the accused had issued a cheque towards discharge of a legally enforceable liability. The cheque involved in the case was bearing No. 247262 dated 03.09.2017 for an amount of ₹1,10,000/-, drawn on Syndicate Bank, Kullu, Himachal Pradesh. However, when the cheque was presented for encashment, it was dishonoured by the bank through return memo dated 21.11.2017 with the reason mentioned as “payment stopped by drawer”.
After receiving information regarding dishonour of the cheque, the complainant issued a statutory legal notice dated 22.11.2017, calling upon the accused to make payment within the prescribed period. Since the accused failed to clear the amount, the complainant initiated criminal proceedings under Section 138 of the Negotiable Instruments Act.
During the trial, after considering the evidence produced by both sides, the competent court found the accused guilty of committing an offence under Section 138 of the Act. The accused was accordingly convicted and sentenced to undergo six months simple imprisonment along with payment of compensation of ₹1,50,000/- to the complainant.
Conviction Confirmed By Appellate And Revisional Courts
Aggrieved by the conviction order, the accused approached the appellate court by filing an appeal before the learned Additional Sessions Judge, Sarkaghat, District Mandi. However, the appeal was dismissed by the Sessions Court through judgment dated 07.01.2026, thereby confirming the conviction and sentence imposed by the trial court.
Thereafter, the accused approached the Himachal Pradesh High Court by filing Criminal Revision No. 82 of 2026. The High Court also dismissed the revision petition through judgment dated 16.06.2026, upholding the conviction recorded by the courts below. Thus, at that stage, the conviction of the accused stood confirmed by all three levels of courts — the trial court, appellate court and the High Court in revision.
Settlement Between Parties After Conviction
After dismissal of the criminal revision petition, the accused and complainant entered into a compromise and settled their monetary dispute. The accused approached the High Court by filing an application under Section 147 of the Negotiable Instruments Act read with Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, seeking permission to compound the offence.
During the hearing, the counsel appearing for the complainant stated that after the judgment of the High Court, the parties had arrived at a settlement and the complainant had received the entire compensation amount. Therefore, there was no objection if the offence was compounded.
The accused informed the Court that an amount of ₹45,000/- had already been paid to the complainant, while the remaining amount was arranged through a demand draft of ₹1,05,000/- in favour of the Registrar General of the High Court.
Issue Before The High Court
The main issue before the Court was:
“Whether, after the conviction and sentence have already been upheld by the High Court, the offence under Section 138 of the Negotiable Instruments Act can still be compounded on the basis of a settlement between the parties?”
The Court noted that the matter required examination because normally criminal courts become functus officio after delivering judgment. However, cheque dishonour cases have a special statutory provision under Section 147 of the Negotiable Instruments Act, which permits compounding of offences.
Court Relies Upon Section 147 Of Negotiable Instruments Act
Justice Sandeep Sharma observed that Section 147 of the Negotiable Instruments Act contains a special provision allowing offences under the Act to be compounded. The Court referred to its earlier judgment in Gulab Singh v. Vidya Sagar Sharma, where it had considered the issue of whether an offence under Section 138 can be compounded even after conviction.
The Court observed that in view of Section 147 of the Act, courts possess power to permit compounding even after conviction, provided the circumstances justify such relief. The High Court also considered the judgment of the Supreme Court in K. Subramanian vs R. Rajathi, where the Supreme Court permitted compounding of a cheque dishonour offence after conviction because the parties had settled the dispute and the complainant had received the entire cheque amount.
Supreme Court Recognised Importance Of Settlement In Cheque Cases
The High Court noted that cheque dishonour proceedings are primarily intended to ensure payment of money and maintain confidence in commercial transactions. Where the complainant has received the outstanding amount and no dispute survives between the parties, continuation of criminal proceedings may not serve any useful purpose.
The Supreme Court in K. Subramanian vs R. Rajathi had recognised that once parties enter into a genuine settlement and the complainant receives the due amount, courts can permit compounding of the offence under Section 138 of the Negotiable Instruments Act. The Himachal Pradesh High Court followed the same principle and observed that the purpose of Section 147 is to encourage settlements in cheque dishonour matters.
Effect Of Withdrawal Of Special Leave Petition Before Supreme Court
Another issue considered by the High Court was whether the accused could approach the High Court after his Special Leave Petition before the Supreme Court had been withdrawn. The Court examined the principle laid down in Kunhayammed vs State of Kerala, regarding the doctrine of merger and effect of dismissal of a Special Leave Petition.
The Court observed that dismissal of a Special Leave Petition, particularly by a non-speaking order or withdrawal, does not result in merger of the High Court judgment with the Supreme Court order. Therefore, the High Court held that the application seeking compounding was maintainable.
Final Decision Of The High Court
After considering the settlement between the parties and the legal position, the Himachal Pradesh High Court allowed the application filed by the accused. The Court recalled its earlier order dated 16.06.2026 passed in Criminal Revision No. 82 of 2026 and permitted compounding of the offence under Section 138 of the Negotiable Instruments Act.
Consequently, the judgments of conviction and sentence passed by the trial court and appellate court were set aside, and the accused was acquitted of the offence. His bail bonds were also discharged. However, considering that the complainant had been forced to undertake litigation for recovery of his own money, the Court directed the accused to pay ₹10,000/- as litigation charges to the complainant and deposit ₹5,000/- with the Himachal Pradesh State Legal Services Authority as compounding fee within eight weeks.
The Registry was also directed to release the amount deposited before the Court in favour of the complainant.
Legal Significance Of The Judgment
The judgment reinforces the settled principle that cheque dishonour cases under Section 138 of the Negotiable Instruments Act are compoundable offences and parties should be encouraged to resolve disputes through settlement.
The decision also clarifies that even after conviction has been confirmed by higher courts, a genuine compromise between the complainant and accused can still be recognised by courts. The ruling highlights the importance of Section 147 of the Negotiable Instruments Act, which provides flexibility in cheque bounce matters and enables courts to bring litigation to an end when the underlying financial dispute has been resolved.
The judgment will be significant for accused persons and complainants involved in cheque dishonour cases, as it confirms that settlement remains possible even at an advanced stage of criminal proceedings.
Published by: LawDaily.org