The Bombay High Court at Goa has significantly clarified the procedural pathway for compounding offences under Section 138 of the Negotiable Instruments Act, aligning state-level practice with the Supreme Court’s recent directive in Sanjabij Tari v. Kishore S. Borcar. This order resolves ambiguity around compensation deposits and reinforces the principle that compounding is not merely a financial transaction but a structured legal process governed by evolving judicial standards.
Background & Facts
The Dispute
The applicant, Dattaram Anand Shirodkar, was prosecuted under Section 138 of the Negotiable Instruments Act, 1881 for issuance of a cheque for Rs.4,50,000/- that was dishonoured. The trial court convicted him and imposed a compensation of Rs.4,70,000/-, comprising the cheque amount plus Rs.20,000/- as additional compensation. The applicant sought to compound the offence, a statutory right available under Section 147 read with Section 138, subject to court approval and deposit of prescribed amounts.
Procedural History
- 2024: Criminal Revision Application filed challenging conviction and seeking compounding
- 07.02.2025: Trial court recorded applicant’s willingness to compound, referencing Damodar S. Prabhu v. Sayed Babalal H (2010)
- 2026: Supreme Court delivered Sanjabij Tari v. Kishore S. Borcar (2025 SCC Online SC 2069), revising compounding deposit norms
- 11.02.2026: Bombay High Court at Goa heard application for compounding and release on bond
Relief Sought
The applicant sought:
- Permission to compound the offence under Section 147 NI Act
- Release from custody pending compounding
- Clarification on the quantum of deposit required under the revised Supreme Court precedent
The Legal Issue
The central question was whether the amount required for compounding a Section 138 NI Act offence must now be calculated at 7.5% of the total compensation, as per Sanjabij Tari, or whether the earlier 15% threshold from Damodar S. Prabhu continues to apply.
Arguments Presented
For the Petitioner
The applicant’s counsel argued that Sanjabij Tari superseded Damodar S. Prabhu by explicitly directing that the deposit for compounding shall be 7.5% of the compensation amount payable to the Legal Services Authority. The applicant had already deposited Rs.4,70,000/- as compensation and offered an additional Rs.35,000/- (7.5% of Rs.4,70,000) to the Goa State Legal Services Authority, in full compliance with the new standard. Counsel further offered an additional Rs.50,000/- voluntarily to facilitate compounding.
For the Respondent
The respondent did not oppose compounding but sought to preserve the right to contest the quantum of compensation. The Additional Public Prosecutor acknowledged the binding nature of Sanjabij Tari and did not dispute the revised percentage, but emphasized that the additional Rs.50,000/- was not mandatory and should not be construed as an admission of liability.
The Court's Analysis
The Court undertook a careful review of the evolution of compounding jurisprudence under Section 138 NI Act. It noted that Damodar S. Prabhu had established a 15% deposit norm as a guideline, but emphasized that Sanjabij Tari was a subsequent, authoritative pronouncement by the Supreme Court that explicitly recalibrated the financial obligation.
"The deposit under Section 147 is not a penalty but a condition precedent to compounding, and its quantum must reflect the latest judicial direction to ensure uniformity and fairness."
The Court held that the 7.5% threshold in Sanjabij Tari was not merely advisory but binding on all subordinate courts and High Courts. It further observed that the applicant’s voluntary deposit of Rs.50,000/- - exceeding the statutory requirement - demonstrated bona fide intent and mitigated any prejudice to the complainant. The Court rejected any notion that compounding required full restitution of the original cheque amount, affirming that compensation under Section 138 is compensatory, not punitive.
The Court also clarified that the deposit to the Legal Services Authority is distinct from the compensation to the complainant, and both must be satisfied independently for compounding to be granted.
The Verdict
The applicant prevailed. The Court held that compounding under Section 138 NI Act requires deposit of 7.5% of the compensation amount to the Legal Services Authority, as per Sanjabij Tari. The applicant was released on a personal bond of Rs.5,000/-, subject to appearance on future dates, with all deposits deemed sufficient to proceed with compounding.
What This Means For Similar Cases
Compounding Deposit Is Now Fixed at 7.5%
- Practitioners must now calculate compounding deposits as 7.5% of the total compensation awarded, not 15% of the cheque amount
- The deposit must be made to the State Legal Services Authority, not directly to the complainant
- Failure to comply with this percentage may result in denial of compounding, regardless of other goodwill gestures
Voluntary Payments Do Not Override Statutory Norms
- Additional payments beyond 7.5% may facilitate compounding but cannot substitute compliance with the prescribed threshold
- Courts cannot impose higher deposits merely to appease complainants; the Sanjabij Tari standard is mandatory
- Advocates should advise clients to deposit precisely 7.5% to avoid procedural delays or objections
Compounding Is Not Automatic, But Accessible
- The applicant’s release on bond signals that courts may grant interim relief once statutory deposits are secured
- The burden is now on the accused to demonstrate compliance, not on the complainant to object
- This creates a clearer, more predictable pathway for resolution of Section 138 cases without prolonged litigation
