The Himachal Pradesh High Court has affirmed that courts possess inherent power to compound offences under Section 138 of the Negotiable Instruments Act even after conviction has been recorded, provided a genuine settlement is reached between the parties. This ruling clarifies the scope of judicial discretion under Section 147 and reinforces the policy of encouraging amicable resolution in financial disputes.
Background & Facts
The Dispute
The petitioner, Dola Ram, was accused of issuing six post-dated cheques to the respondent, Smt. Harsha, as payment towards a lawful liability. The cheques, drawn on Canara Bank, Rampur Bushahr, bore consecutive numbers and were dated 10.02.2022. The amounts were Rs. 30,000/-, Rs. 38,500/-, Rs. 27,400/-, Rs. 30,000/-, Rs. 30,000/-, and Rs. 30,000/-, aggregating to Rs. 1,85,900/-. All cheques were dishonoured on presentation with the reason cited as "drawers signature differs kindly contact drawer/drawee bank and please visit again".
Key Facts
- Six cheques issued by the petitioner on 10.02.2022 for total amount of Rs. 1,85,900/-
- All cheques returned unpaid on 11.02.2022 with signature discrepancy remark
- Legal notice dated 25.02.2022 was sent to the petitioner under Section 138 of the NI Act
- No payment was made within 15 days of notice
- Complaint filed on 15.04.2022 in the Court of Additional Chief Judicial Magistrate, Rohru
- Trial court convicted petitioner on 17.03.2025 under Section 138 NI Act
- Sentenced to eight months simple imprisonment and ordered to pay Rs. 1,85,900/- as compensation
- Appeal dismissed by Additional Sessions Judge on 01.01.2026
- Revision petition filed before High Court on 22.01.2026
- On 02.02.2026, High Court suspended sentence subject to deposit of 30% compensation and bail bonds - not complied with
- Prior to final hearing, parties entered into compromise on 28.03.2026
- Petitioner had already paid Rs. 1,45,900/- to complainant; Rs. 40,000/- remained deposited with trial court
Procedural History
- 10.02.2022: Cheques issued by petitioner
- 11.02.2022: All cheques dishonoured by bank
- 25.02.2022: Legal notice issued under Section 138 NI Act
- 15.04.2022: Complaint filed before Additional Chief Judicial Magistrate, Rohru
- 17.03.2025: Trial Court convicted petitioner; sentenced to 8 months imprisonment + Rs. 1,85,900/- compensation
- 01.01.2026: Additional Sessions Judge, Rohru, dismissed appeal
- 22.01.2026: Criminal Revision No. 77 of 2026 filed before Himachal Pradesh High Court
- 02.02.2026: High Court suspended sentence; directed deposit of 30% compensation and bail bonds - non-compliance noted
- 28.03.2026: Parties reached compromise; Rs. 1,45,900/- paid; Rs. 40,000/- remained in court
- 01.04.2026: Judgment delivered by High Court
Relief Sought
The petitioner sought acquittal and setting aside of conviction and sentence under Section 138 NI Act, on grounds of settlement. He requested compounding of the offence under Section 147 of the Bharatiya Nagarik Suraksha Sanhita and release of the deposited amount to the complainant.
The Legal Issue
The central question was whether Section 147 of the Bharatiya Nagarik Suraksha Sanhita permits a court to compound an offence under Section 138 of the Negotiable Instruments Act after conviction has been recorded, and whether such compounding can be ordered suo motu when the complainant consents.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that a full settlement had been reached, with Rs. 1,45,900/- already paid and the remaining Rs. 40,000/- deposited with the trial court. He relied on Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663 to assert that courts have the power to compound offences under Section 147 even after conviction, provided the complainant consents and the settlement is bona fide. He submitted that the object of Section 138 is to ensure prompt payment, not to punish, and that continued prosecution served no purpose after full restitution.
For the Respondent
The respondent’s counsel confirmed that the complainant had no objection to compounding the offence. She stated that the entire amount of Rs. 1,85,900/- had been either received or secured, and that she was willing to withdraw all claims against the petitioner. She supported the petitioner’s prayer for acquittal and requested release of the deposited amount.
The Court's Analysis
The Court examined the nature of offences under Section 138 of the NI Act, noting that they are primarily civil in character, with criminal sanctions imposed only to ensure compliance. The Court emphasized that the legislative intent behind Section 147 is to facilitate settlement and reduce litigation burden.
"The object of Section 138 is not to punish the drawer but to enforce the sanctity of financial instruments and ensure that cheques are honored as a mode of payment. Once the liability is discharged in full, the criminal proceeding loses its raison d’être."
The Court referred to the Supreme Court’s ruling in Damodar S. Prabhu v. Sayed Babalal H., which held that compounding under Section 147 is not restricted to pre-trial or pre-conviction stages. The Court observed that the complainant’s consent, coupled with full payment of the cheque amount, satisfies the conditions for compounding. The fact that the petitioner had not filed a formal application under Section 147 was deemed immaterial, as the court has inherent power to act in the interest of justice when the parties have resolved the dispute.
The Court further noted that the complainant had not suffered any loss, and the petitioner had made complete restitution. Continuing the conviction would serve no public interest and would amount to unnecessary harassment.
The Verdict
The petitioner is acquitted of the charge under Section 138 of the Negotiable Instruments Act. The judgments of conviction and sentence dated 17.03.2025 and 01.01.2026 are set aside. The amount of Rs. 40,000/- deposited with the trial court is directed to be released to the complainant within one week. The petitioner is directed to pay Rs. 5,000/- as litigation charges to the complainant and Rs. 5,000/- as compounding fee to the Himachal Pradesh State Legal Services Authority within eight weeks. Failure to comply will render the petitioner liable for contempt and penal consequences. All bail bonds are discharged.
What This Means For Similar Cases
Compounding Is Permissible Post-Conviction
- Practitioners may now argue for compounding under Section 147 even after conviction, provided the complainant consents and full payment is made
- No formal application under Section 147 is mandatory - courts may act suo motu when settlement is evident
- This removes a major procedural barrier for accused seeking relief after conviction
Settlement Must Be Full and Final
- Partial payments or pending disputes will not suffice - the entire cheque amount must be discharged
- Documentation of payment (bank receipts, receipts, court deposits) is critical to prove full restitution
- Courts will scrutinize the genuineness of settlement to prevent abuse
Litigation Costs and Compounding Fees Are Now Standard
- Courts may impose litigation charges (as here, Rs. 5,000/-) on the accused even after acquittal
- Compounding fees payable to Legal Services Authorities are now a routine condition
- Non-payment of these fees may trigger contempt proceedings
