The Punjab and Haryana High Court has affirmed that a conviction under Section 138 of the Negotiable Instruments Act may be set aside even after appellate dismissal, if the parties reach a genuine compromise. This ruling reinforces the compensatory intent behind the law and expands the scope of judicial discretion in resolving private financial disputes.
Background & Facts
The Dispute
The petitioner, Kuldeep Verma, was convicted in 2018 by a Judicial Magistrate First Class, Tohana, for dishonouring a cheque under Section 138 of the Negotiable Instruments Act, 1881. He was sentenced to two years of rigorous imprisonment and ordered to pay compensation of Rs.6,00,000 to the complainant. The conviction was upheld on appeal by the Additional Sessions Judge, Fatehabad, in 2025.
Procedural History
- 2018: Conviction and sentencing by Judicial Magistrate First Class, Tohana
- 2025: Appeal dismissed by Additional Sessions Judge, Fatehabad (CRA-79/2018)
- 2026: Criminal revision petition filed before the Punjab and Haryana High Court
- 21.01.2026: Parties executed a compromise deed, appended as Annexure P-1, resolving all disputes amicably
- CRM-5059-2025: Application filed seeking permission to compound the offence
Relief Sought
The petitioner sought acquittal on the grounds that the dispute had been fully settled through a voluntary, bona fide compromise. He requested that the conviction and sentence be set aside, and the proceedings be quashed in the interest of justice.
The Legal Issue
The central question was whether Section 138 of the Negotiable Instruments Act can be compounded after the accused has been convicted by the Magistrate and the conviction affirmed by the Sessions Court, and whether the High Court may exercise its inherent powers under Section 528 of the BNSS, 2023 to quash such a conviction upon compromise.
Arguments Presented
For the Petitioner
Counsel relied on Damodar S. Prabhu v. Sayed Babalal H., M/s New Win Export v. A. Subramaniam, and Sanjabij Tari v. Kishore S. Borcar to argue that the compensatory nature of Section 138 permits compounding at any stage, including post-conviction. It was contended that the compromise deed dated 21.01.2026 was genuine, voluntary, and extinguished the private dispute. Counsel further invoked the High Court’s inherent jurisdiction under Section 528 BNSS, 2023 to prevent abuse of process and secure substantial justice.
For the Respondent
The State, through the Additional Advocate General, did not oppose the compounding. The complainant ratified the compromise, affirming its genuineness and expressing no objection to the petitioner’s acquittal. The State conceded that the matter was purely private and did not involve public interest concerns.
The Court's Analysis
The Court undertook a comprehensive review of the evolving jurisprudence on compounding under Section 138 NI Act. It emphasized that while the offence is statutory, its primary purpose is compensatory, not punitive, as affirmed in Damodar S. Prabhu and reiterated in Sanjabij Tari. The Court noted that the legislative vacuum in Section 147 regarding compounding procedures has been filled by judicial guidelines aimed at discouraging delay, not denying relief.
"The judicial endorsement of the above quoted guidelines could be seen as an act of judicial law-making and therefore an intrusion into the legislative domain. It must be kept in mind that Section 147 of the Act does not carry any guidance on how to proceed with the compounding of offences under the Act."
The Court held that Section 528 BNSS, 2023 - the successor to Section 482 CrPC - empowers the High Court to quash proceedings, including convictions, where the dispute is essentially private and a genuine compromise has been reached. The Court distinguished between public interest offences and those like Section 138, which primarily affect private financial interests.
It further clarified that while the Sanjabij Tari guidelines prescribe cost structures for compounding at different stages, they do not bar compounding outright. Discretion to waive costs remains with the court, especially where the accused has endured prolonged litigation since 2018. The Court found no evidence of collusion or public harm, and concluded that continuing the conviction would serve no purpose other than inflicting undue hardship.
The Verdict
The petitioner succeeded. The High Court set aside both the conviction and the appellate dismissal, acquitting the petitioner. It held that Section 138 NI Act offences may be compounded even after conviction, provided the compromise is genuine and the public interest is not compromised. No costs were imposed.
What This Means For Similar Cases
Post-Conviction Compounding Is Permissible
- Practitioners may now file applications for compounding even after conviction and dismissal of appeal
- The High Court may quash convictions under Section 528 BNSS, 2023 if the compromise is bona fide and the dispute is private
- The burden shifts to the State to demonstrate public interest harm - mere existence of conviction does not preclude compounding
Costs May Be Waived in Exceptional Circumstances
- While Sanjabij Tari prescribes 7.5% costs for compounding at the High Court stage, courts may waive this if the accused has suffered prolonged litigation
- Waiver requires clear, cogent reasoning - mere settlement is insufficient; exceptional hardship must be documented
- Delay alone does not disqualify compounding if the compromise is genuine and the complainant consents
Inherent Powers Are Broad but Not Unfettered
- The High Court’s inherent jurisdiction under Section 528 BNSS, 2023 is plenary but must be exercised judiciously
- Courts must record reasons for quashing convictions, ensuring alignment with the legislative intent of financial discipline
- Compromise cannot be used to circumvent criminal accountability in cases involving fraud, repeated defaults, or public sector entities
