The Punjab and Haryana High Court has issued a sweeping directive that fundamentally reshapes the handling of cheque bounce cases under the Negotiable Instruments Act, mandating mediation at the earliest possible stage in all pending and future proceedings. This judgment prioritizes restitution over retribution, recognizing that the criminal framework of Section 138 is primarily a tool to enforce civil liability, not to incarcerate defaulting drawers.
Background & Facts
The Dispute
The petitioner, Sonu Kumar, was accused of dishonoring a cheque of Rs. 19,49,230/- issued to Kulbir Singh in connection with business dealings. The complainant filed a complaint under Section 138 of the Negotiable Instruments Act. The petitioner sought permission to examine a handwriting and fingerprint expert to challenge the authenticity of the complainant’s signature on a Power of Attorney (Ex. C-1), arguing that it did not match the signature on the Notary Register (Ex. D-1). The trial court rejected this application, citing delay and the fact that the comparison was sought against a photocopy, not the original document.
Procedural History
- 2021: Complaint filed under Section 138 NI Act before Judicial Magistrate First Class, Ludhiana
- 2025: Petitioner filed application for expert examination of signatures (Annexure P-6)
- 03.10.2025: Trial court dismissed application, holding it was an afterthought and an attempt to delay trial
- 2026: Petitioner filed revision petition under Section 442 BNSS 2023 before the Punjab and Haryana High Court
Relief Sought
The petitioner sought setting aside of the trial court’s order denying expert examination. Additionally, counsel for both parties expressed willingness to pursue mediation to resolve the underlying dispute.
The Legal Issue
The central question was whether Section 147 of the Negotiable Instruments Act, which renders offences under the Act compoundable, combined with the Mediation Act, 2023, mandates that all pending and future cheque bounce cases be referred to mediation at the earliest stage, even before evidence is concluded.
Arguments Presented
For the Appellant/Petitioner
Counsel argued that the application for expert examination was not frivolous but a legitimate attempt to challenge the authenticity of a key document. He emphasized the long-standing business relationship between the parties and urged the Court to permit mediation as a more humane and efficient resolution mechanism. He relied on Meters and Instruments Private Limited v. Kanchan Mehta and R. Vijayan v. Baby to argue that Section 138 proceedings are quasi-civil in nature and that compounding and mediation are consistent with the statute’s compensatory purpose.
For the Respondent/State
The respondent’s counsel contended that the application for expert evidence was filed at the fag-end of trial, after 15 opportunities to present defence evidence, and was therefore an abuse of process. He relied on the statement under Section 313 CrPC, where the accused had not raised any plea regarding forged signatures, to argue that the application was a belated tactic to delay conviction. He did not oppose mediation in principle but maintained that the trial court’s discretion to reject the application was valid.
The Court's Analysis
The Court undertook a comprehensive doctrinal review of the nature of Section 138 NI Act proceedings. It affirmed that while the provision carries penal consequences, its primary objective is compensatory: to restore the payee’s financial position and uphold the credibility of cheques as commercial instruments. The Court cited P. Mohanraj v. Shah Brothers to describe such proceedings as a "civil sheep in a criminal wolf’s clothing" and Ajay Kumar Radheyshyam Goenka to clarify that despite penal sanctions, they are not recovery proceedings.
"The objective of Parliament... was to strengthen the use of cheques... and therefore it became essential for an offence under Section 138... to be freed from the requirement of proving mens rea."
The Court then analyzed Section 147 NI Act, which declares all offences under the Act compoundable "notwithstanding anything contained in the Code of Criminal Procedure." It held that this non-obstante clause reflects an unambiguous legislative intent to permit compounding at any stage before conviction, without requiring court permission. The Court distinguished this from Section 359(2) BNSS 2023, which requires court permission for compounding, and concluded that Section 147 is broader and more permissive.
The Court further invoked the Mediation Act, 2023, particularly Section 6(1) proviso, which explicitly permits referral of compoundable offences - including those under the NI Act - to mediation. It emphasized that mediation is not a substitute for justice but a more effective means of achieving its core purpose: restitution. The Court noted that the State’s revenue is secured regardless of cheque dishonour, and the real loss is borne by private parties, making mediation a rational, economically sound alternative.
The Court also referenced Sanjabij Tari v. Kishore S. Borcar, which supports the use of interim deposits under Section 143A NI Act, and Gian Chand Garg v. Harpal Singh, which holds that compounding after conviction must lead to setting aside the conviction. The Court concluded that the cumulative weight of statutory provisions and judicial precedents compels a systemic shift toward mediation.
The Verdict
The petitioner’s revision petition was dismissed on merits, as the trial court’s refusal to permit expert evidence was upheld. However, the Court held that all pending and future cases under Section 138 NI Act must be referred to mediation at the earliest stage, and that compounding under Section 147 is permissible at any time before conviction without court permission.
What This Means For Similar Cases
Mediation Is Mandatory, Not Optional
- Practitioners must now raise mediation as a preliminary step in all NI Act complaints, even before framing of charges
- Trial courts are obligated to refer matters to mediation upon service of summons, not as a discretionary option
- Failure to refer may render subsequent proceedings vulnerable to challenge on grounds of procedural unfairness
Compounding Rights Are Absolute Until Conviction
- Parties may compound at any stage before the judgment of conviction is pronounced
- No court permission is required under Section 147 NI Act - unlike under BNSS 2023 for other offences
- A compromise deed signed by the complainant, even post-trial but pre-conviction, must lead to discharge or acquittal
State Is Not a Party in NI Act Cases
- The State cannot be impleaded as a party in NI Act proceedings, as they are private disputes
- Any attempt to involve the State in mediation or trial must be objected to and removed to prevent unnecessary delay
- Sessions Courts must delete the State’s name from pending appeals or revisions if improperly added
