The Gujarat High Court has affirmed that even after conviction under the Negotiable Instruments Act, a criminal case may be quashed upon settlement between parties, provided the accused bears the cost of delayed resolution. This ruling reinforces the compoundable nature of cheque bounce offences and clarifies judicial discretion in terminating proceedings post-conviction.
Background & Facts
The Dispute
The present revision application arises from a criminal case initiated under Section 138 of the Negotiable Instruments Act, following the dishonour of a cheque issued by the applicant, Patel Vinodbhai Kantilal, to respondent No.2, Patel Tejendrabhai Harshadbhai. The cheque, issued as payment for a debt or liability, was returned unpaid due to insufficient funds. The complainant filed Criminal Case No.913 of 2018 before the Additional Chief Judicial Magistrate, Kadi, leading to conviction and sentencing.
Key Facts
- The cheque was issued on an unspecified date but dishonoured on or before the statutory notice period
- Legal notice under Section 138 NI Act was issued and received by the accused
- The trial court convicted the accused on 19.10.2022 and imposed sentence
- The accused appealed to the Sessions Court, which upheld the conviction on 04.11.2023
- During pendency of the revision application before the High Court, the parties reached a settlement
- Respondent No.2, through Power of Attorney, appeared virtually and confirmed the settlement
- No objection was raised by the complainant to quashing the proceedings
Procedural History
- Date of cheque dishonour: Not specified in judgment, but notice issued and served prior to filing
- 19.10.2022: Conviction and sentence passed by Additional Chief Judicial Magistrate, Kadi, in Criminal Case No.913 of 2018
- 04.11.2023: Conviction upheld by 5th Additional Sessions Judge, Mahesana, in Criminal Appeal No.330 of 2022
- 29.04.2023: Revision Application No.1481 of 2023 filed before Gujarat High Court under Sections 397 and 401 CrPC
- 29.04.2026: Hearing before High Court; settlement admitted by both parties
The Parties' Positions
For the Applicant (Accused)
- Submitted that the dispute had been fully settled between the parties
- Emphasized that the offence under Section 138 NI Act is compoundable at any stage under Section 147 NI Act
- Requested quashing of conviction and all consequential proceedings
For the Respondent (State)
- Opposed quashing on grounds of seriousness of the offence
- Argued that conviction had already been confirmed by two lower courts
For Respondent No.2 (Complainant)
- Appeared through Power of Attorney
- Admitted settlement and expressed no objection to quashing the proceedings
Relief Sought
- Quash the conviction and orders dated 19.10.2022 and 04.11.2023
- Discharge bail bond
- Release applicant from custody if not required in any other case
- Direct release of any amount held by the Registry in favour of complainant
- Direct complainant to file original Power of Attorney
The Legal Issue
Can a conviction under Section 138 of the Negotiable Instruments Act be quashed on the grounds of settlement between parties, even after the trial and appellate courts have upheld the conviction, and if so, what conditions may the court impose?
Arguments Presented
For the Appellant/Petitioner
The applicant relied on Section 147 of the Negotiable Instruments Act, which declares offences under Section 138 as compoundable at any stage. Citing Damodar S. Prabhu v. Sayed Babalal H (2010(5) SCC 663) and Sanjabij Tari v. Kishore S. Boarcar (2025 INSC 1158), the applicant argued that judicial discretion permits quashing of proceedings upon settlement, even post-conviction, to prevent multiplicity of litigation and promote amicable resolution. The applicant emphasized that the complainant had no objection and that the relationship between the parties warranted closure.
For the Respondent/State
The State contended that allowing quashing after conviction would undermine the deterrent effect of the law and set a precedent for delayed settlements. It argued that courts should not condone delay in settlement, especially when the accused has already undergone trial and appeal. The State maintained that the conviction should stand unless exceptional circumstances justified interference.
The Court's Analysis
The Court acknowledged that Section 147 NI Act explicitly permits compounding of offences under Section 138 at any stage, including after conviction. It noted that the Supreme Court in Damodar S. Prabhu held that the power to compound is not restricted by procedural posture, and that the object of the law is to facilitate commercial certainty, not to punish indefinitely.
"The object of the Negotiable Instruments Act is to ensure smooth functioning of commercial transactions and not to convert a civil dispute into a criminal prosecution beyond necessity."
The Court further relied on Sanjabij Tari, which affirmed that while settlement is a valid ground for quashing, courts may impose costs where the accused delays resolution until the appellate stage. The Court observed that the applicant had not settled the matter until the revision stage, after two courts had already adjudicated the case. This delay, though not malicious, warranted a cost imposition to discourage tactical postponement.
The Court emphasized that the complainant’s consent was unequivocal and that no public interest was compromised, as the offence was purely private and financial. The Court held that continuing proceedings served no purpose and would only prolong hardship.
The Verdict
The revision application was allowed. The judgments and orders dated 19.10.2022 and 04.11.2023 were quashed and set aside, along with all consequential proceedings. The applicant’s bail bond was discharged. The applicant was directed to deposit Rs.10,000 as costs with the Gujarat State Legal Services Authority within one week. The Jail Authority was directed to release the applicant forthwith if not detained in any other case. The Registry was directed to release any amount held in favour of the complainant. The complainant was directed to file the original Power of Attorney.
What This Means For Similar Cases
Settlement After Conviction Is Permissible
- Practitioners may now file revision applications under Sections 397/401 CrPC to quash Section 138 NI Act convictions if settlement is reached post-trial
- Consent of the complainant is decisive; courts will not interfere if the victim opposes
- Delay in settlement does not bar quashing but may attract costs
Costs Are a Judicial Tool to Discourage Delay
- Courts may impose token costs (e.g., Rs.10,000) even in compoundable offences when settlement occurs at appellate stages
- Costs must be directed to legal services authorities or public funds, not to the complainant
- This prevents accused from treating litigation as a bargaining chip
Procedural Closure Is Mandatory
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All consequential proceedings - including bail bonds, pending appeals - must be formally discharged
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Registry must release any deposited amounts to the complainant
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Original documents (e.g., Power of Attorney) must be filed to complete procedural record
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Always verify complainant’s consent in writing before filing revision
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File settlement deed or affidavit before the High Court to substantiate compromise
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Request costs imposition only if delay is evident; avoid opposing it if settlement is genuine
