Cheque Bounce Compounding: Can an Accused Compel Compounding by Offering Payment? Punjab and Haryana HighCourt says no in a Cheque Bounce Case Compounding.
A recent decision of the Punjab & Haryana High Court clarifies an important issue in proceedings under Section 138 of the Negotiable Instruments Act, 1881: whether an accused can seek compounding merely by offering to pay the cheque amount along with the costs prescribed by the Supreme Court.
A cheque bounce case under Section 138 of the Negotiable Instruments Act, 1881, can be compounded (settled) at the High Court stage—even after a conviction and the dismissal of a revision or appeal—provided the parties reach a genuine amicable settlement and the complainant consents.
Rules for Cheque Bounce Case Compounding at the High Court
- Complainant Consent: A genuine, voluntary settlement and consent from the complainant are required for the court to permit compounding. [1]
- Cost / Penalty (Supreme Court Guidelines): When an application for compounding is made before the Sessions Court or High Court in appeal or revision, the court may allow it subject to the accused paying 7.5% of the cheque amount (as updated in Iqbal Saini v. Harjeet Singh) or standard statutory costs to the Legal Services Authority. [1, 2, 3]
- Discretion on Costs: High Courts (such as the Punjab and Haryana High Court) retain the discretion to waive or reduce compounding costs in exceptional circumstances, though costs are normally enforced. [1]
- Effect of Compounding: Once the High Court allows compounding, the conviction and sentence are set aside, and the accused is acquitted
Background
The case arose from a complaint under Section 138 of the Negotiable Instruments Act concerning a cheque of ₹4,00,000. The cheque was dishonoured with the remarks “KYC awaited and funds insufficient.” Despite a statutory legal notice, payment was not made.
The accused was subsequently convicted by the Judicial Magistrate and sentenced to one year of rigorous imprisonment, along with compensation of ₹4,00,000 and interest at 9% per annum. An appeal against the conviction was pending.
During the appeal, the accused sought compounding of the offence, offering to pay the entire cheque amount along with 7.5% costs, relying upon the Supreme Court’s guidelines in Sanjabij Tari v. Kishore S. Borcar.
However, the complainant expressly refused to compound the offence.
The Main Legal Issue
The principal question before the High Court was:
Can a Section 138 NI Act offence be compounded at the instance of the accused when the complainant does not consent, merely because the accused is willing to pay the cheque amount and prescribed costs?
The High Court answered this question by relying upon the Supreme Court’s decision in A.S. Pharma Pvt. Ltd. v. Nayati Medical Pvt. Ltd.
Also Read-Challenge Cheque Bounce Conviction in HighCourt Revision
Compounding Requires Complainant’s Consent
The High Court reiterated that although Section 147 of the Negotiable Instruments Act makes offences under the Act compoundable, compounding cannot ordinarily be imposed upon an unwilling complainant.
Relying upon A.S. Pharma, the Court held that even if the accused is ready to pay the cheque amount and additional compensation, such willingness does not eliminate the requirement of the complainant’s consent.
The Court also referred to:
- JIK Industries Ltd. v. Amarlal V. Jumani
- K.M. Ibrahim v. K.P. Mohammed
- M/s Nidhi Knitwears (P) Ltd. v. Honey Hosiery Mills
- Surinder Kumar Bindal v. Satinder Nath Radhey Shyam & Sons
These authorities support the principle that compounding is fundamentally based upon mutual agreement between the parties.
Also Read-Joint Account Cheque Bounce Case-HighCourt Chandigarh
What About the 7.5% Cost Guideline?
An important aspect of the case was the reliance upon the Supreme Court’s judgment in Sanjabij Tari v. Kishore S. Borcar.
The accused relied upon paragraph 38(c), under which payment at the stage of proceedings before the Sessions Court/High Court in appeal or revision attracts 7.5% of the cheque amount as costs for the purpose of the compounding framework.
The High Court clarified that this guideline does not create an absolute right in favour of the accused to demand compounding.
Paragraph 39 uses the expression that the Court “may suggest” the parties to go for compounding. According to the High Court, this cannot be interpreted as authorising a Court to compel an unwilling complainant to enter into a settlement.
Therefore:
Payment + prescribed costs ≠ automatic right to compounding.
Payment may facilitate a settlement, but the complainant’s consent remains material to compounding.
Compounding and Quashing Are Different
The judgment also draws an important distinction between quashing and compounding.
The High Court, relying upon JIK Industries, observed that quashing and compounding operate in different fields. Compounding is primarily founded upon the consent of the injured party, whereas quashing involves exercise of the Court’s jurisdiction in appropriate circumstances to secure the ends of justice or prevent abuse of process.
Consequently, the inherent jurisdiction under Section 528 BNSS, corresponding to Section 482 CrPC, cannot simply be used to bypass an express statutory requirement relating to compounding.
Decision of the High Court
In the present case, the complainant’s refusal was clear and unequivocal.
The High Court held that the accused’s willingness to pay:
- the entire cheque amount of ₹4,00,000; and
- 7.5% costs,
could be relevant if the complainant was agreeable to settlement, but it could not substitute the complainant’s consent.
Accordingly, the High Court found no illegality in the appellate court’s refusal to permit compounding and dismissed the petition. At the same time, it clarified that dismissal of the petition would not prejudice the accused’s pending statutory appeal, which was to be decided independently on its merits.
Also Read-Cheque Bounce Conviction by HighCourt Chandigarh
Key Legal Takeaways
- Section 138 NI Act offences are compoundable, but compounding is based upon settlement between the parties.
- The accused cannot ordinarily demand compounding as a unilateral right merely by offering payment.
- Payment of the cheque amount does not automatically result in compounding.
- The 7.5% cost guideline in Sanjabij Tari determines the applicable cost framework at the relevant appellate stage; it does not compel an unwilling complainant to compound.
- Complainant’s consent remains essential where the accused seeks compounding under Section 147 NI Act.
- Quashing and compounding are legally distinct remedies and should not be treated as interchangeable.
- A pending criminal appeal against conviction is not automatically terminated merely because the accused offers to pay the cheque amount.
Conclusion
The judgment provides an important clarification for cheque-bounce litigation. An accused’s willingness to pay the cheque amount, even together with the prescribed costs, may facilitate settlement but does not by itself create a right to compounding.
Where the complainant expressly refuses to compound, the Court cannot simply convert the accused’s unilateral offer of payment into a consensual settlement. The statutory appeal, however, remains independently adjudicable on its merits.
By Satish Mishra, Advocate (99888-17966)
