S. 138 NI Act | Offence is Compoundable at Any Stage, Even After Conviction is Affirmed by High Court: Supreme Court

Judgment Copy  ( Lawtrend Official Link): https://lawtrend.in/wp-content/uploads/2025/09/Gian-Chand-Garg-vs-Harpal-Singh.pdf 

Case Note: Gian Chand Garg v. Harpal Singh & Anr. (2025) SC

Court

Supreme Court of India (Criminal Appellate Jurisdiction)
Coram: Justice Aravind Kumar & Justice Sandeep Mehta

Citation

Criminal Appeal (Arising out of SLP (Crl.) No. 8050/2025)
Date: 11 August 2025

 

Facts

  • Respondent (complainant) alleged that appellant borrowed ₹5 lakhs.
  • Issued cheque → dishonoured (“Funds insufficient”).
  • Complaint filed under Sec. 138 NI Act.
  • Trial Court (JMFC): Convicted appellant → 6 months simple imprisonment + ₹1,000 fine.
  • Appellate Court (ASJ): Upheld conviction.
  • High Court (Revision): Dismissed.
  • After High Court dismissal, parties compromised (06.04.2025) → complainant accepted full settlement via demand drafts + cheques.
  • Appellant moved High Court for modification → dismissed as “not maintainable.”
  • Appeal before Supreme Court.

 

Issue

Whether a conviction under Sec. 138 NI Act can be sustained after the parties voluntarily enter into a full and final compromise.

 

Ruling

  • Appeal Allowed – Conviction & sentence set aside.
  • Compromise valid and voluntary → offence compounded.
  • Sec. 147 NI Act overrides CrPC → compounding allowed at any stage of proceedings.

 

Key Legal Principles

  1. Sec. 138 NI Act – Cheque dishonour is criminalised to secure credibility of transactions.
  2. Sec. 147 NI Act – Offence under Sec. 138 is compoundable at any stage, despite CrPC.
  3. Precedents Cited:
    • Meters & Instruments v. Kanchan Mehta (2018) → Offence primarily civil, compoundable.
    • P. Mohanraj v. Shah Brothers (2021) → Sec. 138 is a civil sheep in criminal wolf’s clothing.
    • Gimpex v. Manoj Goel (2021) → Once settlement occurs, original complaint is subsumed.
    • B.V. Seshaiah v. State of Telangana (2023) → Courts must respect voluntary compounding.

CHAPTER XVII

OF PENALTIES IN CASE OF DISHONOUR OF CERTAIN CHEQUES FOR INSUFFICIENCY OF FUNDS IN THE ACCOUNTS

138. Dishonour of cheque for insufficiency, etc., of funds in the account.

147. Offences to be compoundable.

Section 138 – Dishonour of Cheque for Insufficiency of Funds, etc.

1. Original Text 

Where any cheque drawn by a person… is returned by the bank unpaid… such person shall be deemed to have committed an offence and shall… be punished with imprisonment up to 2 years, or with fine up to twice the cheque amount, or with both.

Proviso: Conditions must be satisfied—
(a) Cheque presented within 6 months or its validity, whichever earlier.
(b) Payee/holder issues written demand notice within 30 days of bank intimation of dishonour.
(c) Drawer fails to pay within 15 days of receiving the notice.

Explanation: “Debt or other liability” = legally enforceable debt or liability.

2. Explanation

·       If a cheque bounces due to:

1.     Insufficient funds in the account, or

2.     Amount exceeds the arrangement with the bank (e.g., overdraft limit),
→ then the drawer commits an offence under Section 138.

·       But, it becomes a punishable offence only if:

o   Cheque presented within 6 months/validity.

o   Payee issues notice within 30 days of dishonour.

o   Drawer doesn’t pay within 15 days of notice.

·       Punishment: Jail up to 2 years, or fine up to 2x cheque amount, or both.

·       Important: The cheque must be issued for a legally enforceable debt/liability. If cheque was for gift, charity, or illegal purpose, Sec. 138 won’t apply.

3. Illustration

·       X borrows ₹2,00,000 from Y and issues a cheque.

·       Y deposits it within 3 months → cheque bounces (“insufficient funds”).

·       Y sends legal notice within 30 days.

·       X doesn’t pay within 15 days of notice.
X is liable under Sec. 138 NI Act.

·       But if cheque was issued as a gift or for a time-barred debt, then no offence, because liability is not legally enforceable.

4. Punishment (Clear Separate Note)

·       Imprisonment: Up to 2 years.

·       Fine: Up to double the cheque amount.

·       Both: Can be imposed together.

5. Advocate’s Usage

·       For complainant (Payee):

o   File complaint within 1 month of expiry of 15-day notice period.

o   Attach cheque, return memo, copy of notice, postal receipts.

·       For accused (Drawer):

o   Challenge validity: Was cheque within 6 months? Was notice sent in time? Was there a legally enforceable debt?

o   Argue for compounding under Sec. 147 NI Act.

 

In short: Sec. 138 is a quasi-criminal tool to enforce civil liability through criminal consequences, ensuring credibility of cheque-based transactions.

Section 147 – Offences to be Compoundable

1. Original Text

“Notwithstanding anything contained in the Code of Criminal Procedure, 1973, every offence punishable under this Act shall be compoundable.”

2. Explanation:

·       Compoundable offence = an offence where parties can settle/compromise the case and end the criminal proceedings.

·       This section overrides CrPC → normally, only some minor offences are compoundable under Sec. 320 CrPC, but here all offences under the NI Act are compoundable.

·       Settlement can happen at any stage (trial, appeal, even after conviction).

3. Example

·       X convicted under Sec. 138 for ₹5 lakhs cheque bounce.

·       During appeal, X pays full amount to Y.

·       Y agrees in writing → case compounded → conviction quashed.

👉 This is the section relied upon in Gian Chand Garg v. Harpal Singh (2025) SC.

 

Section 148 – Power of Appellate Court to Order Payment Pending Appeal

1. Original Text :

·       In an appeal by the drawer (accused) against conviction:

1.     Appellate Court may order appellant to deposit at least 20% of fine/compensation awarded by trial court.

2.     Deposit within 60 days, extendable by 30 days on sufficient cause.

3.     Court may release this amount to complainant even while appeal is pending.

4.     If appellant is later acquitted → complainant must refund the amount with RBI bank rate interest within 60+30 days.

2. Explanation 

·       This section ensures that complainants are not left empty-handed during long appeals.

·       Even if the accused appeals, they must pay minimum 20% upfront as a condition.

·       That money can be released to the complainant right away.

·       If the accused finally wins appeal → money comes back with interest.

3. Example

·       Trial Court convicts X → orders compensation ₹1,00,000.

·       X files appeal.

·       Appellate Court orders X to deposit 20% (₹20,000) within 60 days.

·       Court releases ₹20,000 to complainant Y during appeal.

·       If X is acquitted later → Y must refund ₹20,000 with RBI bank rate interest.

Advocate’s Practical Usage

·       Sec. 147 (Compounding):

o   Use it to file joint compromise memos or Sec. 482 CrPC quash petitions.

o   Argue that once parties settle, proceedings must end (even post-conviction).

·       Sec. 148 (Deposit during Appeal):

o   For complainant: Push appellate court to order deposit → ensures recovery.

o   For accused: Be prepared to arrange at least 20% upfront when appealing.

Layman’s Meaning

·       Sec. 147: If you settle cheque bounce, case ends anytime.

·       Sec. 148: If you appeal, you still need to pay 20% first, so complainant isn’t stuck waiting forever.

 

Supreme Court’s Reasoning

  • Once complainant accepts full settlement voluntarily → foundation for prosecution disappears.
  • Continuing conviction would be oppressive and meaningless.
  • Compromise deed + affidavit proved genuine settlement.
  • Therefore, all lower court convictions set aside.

 

Implications

  • For accused: Even post-conviction, you can escape jail by genuine settlement.
  • For complainants: Secure faster recovery of money, avoid lengthy trial.
  • For courts/advocates: Strong precedent for Sec. 482 CrPC quash petitions and criminal appeals involving settlement.

 

Layman’s Meaning

If a cheque bounces and you’re convicted, you can still get relief if you and the complainant settle the matter fully and voluntarily. The Supreme Court says — “Once money is paid and both sides agree, the criminal case must end — even if conviction is already confirmed.”

 

Drafting Tip for Advocates (Ground in Appeal/482 Petition):

“Because the appellant and complainant have entered into a voluntary compromise duly supported by affidavit, the offence under Sec. 138 NI Act stands compounded under Sec. 147 NI Act. In light of the Supreme Court’s ruling in Gian Chand Garg v. Harpal Singh (2025) and earlier precedents (Kanchan Mehta, Gimpex, B.V. Seshaiah), the conviction and sentence cannot be sustained and are liable to be set aside.”

 

Comments

Post a Comment

Popular posts from this blog

What Happens When an Accused Absconds? Step-by-Step Guide under CrPC : Explained by Advocate Nedunuri Raghu

https://docs.google.com/document/d/1TnDMDwse-Vm4jbNR8ZN2Zj5sjenHUDM5dp8bKLM3FEU/edit?usp=sharing Credit : Proclamation notice  ( The Indian Express Dt: 05-09-2025) Only for educational purpose    Proclamation notice issued under Section 82 of the Code of Criminal Procedure, 1973 (CrPC) . It is a formal order by the Court, declaring that the accused in   FIR No. …, under Sections 356/379/34 IPC, Police Station …, Delhi , has   absconded or is concealing himself to avoid arrest . The proclamation records that: ·         A   warrant of arrest   was earlier issued against the accused. ·         The warrant could not be executed because the accused could not be found. ·         The Court, being satisfied that the accused is deliberately avoiding arrest, has ordered publication of this proclamation. Through this notice, the Court publicly directs the accu...
Read more

Delay In Filing Review Application Cannot Be Condoned Without Looking Into Its Maintainability: Bombay High Court

Judgment Copy ( LiveLaw   Official Link):  https://www.livelaw.in/pdf_upload/jsw-steel-coated-products-ltd-anr-v-amarlal-parashramji-sharma-617297.pdf   Sections & Legal Principles Involved 1. Industrial Disputes Act, 1947 (IDA) Section 7  – Establishes Labour Courts. Section 11  – Procedure & powers of Labour Courts, Tribunals & National Tribunals. It gives powers of a Civil Court (like summoning witnesses, receiving evidence, etc.),  but it does not give review power . Review is a  substantive jurisdiction  — unless expressly given, it cannot be assumed. Section 17 & 17A  – Publication & enforceability of awards. Once an award is published and comes into force, the Labour Court becomes functus officio (it cannot reopen the matter).   Advocate’s point : “Nowhere in the IDA is there a provision granting review jurisdiction to Labour Courts. Hence, review is not maintainable.”   2. Code of Civil Procedur...
Read more

Death Penalty for Spousal Murder in Rajasthan: A Critical Legal Perspective by Advocate Nedunuri Raghu

  The recent Additional District and Sessions Court ruling from Mavli, Udaipur, which sentenced a person to death for brutally setting his wife on fire, sharply underscores the judiciary’s stringent stance against heinous domestic violence crimes. For advocates, this case holds important lessons: Rarest of Rare Doctrine : The court applied the “rarest of rare” principle to justify the death penalty, emphasizing that premeditated, cruel acts that betray marital trust and shock societal conscience warrant maximum punishment. This sets a compelling precedent for capital sentencing arguments in similar grievous cases. Dying Declaration as Reliable Evidence : The victim’s dying declaration was deemed “reliable and consistent,” reaffirming the evidentiary value of such statements even in complex domestic violence cases. This is a critical tool for advocates relying on victim testimonies to prove intent and culpability. Societal Interest in Justice : The judgment highlights that crimes a...
Read more