Cheque Dishonour a Civil Wrong, Compoundable Anytime Under Section 147 NI Act: Supreme Court

The Supreme Court has clarified that although dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881 entails criminal liability, Parliament, through the insertion of Section 147 by the 2002 amendment, has made such offences compoundable. This means that once the parties voluntarily reach a compromise, the case can be compounded at any stage of the proceedings, irrespective of the provisions contained in the Code of Criminal Procedure, 1973.

A bench of Justices Aravind Kumar and Sandeep Mehta delivered this ruling while deciding the appeal filed by Gian Chand Garg. The Court set aside his conviction and sentence after recording that the complainant and the accused had entered into a lawful compromise. Under this compromise, the accused paid Rs 5 lakh, representing the cheque amount, as well as an additional Rs 3 lakh through drafts and cheques voluntarily, without any coercion. The complainant accepted this sum in full and final settlement of his claim.

The litigation began when a cheque issued by Gian Chand Garg for Rs 5,00,000 was dishonoured. Proceedings were initiated under Section 138 of the NI Act, and the trial court convicted him, sentencing him to six months imprisonment. His appeal before the sessions court was dismissed, and the Punjab and Haryana High Court, by judgment dated March 27, 2025, upheld the conviction in revision.

Following the dismissal of the revision petition, the parties executed a compromise deed on April 6, 2025. In this agreement, the complainant declared that he had no objection to the accused approaching the High Court for modification of its earlier order so as to record an acquittal. Acting on this, the appellant filed an application before the High Court seeking alteration of its order of March 27, 2025. The High Court, however, rejected this application on April 9, 2025, holding it not maintainable.

Aggrieved by this refusal, the appellant approached the Supreme Court. The bench observed that once the complainant had accepted the settlement and acknowledged receipt of the entire claim, continuation of criminal proceedings under Section 138 NI Act served no purpose. The Court held that the conviction recorded by the courts below had to be set aside in view of the lawful compromise.

In reaching this conclusion, the Supreme Court referred to several earlier judgments. In M/s Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2018), the Court had emphasised that the offence under Section 138 NI Act is primarily a civil wrong, criminalised only to enhance the credibility of cheques as negotiable instruments. The judgment also recognised that the 2002 amendment, inserting Section 147 into the Act, made these offences specifically compoundable.

The Court also cited P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. (2021), in which it was observed that the offence under Section 138 is essentially civil in nature but clothed in criminal procedure to give teeth to enforcement. The bench in that case famously referred to the provision as a “civil sheep in criminal wolf’s clothing,” underscoring the private nature of the disputes it covers.

Further reliance was placed on M/s Gimpex Pvt. Ltd. v. Manoj Goel (2021), where the Supreme Court gave effect to settlements reached between parties in cheque dishonour cases. In B.V. Seshaiah v. State of Telangana (2023), the Court reiterated that once parties voluntarily agree to compound the offence, courts must respect such a settlement since the law explicitly permits compounding. In that case, it was clarified that compounding is intended to reduce unnecessary litigation when disputes are amicably resolved.

The present bench stressed that Section 147 of the NI Act begins with a non obstante clause, giving it overriding effect over the Code of Criminal Procedure. This ensures that offences under Section 138 can be compounded at any stage of proceedings, including after conviction, provided the settlement is voluntary. The insertion of this provision in 2002 was intended to reduce the burden on criminal courts and provide flexibility where disputes are private and monetary in nature.

Applying these principles, the Court concluded that the High Court erred in refusing to modify its earlier order despite the valid compromise. The dismissal of the modification application on technical grounds of maintainability was held to be unsustainable in law, as Section 147 specifically overrides such objections. The Court therefore quashed the conviction and sentence of Gian Chand Garg.

The judgment clarifies the scope of Section 147, confirming that cheque dishonour cases can be settled and compounded at any stage, including after dismissal of revision petitions and confirmation of conviction by appellate courts, so long as the complainant has voluntarily accepted the settlement. This interpretation provides certainty for similar disputes pending before courts across the country.

Case Title: Gian Chand Garg v. Harpal Singh & Anr.

Judgment Date: August 2025.

Bench: Justices Aravind Kumar and Sandeep Mehta