Section 138 NI Act Is ‘Quasi-Criminal’ and Compoundable: Supreme Court Sets Aside Conviction After Settlement

The Supreme Court has said that the offence under Section 138 of the Negotiable Instruments Act is quasi-criminal in nature and explicitly made compoundable under Section 147, emphasising that the legislative intent is to ensure the payment of money and promote the credibility of cheques.

Allowing the compounding of the offence on the basis of a settlement between the parties, court set aside the conviction and sentence of Virender Singh Dongwal and ordered his release.

An appeal wasfiled by Dongwal challenging the Punjab and Haryana High Court’s decision of September 15, 2025, which had upheld his conviction under Section 138 of the NI Act. The Faridabad trial court had in July 2023 sentenced him to six months’ simple imprisonment and imposed a compensation of Rs 14,50,000. His appeal before the Additional Sessions Judge, Faridabad, and the subsequent criminal revision before the High Court were also dismissed.

The proceedings arose from a complaint filed by Manju Aggarwal, proprietor of M/s Shiv Shakti Packing Industries, alleging that iron material was supplied to Dongwal’s firm, M/s Shivam Tools, and that Rs 11,37,827 remained outstanding. Dongwal had issued four post-dated cheques for the amount, all of which were returned unpaid on October 5, 2018 with the remark “funds insufficient.” A statutory notice was issued on October 11, 2018.

The trial court relied on Dongwal’s own Sales Tax and VAT returns, which reflected receipt of material worth the disputed amount from the complainant’s firm. It rejected his shifting defence that he first claimed that payments had been made over time and later asserted that no goods were supplied or that the cheques were security for a friendly loan. Holding that he failed to rebut the statutory presumptions under Sections 118 and 139 of the NI Act, the trial court convicted him in July 2023.

Dongwal remained in custody from August 25, 2025 during the pendency of proceedings. Before the Supreme Court, he sought compounding of the offence on the basis of a compromise dated October 29, 2025 for a reduced settlement sum of Rs 6,65,000. Court recorded that he had already paid Rs 4,00,000 through a demand draft dated October 8, 2025 and had prepared another draft of Rs 2,65,000 to hand over to the complainant.

The complainant did not oppose the request for compounding, subject to full payment and applicable costs. Taking note of the recent judgment in Sanjabij Tari v. Kishore S. Borcar (2025), where the court modified the Damodar S. Prabhu guidelines on compounding in cheque dishonour cases, the bench observed that payment made at the Supreme Court stage attracts 10% of the cheque amount as compounding costs.

Applying these principles, court allowed the appeal, quashed the conviction and sentence, and directed Dongwal’s release if not required in any other case. It further ordered him to deposit Rs 1,13,783, equivalent to 10% of the cheque amount, with the Supreme Court Legal Services Committee within four weeks.

Case Title: Virender Singh Dongwal Vs Manju Aggarwal

Judgment Date: November 18, 2025

Bench: Justices Sanjay Karol and Vipul M Shah