G S Rao


Sections 138 to 142 of Negotiable Instruments Act,1881(NI Act) which deal with offence and prosecution for dishonour cheques were brought into force with effect from April 1, 1989 by Section 4 of the Banking Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988.

The main purpose of the Act was to encourage use and credibility of cheques and to discourage issuance of cheques without providing for its encashment its encashment.


When certain deficiencies were found in dealing with cases of dishonour of cheques, certain significant amendments were made to the NI, Act effective from 06.02.2003. New Sections 143 to 147were inserted empowering Magistrate to adopt summary trial for expeditious disposal within 6 months, to levy fine double the amount of cheque. More particularly Section 147 allowed parties to compound the offence.

This Article focuses on Section 147 which deals with compounding of offence and issues arising out of compounding

What is compounding?

It is an act in which a complainant agrees not to prosecute the accused in exchange for money or other consideration. The net result is that the accused is relieved of the likely punishment.

Let us now look at the relevant Section for compounding which is made effective from 06.02.2003

Section 147: Offences to be compoundable.

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974.) every offence punishable under this Act shall be compoundable.

It would be evident from the non obstante clause, the provisions of the Code of Criminal Procedure, 1973 are not applicable to compounding of offence under NI Act. However it may be useful to briefly discuss the provisions of Section 320 and draw a comparison of these two.

Section 147 of NI Act Vs. Section 320 of Cr. PC

Prior to insertion of Section 147 of NI Act, for compounding the offence under NI Act, provisions of Section 320 of CrPC were applied. Readers may note that a table has been given under Section 320(1) and (2) of CrPC indicating various offences punishable under IPC and the person by whom the offence may be compounded.

The offences mentioned therein can be grouped into 2 categories namely minor and serious offences. In the case of serious offences compounding is permissible by the victim only with the permission of court. High court or court of Sessions exercising its revisional powers may allow compounding of the offence in the manner as provided by that section.

In the case of offence under Section 138 of NI Act, the legislature thought it fit to permit compounding without the leave of the court as generally dishnour of cheque arises out of  commercial transactions between private parties. For this reason only Section 147 starts with a non obstante clause to bring it out of the purview of section 320 of CrPC.

Whether compounding is a right?

On a plain reading of Section 147, a doubt may arise whether compounding is a right conferred on the Accused or such right is subject to consent of the complainant. This issue has come up for consideration by Delhi High court in the case of Ranjita Mittal &Ors Vs State of Delhi. In this case the accused filed a petition u/s 482 of Cr. PC before the Delhi high court for quashing the proceedings of lower court which convicted him. The Lower court rejected the Petitioner’s prayer for compounding of the offence even though he had tendered the amount of the cheque due to objection from the complainant for compounding. The complainant submitted to the court that accused is liable to pay more money than the tendered amount; hence the complainant is not willing to give his consent forg for compromise.

Delhi high court relying on Para 5 of judgment in HitekIndustries Ltd. & Ors. Vs State of Delhi & Anr 173(2010) DLT 712, upheld the learned trial court’s decision convicting the accused. The relevant Para 5reads as follows:

5…… the word compromise itself signifies an agreement betweenthe two parties to compound the offence. If the parties do not agree to compound the offence, the court has to proceed with the complaint

It is clear from the above judgment that compounding is possible only when both the parties agree to it.

Judgments of Apex court

Two judgments of Supreme Court examined below give us clarity on certain issues which are not clear from section 147.

The Hon’ble Supreme court in the case of “Damodar S Prabhu Vs Sayed Babalal H reported in 2010(5) SCC 663observed that Section 147 does not carry any guidance as to how to proceed with compounding of offences. Further provisions of Section 320 of CrPC also cannot be applied. The Hon’ble Apex Court by exercising its power under Article 142 of the constitution laid down guidelines for encouraging compounding at the earliest stage.

As per these guidelines, payment of costs as per laid down scale has been made a pre-condition for allowing compounding of the offence. The scale laid down is as follows:-

i. If application is made before the Magistrate at the first or second hearing of the case, compounding may be allowed without fine. But if application is made at a later stage, compounding may be permitted by imposing costs up to 10% of the cheque amount.

ii. 15% of cheque amount if compounding is preferred in appeal either before sessions court or high court

iii. 20% of the cheque amount if compounding is sought before the Supreme court for wasting the precious time of the courts

It has been clarified by the Hon’ble Supreme court in the above case that the above scale is indicative and discretion is vested in the court dealing with the matter. In other words the court dealing with the matter has to take into account facts of each case before it, for imposing costs which will be deposited with appropriate Legal services authority

Award of compensation

A question arose whether Cheque dishnour cases are meant to punish the accused or meant to recover the cheque amount. This issue was considered in detail by the Apex court in the case R VijayanVs Baby and Anr., reported in AIR,2012SC528. At Para no14 and 15, the apex court observed as follows:

14.  The apparent intention is to ensure that not only the offender is punished, but also ensure that the complainant invariably receives the amount of the cheque by way of compensation under section357(1)(b) of the Code. Though a complaint under section 138 of the Act is in regard to criminal liability for the offence of dishonouring the cheque and not for the recovery of the cheque amount,(which strictly speaking, has to be enforced by a civil suit), in practice once the criminal complaint is lodged under section 138 of the Act, a Civil suit is seldom filed to recover the amount of the cheque.


…………As the provisions of Chapter XVIIof the Act strongly lean towards grant of reimbursement of the loss by way of compensation, the courts should, unless there are special circumstances, in all cases of conviction, uniformly exercise the power to levy fine upto twice the cheque amount (keeping in view the cheque amount and the simple interest thereon at 9% per annum as the reasonable quantum of loss) and direct payment of such amount as compensation. Direction to pay compensation by way of restitution in regard to the loss on account of dishonour of the cheque should be practical and realistic, which would mean not only the payment of the cheque amount but interest thereon at a reasonable rate.

It is obvious from the above that punishing the accused and compensating the Complaint both are in built into the Act. For dishnour and for uniformity sake, the Hon’ble Supreme court indicated that fine has to be levied in such a way so as to ensure that a simple interest of 9% is granted to complainant. This judgment clearly indicates that discretion has to be exercised by the court for levying fine or sentencing the accused to imprisonment.

It is better, if the complainant enters into a compromise dictating his terms with the accused and files such compromise in the court for compounding of the offence


The trend of judgments indicates that dishonest drawers must be made to pay for not only the cheque amount, but also compensation for the extended litigation. The judgments of Supreme Court ensure less litigation in 138 cases and also expeditious disposal of 138 cases.

Source: 1. Negotiable Instruments Act, 1881  2. Judgments of Supreme court and Delhi High court

Tags:   Compounding of offence, Dishonour of Cheque, Negotiable Instruments Act, 1881.

Disclaimer:  This article contains interpretation of the Act and personal views of the author are based on such interpretation. Readers are advised either to cross check the views of the author with the Act or seek the expert’s views if they want to rely on contents of this article.

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December 2021