Unlike most criminal offences, a Section 138 case is designed to be settled. The provision is express and the courts encourage it.
The provision
Section 147 of the Negotiable Instruments Act: notwithstanding anything in the Code of Criminal Procedure, every offence punishable under the Act is compoundable. There is no need for the offence to fall within a schedule, and settlement can happen at any stage, including in appeal.
The cost of settling late
In Damodar S. Prabhu v. Sayed Babalal H. (2010) the Supreme Court set out graded costs to discourage accused persons from dragging a case out and then settling on the courthouse steps:
| Stage of compounding | Costs payable |
|---|---|
| At the first or second hearing | No costs |
| Later before the Magistrate | 10 percent of the cheque amount |
| Before the Sessions Court or High Court | 15 percent of the cheque amount |
| Before the Supreme Court | 20 percent of the cheque amount |
Costs are ordinarily deposited with the Legal Services Authority.
The Supreme Court has since held that the cost-for-compounding directions in Damodar S. Prabhu cannot be treated as a binding precedent, and has set aside cost orders imposed mechanically on that basis. Treat the table as an indication of judicial thinking and of the risk of delay, not as a tariff the court must apply. If costs are being levied on you purely by reference to the scale, that is arguable.
Cheque bounce matters are the single largest category taken up in National Lok Adalats. There is no court fee, the settlement is recorded as an award which is deemed a decree, it is binding and not appealable, and it is executable if the accused defaults on the instalments. If both sides are willing, this is faster and cheaper than compounding through the regular court.
How to document a settlement properly
- Record the full amount, the instalment schedule, and the mode of payment.
- Include a default clause: what happens if an instalment is missed, and whether the complainant may revive the complaint or execute the award.
- Record what happens to the original cheque and any security.
- File a joint memo before the court and obtain an order compounding the offence and acquitting the accused. Do not simply take the money and stop attending.
Where the settlement is reached after conviction, the High Court can also be approached to quash the proceedings, applying the reasoning in Gian Singh.