Yes. Even after a court has convicted someone for cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881, that conviction can be set aside if the accused and the complainant reach a genuine settlement and the complainant agrees. This is possible because a cheque bounce offence is "compoundable," meaning the law specifically lets the two sides close the matter privately, even at a late stage. The Supreme Court settled the point in Damodar S. Prabhu v. Sayed Babalal H., decided on 3 May 2010, which permits compounding of a Section 138 offence even after conviction.
If you are facing such a case, or you are the person owed money, understanding how settlement interacts with conviction can save years of litigation and the risk of jail. This article explains the legal principle in plain English, the exact provisions, what it costs, and the practical steps involved.
What a Section 138 NI Act case actually is
Section 138 makes it an offence to issue a cheque that is returned unpaid because the balance is insufficient, or because it exceeds the arrangement with the bank, provided the cheque was given to discharge a legally enforceable debt or other liability. The punishment may extend to imprisonment for a term of up to two years, or a fine which may extend to twice the amount of the cheque, or both.
The offence is not made out unless three statutory conditions in the proviso to Section 138 are satisfied:
- Clause (a). The cheque must be presented to the bank within six months of the date it is drawn, or within its period of validity, whichever is earlier. Since the Reserve Bank of India reduced cheque validity to three months, the operative period in practice is three months.
- Clause (b). The payee must make a written demand for payment by notice to the drawer within thirty days of receiving the bank's information that the cheque was returned unpaid.
- Clause (c). The drawer must fail to pay within fifteen days of receiving that notice.
Only after that fifteen-day period expires does the cause of action arise, and the complaint must then be filed within one month of that date under Section 142 of the Act. Our guide on the cheque bounce case procedure under Section 138 walks through each step.
The real purpose of Section 138 is not to send people to jail. The Supreme Court has repeatedly described it as a provision aimed at recovery and compensation for the person who was not paid, with a criminal penalty attached mainly to deter dishonesty. This compensatory character is the key to understanding why settlement can wipe out a conviction.
The offence is not made out unless three conditions in the proviso are met, and a fourth clock governs the complaint.
Clause (a), presentation
The cheque must be presented within six months of its date or its validity period, whichever is earlier. Since the RBI cut validity to three months, three months is the operative period.
Clause (b), thirty days
The payee must make a written demand for payment by notice to the drawer within thirty days of the bank informing the payee that the cheque was returned unpaid.
Clause (c), fifteen days
The drawer must fail to pay within fifteen days of receiving that notice. Only when that period expires does the cause of action arise.
Section 142, one month
The complaint must then be filed within one month of the date the cause of action arose, under Section 142 of the Act.
Why cheque bounce is a compoundable offence
Most criminal offences cannot simply be dropped because the victim and the accused shake hands. Cheque bounce is different. Section 147 of the Negotiable Instruments Act reads: "Notwithstanding anything contained in the Code of Criminal Procedure, 1973, every offence punishable under this Act shall be compoundable."
Two things follow from that single sentence. First, the general scheme of compounding in the procedural code, now Section 359 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), which lists exactly which offences may be compounded, does not restrict a Section 138 matter. Second, the effect of compounding is spelt out in Section 359(8) BNSS: composition of an offence "shall have the effect of an acquittal of the accused with whom the offence has been compounded." The accused is not merely let off; the conviction goes and an acquittal takes its place.
But Section 147 does not hand the accused a unilateral exit. In Jik Industries Ltd. v. Amarlal V. Jumani, decided on 1 February 2012, the Supreme Court held that Section 147 does not dispense with the requirement of the complainant's consent. Compounding remains a bilateral act. Paying the money into court and announcing that the matter is settled does not, by itself, close the case.
Key takeaway. Compounding needs the complainant's consent, not merely your money. Following Jik Industries Ltd. v. Amarlal V. Jumani (2012), an accused who deposits the cheque amount and then asks the court to close the case, over the complainant's objection, will usually fail. Negotiate the consent first and get it in writing. A settlement deed signed by the complainant, plus proof of payment, is worth more in court than any amount paid without it.
Settlement, compounding and quashing: how they differ
These three terms get used loosely. They are related but distinct.
| Concept | What it means | Who decides | Result |
|---|---|---|---|
| Settlement | Private agreement between complainant and accused on payment and terms | The two parties | Foundation for closing the case; not automatic |
| Compounding (Section 147 NI Act, read with Section 359 BNSS) | Court formally accepts the settlement and the complainant's consent | Trial court, appellate court, High Court or Supreme Court | Effect of an acquittal under Section 359(8) BNSS |
| Quashing (Section 528 BNSS) | A higher court terminates the proceeding or the conviction in exercise of inherent powers | High Court, or Supreme Court under Article 142 | Conviction and proceedings cancelled |
In a cheque bounce matter, a genuine settlement usually leads the court to compound the offence, which in turn results in the conviction being set aside and the accused acquitted. Quashing under the inherent power in Section 528 BNSS is the route where compounding before the trial court or appellate court is not procedurally available. Our comparison of compounding versus quashing of a cheque bounce case explains when each is used.
At what stage can a conviction be set aside?
A common worry is: I have already been convicted, is it too late to settle? Usually not. The law permits composition at almost every stage, subject to one procedural gate.
Section 359(5) BNSS provides that where the accused has been convicted and an appeal is pending, no composition shall be allowed without the leave of the court before which the appeal is to be heard. So the appellate court's permission is required; it is not automatic. Section 359(6) BNSS separately allows a High Court or Court of Session exercising revisional powers under Section 442 BNSS to permit compounding.
- Before trial concludes. The easiest and cheapest point to settle, and the point at which no costs are imposed.
- During appeal against conviction. A conviction by a Magistrate of the first class is appealable to the Court of Session under Section 415(3) BNSS. Composition here needs the leave of that court under Section 359(5).
- In revision before the Sessions Court or High Court, under Section 359(6) read with Section 442 BNSS.
- Before the Supreme Court, even in a final appeal.
Deadline warning. The right to appeal a conviction expires quickly. Under Article 115(b) of the Limitation Act, 1963, an appeal against a sentence must be filed within thirty days to a court other than the High Court, and within sixty days to the High Court, counted from the date of the sentence. If that window closes and delay is not condoned, there is no pending appeal in which to seek leave to compound under Section 359(5) BNSS. Settle late if you must, but file the appeal on time regardless, because the appeal is the vehicle that carries the settlement.
What late settlement costs: the Damodar Prabhu scale
Courts encourage early settlement and discourage litigants who fight to the last court and then settle. In Damodar S. Prabhu v. Sayed Babalal H. the Supreme Court laid down a graded scale of costs, payable to the corresponding Legal Services Authority, for compounding at later stages.
| Stage at which compounding is sought | Costs indicated | Payable to |
|---|---|---|
| First or second hearing before the Magistrate | No costs | Not applicable |
| Any subsequent stage before the Magistrate | 10 per cent of the cheque amount | Legal Services Authority |
| Before the Sessions Court or High Court, in appeal or revision | 15 per cent of the cheque amount | Legal Services Authority |
| Before the Supreme Court | 20 per cent of the cheque amount | Legal Services Authority |
These are guidelines rather than a rigid tariff. The judgment itself records that the competent court can reduce the costs having regard to the specific facts and circumstances of a case, while recording reasons in writing for the variance. In practice, courts do relax them where the accused settled as soon as they were financially able, or where the cheque amount is large and the percentage would be punitive.
Separately, and independently of costs, Section 148 of the NI Act matters enormously at the appeal stage. In an appeal by the drawer against a Section 138 conviction, the appellate court may order the appellant to deposit a sum which shall be a minimum of twenty per cent of the fine or compensation awarded by the trial court, and that amount is in addition to any interim compensation already paid under Section 143A. The deposit is to be made within sixty days of the order, extendable by up to a further thirty days for sufficient cause.
Common mistake. Budgeting only for the cheque amount. A drawer who appeals a conviction and then settles at the appellate stage can face three separate outflows: the settlement figure itself, a Section 148 deposit of at least twenty per cent of the fine or compensation, and compounding costs of around fifteen per cent of the cheque amount under the Damodar Prabhu scale. On a Rs 10 lakh cheque that is a materially different number from Rs 10 lakh. Work out the full exposure before you decide whether to fight or settle, because the arithmetic usually argues for settling early.
Four provisions have to line up before a conviction actually falls away.
Section 147 NI Act
Every offence punishable under the Negotiable Instruments Act is compoundable, notwithstanding anything in the procedural code. That is what makes a late settlement possible at all.
The complainant's consent
Section 147 does not dispense with the complainant's consent. Compounding is a bilateral act, so paying money into court and announcing a settlement does not close the case.
Leave under Section 359(5)
Where the accused has been convicted and an appeal is pending, no composition is allowed without the leave of the court before which the appeal is to be heard.
The effect, Section 359(8)
Composition has the effect of an acquittal of the accused with whom the offence has been compounded. The conviction goes and an acquittal takes its place.
Practical steps to set aside a conviction after settlement
- Negotiate genuine terms. Agree the amount, the payment schedule, whether it is a lump sum or instalments, and what happens on default. Address interest and costs expressly rather than leaving them to be argued later.
- Cover every cheque and every case. If there are five dishonoured cheques and three complaints, the settlement must name all of them, along with any civil suit, arbitration or insolvency proceeding arising from the same debt.
- Reduce it to writing. A signed settlement deed or memorandum of understanding, with both parties' identity proofs annexed, protects both sides and is what the court will read.
- Ensure actual payment. Courts want to see money that has moved. Pay by traceable banking channel and keep the transfer record. Where payment is in instalments, courts often compound only on completion, or record the settlement and defer compounding until the last instalment clears.
- Check whether a Section 148 deposit is already lying in court. If you deposited twenty per cent when filing the appeal, that sum should be accounted for in the settlement rather than paid twice, and an application for its release to the complainant or refund to you should form part of the compounding petition.
- File a joint application or compounding petition before the correct forum: the trial court if the matter is still there, the appellate court with leave under Section 359(5) BNSS if an appeal is pending, or the High Court in revision or under Section 528 BNSS.
- Put the complainant's consent on record. The complainant should appear or file an affidavit confirming receipt of payment and stating no objection to compounding and to the conviction being set aside.
- Obtain the order and a certified copy. The court accepts the compounding, the offence is compounded, and the conviction is set aside with the effect of an acquittal under Section 359(8) BNSS. Keep the certified copy; you will need it whenever the conviction surfaces in a background check.
| If you are the | Your main interest | Practical tip |
|---|---|---|
| Accused (cheque drawer) | Removing the conviction and avoiding imprisonment | Pay as agreed through traceable channels and obtain the complainant's written consent before filing |
| Complainant (payee) | Recovering the money quickly and with certainty | Insist on payment or a secured instalment plan before consenting; record the terms and the default clause clearly |
Renumbered criminal laws: what changed and what did not
The Negotiable Instruments Act, 1881 remains the governing statute for cheque bounce, and Sections 138, 143A, 147 and 148 have not been renumbered. What changed is the procedural and general criminal law around them. The Code of Criminal Procedure, 1973 has been replaced by the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), the Indian Penal Code by the Bharatiya Nyaya Sanhita, 2023 (BNS), and the Indian Evidence Act, 1872 by the Bharatiya Sakshya Adhiniyam, 2023 (BSA).
| Procedural step | Old provision (CrPC) | Current provision (BNSS) |
|---|---|---|
| Compounding of offences | Section 320 CrPC | Section 359 BNSS |
| Leave of appellate court to compound after conviction | Section 320(5) CrPC | Section 359(5) BNSS |
| Composition has the effect of acquittal | Section 320(8) CrPC | Section 359(8) BNSS |
| Appeal from conviction by a Magistrate | Section 374(3) CrPC | Section 415(3) BNSS |
| Suspension of sentence pending appeal | Section 389 CrPC | Section 430 BNSS |
| High Court's powers of revision | Section 397 and Section 401 CrPC | Section 442 BNSS |
| Inherent power of the High Court to quash | Section 482 CrPC | Section 528 BNSS |
Note that the NI Act text itself still refers to the old Code, because Section 147 and Section 148 were drafted before the change. That does not affect their operation; the reference is read as a reference to the corresponding BNSS provision. Older judgments will cite the CrPC numbers, and both sets will appear in the same file for some years yet.
Frequently Asked Questions
Can a cheque bounce conviction really be cancelled if I pay later?
Yes. Because every offence under the Negotiable Instruments Act is compoundable under Section 147, a genuine settlement with the complainant's consent can lead to the conviction being set aside even after conviction, as held in Damodar S. Prabhu v. Sayed Babalal H. (2010).
Do I need the complainant's agreement, or can the court compound on its own?
The complainant's consent is essential. In Jik Industries Ltd. v. Amarlal V. Jumani (2012) the Supreme Court held that Section 147 does not dispense with consent. A court will not force a complainant to accept a settlement.
Is it too late to settle once I have been convicted?
Usually not, but you need the appellate court's leave. Section 359(5) BNSS bars composition where the accused has been convicted and an appeal is pending, unless the court hearing the appeal grants leave. Composition is also possible in revision under Section 359(6) read with Section 442 BNSS.
What will late settlement cost me?
Under the Damodar Prabhu scale, roughly 10 per cent of the cheque amount if compounding is sought at a later stage before the Magistrate, 15 per cent before the Sessions Court or High Court, and 20 per cent before the Supreme Court, payable to the relevant Legal Services Authority. The court can reduce these for reasons recorded in writing.
Do I have to deposit money just to file an appeal?
Possibly. Section 148 of the NI Act allows the appellate court, in an appeal by the drawer against a Section 138 conviction, to order a deposit of a minimum of twenty per cent of the fine or compensation awarded by the trial court, within sixty days, extendable by up to thirty days.
Will I have a criminal record after the conviction is set aside?
Section 359(8) BNSS provides that composition has the effect of an acquittal. Once compounded, you stand acquitted in that matter. Keep the certified copy of the order, because records held by third parties are not always updated automatically.
What documents does the court want to see?
A written settlement deed or memorandum of understanding, proof that payment actually moved through a banking channel, the complainant's affidavit of no objection, and a joint application or compounding petition before the correct forum.
Does settlement wipe out my civil liability as well?
It should, if the document says so. Make sure the settlement records that the underlying debt is fully and finally settled and that no further claim survives, otherwise you can face a separate civil recovery suit on the same transaction.
Can I settle if there are multiple cheques or multiple cases?
Yes, but every case must be addressed by name and number. A settlement that closes three complaints and misses the fourth leaves you convicted in the fourth.
What if I am a director sued for a company's cheque?
Liability of directors runs through Section 141 of the NI Act and depends on who was in charge of and responsible for the conduct of the company's business at the relevant time. See our guide on cheque bounce liability of company directors under Section 141.
Can the matter be settled outside court?
It can be negotiated outside court, including through a Lok Adalat, but the compounding order must still come from the court seized of the matter. Our guide on cheque bounce settlement, compounding and Lok Adalat covers that route.
If you are facing a Section 138 conviction, or you are a payee weighing a settlement offer, our cheque bounce practice can assess the stage your matter has reached and the realistic cost of each option.
This article is for general informational purposes only and does not constitute legal advice. Section numbering under the BNSS is recent and the position continues to develop; verify the current provision and consult a qualified advocate about your specific matter.
