NI Act Offence Compoundable Even After Appellate Conviction: Madras HC

The Madras High Court, in Kandasamy v. Murugesan, ruled that the compensatory nature of cheque bounce cases permits the compounding of offences even at the revisional stage, thereby setting aside prior convictions on the basis of out-of-court settlements.

In a decisive move favoring restorative justice over punitive incarceration, Justice Shamim Ahmed exercised the court's inherent powers to set aside a concurrent conviction and order the immediate release of a petitioner from prison following a joint compromise between the parties.

While hearing a criminal revision challenge against the orders of the learned Principal District and Sessions Judge, Ariyalur, and the District Munsif cum Judicial Magistrate, Sendurai, the Court addressed whether a conviction under Section 138 of the Negotiable Instruments Act, 1881 could be nullified based on a subsequent compromise. The Bench emphasized that the primary object of the law is to ensure the payment of money rather than seeking retribution through imprisonment.

The Court, in its reasoning, observed: "It is quite obvious that with respect to the offence of dishonour of cheques, it is the compensatory aspect of the remedy which should be given priority over the punitive aspect... the offence made punishable under Section 138 of N.I. Act is not only an offence qua property but it is also of the nature of an economic offence... Thus, the parties, in reference to offence under Section 138 N.I. Act read with Section 147 of the said Act are at liberty to compound the matter at any stage even after the dismissal of the proceedings."

The Court has the following directions:

"The present Criminal Revision Case is disposed of in terms of Compromise Memo arrived at between the parties to this litigation out of Court. The Compromise Memo dated 30.06.2026 is taken on record. The impugned conviction and sentence passed in C.A.No.11 of 2022, dated 16.07.2024 by the learned Principal District and Sessions Judge, Ariyalur, confirming the conviction and sentence made in STC.No.425 of 2019, dated 10.08.2022 by the learned District Munsif Cum Judicial Magistrate, Sendurai, Ariyalur District are hereby modified. The conviction and sentence under section 138 of the Negotiable Instruments Act in STC.No.425 of 2019 stands anulled as this Court intends, otherwise to secure the ends of justice. The Revision Petitioner shall be treated as acquitted on account of compounding of the offence with the complainant/person affected."

Background:

The dispute originated when the petitioner borrowed Rs. 10,00,000/- from the respondent and issued a cheque that was subsequently dishonored for 'Insufficient Funds'. Despite receiving a legal notice, the petitioner failed to repay the amount, leading to a complaint under Section 138 of the Negotiable Instruments Act, 1881. The trial court convicted the petitioner, sentencing him to six months of simple imprisonment and directing a total compensation of Rs. 11,00,000/-, which included the cheque amount and additional compensation for mental agony. This verdict was upheld by the First Appellate Court.

During the revision proceedings, while the petitioner was in judicial custody at Central Prison, Trichy, a 'Joint Compromise Memo' was filed. The respondent acknowledged receiving the full amount of Rs. 11,00,000/- and expressed no objection to compounding the offence. The Court relied on Damodar S. Prabhu vs. Sayed Babalal H ( "2010 (2) SCC (Cri) 1328": 2010 CaseBase(SC) 594) regarding guidelines for graded costs in delayed compounding and M/s Meters and Instruments Private Limited and another vs. Kanchan Mehta ( "2017 (7) Supreme 558": 2017 CaseBase(SC) 922) which defined the offence as a 'civil wrong' where compensation should be encouraged. It also considered the overriding effect of Section 147 of the Negotiable Instruments Act, 1881 over Section 320 of the Code of Criminal Procedure, 1973.

Key Takeaways:

Supremacy of Special Law

Section 147 of the NI Act acts as a non-obstante clause that overrides the general procedural limits of the CrPC regarding the stage of compounding.

Compensatory Nature Over Punitive

Justice in cheque bounce cases is achieved primarily through financial recovery, making incarceration unnecessary once the complainant is satisfied.

Exercise of Inherent Powers

High Courts can invoke inherent powers to prevent the miscarriage of justice and bring a quietus to disputes, even after appellate dismissal.

Ratio Decidendi:

An offence under Section 138 of the Negotiable Instruments Act, 1881 is compoundable at any stage of the proceedings, including the revisional stage, by virtue of Section 147 of the same Act. The compensatory object of the statute allows the High Court to exercise its inherent jurisdiction to annul a conviction if the parties have reached an amicable settlement, as the settlement itself serves the ends of justice more effectively than a prison sentence.

Case Details:
Case No.: Crl.R.C.No.1848 of 2024 & Crl.M.P.No.15587 of 2024
Case Title: Kandasamy v. Murugesan
Appearances:
For the Petitioner(s): Mr. Illanchezhian
For the Respondent(s): Mr. S. Sarath Chandran

Source: 2026 CaseBase(MAD) 328