Supreme Court Compounds Section 138 NI Act Case and Acquits Accused Subject to Payment of Rs.2,30,000

A bench of Justices Vikram Nath and Sandeep Mehta heard an appeal by special leave arising out of a challenge to the Bombay High Court at Goa's judgment that had set aside an acquittal in a cheque bounce prosecution under Section 138 of the Negotiable Instruments Act. The appeal concerned whether the High Court correctly reversed the First Appellate Court’s acquittal and the applicability of the Goa Money-Lenders Act as a defence.

The Court allowed the appeal, held that the High Court did not advert to a material defence under the Goa Money-Lenders Act and exercised its constitutional power to compound the offence. The Court noted that the accused had already paid the cheque amount and the costs imposed by the trial court and therefore acquitted the appellant under Article 142 of the Constitution on condition that the deposited sum be paid to the complainant if not already paid. The Court, in its reasoning, observed: "In view of the facts noted above and considering the aspect that the accused-appellant has already paid the cheque amount and the fine of Rs. 30,000/- imposed by the trial Court, we hereby, exercise our powers under Article 142 of the Constitution of India, to compound the offence and acquit the accused-appellant of the accusation under Section 138 of the NI Act subject to the condition that the entire amount of Rs.2,30,000/- deposited by the accused-appellant shall be paid to the complainant-respondent, if the same has not been paid till date."

Background: The criminal proceedings originated from a complaint alleging dishonour of a cheque for Rs. 2,00,000/-. The trial court convicted the accused for an offence under Section 138 NI Act and directed payment of Rs. 2,00,000/- as compensation and Rs. 30,000/- as costs, with a default sentence of simple imprisonment. The accused appealed to the Court of Sessions (First Appellate Court), which allowed the appeal and acquitted him, holding that the complainant had engaged in money-lending activities without a licence and was therefore precluded from prosecuting under the Negotiable Instruments Act in terms of the Goa Money-Lenders Act. The High Court, however, set aside the First Appellate Court’s order and restored the trial court’s conviction and sentence.

On special leave, the Supreme Court observed that the High Court had “did not advert to the important issue regarding applicability of the Goa Act which provided a valid defense available to the accused-appellant. Thus, apparently, the judgment rendered by the High Court does not stand to scrutiny.” The Supreme Court further recorded that the cheque amount and the costs imposed by the trial court had already been paid by the accused-appellant. Taking these facts into account, and invoking its powers under Article 142, the Court compounded the offence and directed acquittal subject to payment of Rs.2,30,000/- to the complainant if not already paid. The appeal was allowed and pending applications were disposed of.

Case Details: Case No.: 2025 INSC 633 Case Title: Rajendra Anant Varik v. Govind B. Prabhugaonkar Appearances: For the Petitioner(s): [Not indicated in the judgment] For the Respondent(s): [Not indicated in the judgment]