Conviction can be quashed in NIA cases.

Conviction in Negotiable Instrument Act cases can be quashed consequent upon parties arriving at settlement. 

Shakil Ahmed Advocate

x. com: @humvee

Peter Lane, Kolkata 73

A recent important ruling from the Supreme Court of India highlights the fact. , the ruling states that a conviction under Section 138 of the Negotiable Instruments Act, 1881 (NI Act)  is unwarranted if the parties have reached a valid settlement and the complainant has received the agreed payment.

Supreme Court has reinforced the notion that the law should not be used as a means of unnecessary punishment when the dispute has already been resolved in good faith.

Section 138 addresses the offence of cheque dishonour due to insufficient funds or if it exceeds the arrangement made with the bank. 

If a cheque bounces, the person who issued the cheque can be prosecuted under Section 138, if the following conditions are satisfied 

1. The cheque must be issued for a legally enforceable debt or obligation.

2. The cheque must be presented within its validity period (usually 3 months from the date of issue).

3. The cheque must be returned unpaid due to insufficient funds or exceeding the arrangement.

4. The payee must issue a notice of demand within 30 days of receiving the dishonour memo.

5. The drawer must fail to pay the cheque amount within 15 days of receiving the notice.

If these conditions are satisfied the accused can be tried and, if found guilty, convicted with imprisonment of up to two years, a fine up to twice the cheque amount, or both.

The object of Section 138 NIA is to promote trust in commercial dealings and ensure that cheques retain their status as a credible substitute for cash and to enhance the sanctity of banking transactions and discourage wilful defaults.

Courts in the country have observed that cheque bounce cases mostly arise from financial disputes, therefore rigid punishment in such cases will not meet the ends of substantial justice. 

Therefore Instead of punishment, settlements and compensatory relief to complainants meets the purpose of the law and ends of justice .

Cheque dishonour cases are compoundable offences.

Compounding means to resolve  a disagreement between the complainant and the accused, where the complainant consents to drop the charges after receiving compensation or arriving at a settlement. 

Unlike serious criminal offenses, cheque bounce cases are mainly civil disputes that carry criminal implications to say they are quasi criminal cases.

The Supreme Court has repeatedly highlighted the importance of compounding such offenses interalia to lessen the litigation load and encourage friendly resolutions. Please refer Supreme Court judgement: Damodar S. Prabhu v. Sayed Babalal H. (2010) 

The Supreme Court established guidelines for compounding offenses under Section 138, implementing graded costs for delayed settlements to prevent misuse. Please refer

M/s Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2017) for detailed judgement.

The Court noted that the main aim of Section 138 is to provide compensation, while punishment is a secondary concern. Thus, trial courts should promote settlement as soon as possible.

The Supreme Court through its various rulings has made it clear that when a settlement deed is signed and the complainant acknowledges receiving payment, upholding a conviction would undermine the purpose of compounding.

The Supreme Court’s Latest Ruling: Conviction Invalid After Settlement

Facts of the Case: 

An accused was found guilty under Section 138 NI Act for failing to honor a cheque.

While the case was ongoing, both the complainant and the accused signed a compromise deed.

The complainant verified that they received the full settlement amount and agreed to drop the case.

However, the High Court did not change the conviction order.

The accused then appealed to the Supreme Court.

The Supreme Court overturned the conviction and stated:

Once a settlement is made, and the complainant confirms they are fully satisfied, it is not legally viable to continue with the conviction.

The aim of Section 138 is to provide compensation to the complainant, not to unjustly penalize the accused so insisting on keeping the conviction despite a compromise would go against the law's intent and also overload the criminal justice system.

This ruling emphasizes that the judiciary values restorative justice and reconciliation over strict punishment.

The ruling highlights the ratio:

1. Encourages Settlement Instead of Litigation

This decision reinforces the idea that financial disagreements are better settled through negotiation rather than lengthy court battles, conserving judicial resources and the parties' time.

2. Lightens the Load on Courts

Cheque bounce cases make up a large part of the pending criminal cases in India. Promoting settlements and dismissing convictions after an agreement will help decrease the number of cases waiting to be resolved.

3. Safeguards the Rights of the Accused

When the complainant receives compensation, further punishment would be unfair to the accused, constituting double jeopardy. This ruling promotes justice.

In many regions, cheque dishonour is seen mainly as a civil issue rather than a criminal one. This ruling brings India’s practices in line with contemporary global dispute resolution standards.

Saves parties  from the trouble of lengthy court processes.

Gives them the scope to negotiate terms with the accused.

For Accused (Drawer of Cheque)

Gives them a chance to avoid the negative label of a conviction after settling the debt.

Motivates them to resolve disputes early.

Stops unnecessary jail time or fines once the debt is cleared.

Reduces the pressure on courts by cutting down cheque bounce cases.

Promotes the use of alternative methods for resolving disputes.

Strengthens the emphasis on justice over punishment.

Brief analysis of  judgements:

A. Ruling maintains the quasi judicial nature of NI Act

The Supreme Court has clarified that although Section 138 has criminal implications, its primary aim is to provide compensatory justice. Once this is achieved through a settlement, punitive actions become unnecessary.

B. Role of Article 142 of the Constitution:

In various similar cases, the Supreme Court has used its authority under Article 142 to deliver "complete justice" by overturning convictions following settlements. This recent ruling exemplifies the use of constitutional powers to promote fairness.

Case Law Compilation: Supporting Settlements in Cheque Bounce Cases

Damodar S. Prabhu v. Sayed Babalal H. (2010) – Guidelines for compounding.

Kanchan Mehta Case (2017) – Settlement encouraged at all stages.

Kaushalya Devi Massand v. Roopkishore Khore (2011) – Emphasized compensatory nature of law.

Latest Supreme Court Ruling (2025) – Conviction unsustainable after settlement.

The ruling highlights the fact that  primary concern in cheque bounce cases is financial loss, which can be more effectively resolved through compensation rather than punishment.

The ruling reinforces the notion that the law should evolve to provide justice rather than create obstacles. 

This ruling not only protects the accused from unnecessary penalties but also ensures that complainants receive satisfactory compensation.