Introduction:

The Punjab and Haryana High Court has reaffirmed the liberal approach adopted towards settlement of cheque dishonour cases by holding that offences under Section 138 of the Negotiable Instruments Act, 1881 can be compounded even after the conviction has been affirmed by the appellate court. Justice Sumeet Goel observed that the High Court, while exercising its inherent jurisdiction under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), has the power to quash a conviction where the parties have genuinely resolved their dispute and such settlement does not adversely affect public interest or the administration of justice.

The case arose from two cheque dishonour complaints in which the petitioner had been convicted by the Judicial Magistrate First Class, Sonipat, and sentenced to imprisonment along with payment of compensation. His appeals before the Additional Sessions Judge were dismissed, affirming the conviction. During the pendency of criminal revision petitions before the High Court, however, the parties settled their disputes before the Mediation and Conciliation Centre, Sonipat. The complainant acknowledged the settlement and expressed no objection to compounding of the offences and the acquittal of the petitioner.

The matter required the High Court to examine the extent of its powers to permit compounding after conviction, the scope of its inherent jurisdiction under the BNSS, and the principles governing waiver of costs at the stage of compounding.

Arguments of the Parties:

The petitioner submitted that the entire dispute between the parties had been amicably resolved through mediation and that the complainant had voluntarily accepted the settlement without any coercion. It was argued that since the offence under Section 138 of the Negotiable Instruments Act is primarily compensatory in nature, continuation of criminal proceedings after settlement would serve no useful purpose. The petitioner therefore sought compounding of the offences, setting aside of the conviction, and acquittal. It was also prayed that the costs ordinarily payable at the stage of delayed compounding be waived considering the prolonged litigation, which had remained pending since 2014.

The respondent-complainant supported the settlement and confirmed before the Court that the entire dispute had been amicably resolved. The complainant stated that there was no objection to the offences being compounded or to the petitioner’s conviction being set aside. The settlement agreement recorded before the Mediation and Conciliation Centre was placed before the Court for appropriate orders.

Court’s Judgment:

Allowing the revision petitions, the Punjab and Haryana High Court held that offences under Section 138 of the Negotiable Instruments Act remain compoundable at every stage of criminal proceedings, including after conviction by the trial court and dismissal of the appeal by the Sessions Court. The Court observed that Section 147 of the Negotiable Instruments Act, read with Section 359 and the inherent powers preserved under Section 528 of the BNSS, permits courts to give effect to genuine settlements in appropriate cases.

Relying upon the Supreme Court’s decisions in Damodar S. Prabhu v. Sayed Babalal H. (2010) and Sanjabij Tari v. Kishore S. Borcar (2025), the Court reiterated that the legislative object behind Section 138 is primarily compensatory rather than punitive. Once the complainant has received the agreed amount and voluntarily consents to settlement, courts should ordinarily facilitate compounding to bring an end to the litigation, provided no larger public interest is affected.

The Court elaborated upon the scope of the inherent powers vested in the High Court under Section 528 of the BNSS, describing them as intrinsic powers intended to prevent abuse of the judicial process and to secure the ends of justice. It observed that these powers enable the High Court to quash convictions where continuation of criminal proceedings would no longer serve any meaningful purpose after a genuine compromise between the parties.

At the same time, the Court clarified that the discretion to waive costs while permitting compounding at an advanced stage must be exercised with great caution. Referring to the principles laid down in Damodar S. Prabhu and the revised guidelines in Sanjabij Tari, the Court held that waiver of costs cannot become a routine practice. Such discretion can be exercised only in exceptional and compelling circumstances, and courts must record specific reasons explaining why departure from the general rule is justified.

The Bench emphasised that the object of imposing costs at the stage of delayed compounding is to promote financial discipline, preserve the credibility of negotiable instruments, and discourage unnecessary prolongation of litigation. Therefore, every court—whether a Magistrate, Sessions Court, or High Court—must exercise the power to waive costs sparingly and only after recording cogent reasons.

Applying these principles to the facts of the present case, the High Court noted that the criminal proceedings had remained pending since 2014 and that the parties had voluntarily resolved all their disputes before the Mediation and Conciliation Centre. The complainant had expressly consented to compounding and sought no further relief. Considering these exceptional circumstances, the Court exercised its discretion to waive the costs ordinarily payable while permitting compounding.

Consequently, the High Court accepted the compromise, set aside the judgments of conviction and sentence passed by the Judicial Magistrate First Class, Sonipat, as well as the appellate judgment affirming the conviction, and acquitted the petitioner of all charges. The parties were directed to remain bound by the terms and conditions of the settlement agreement.

The judgment reinforces the principle that the primary object of cheque dishonour proceedings is to ensure recovery and compensation rather than punishment. It also clarifies that while courts possess wide inherent powers to recognise genuine settlements even after conviction, the discretion to waive statutory costs must remain an exception supported by clear and reasoned judicial findings.