In a landmark 2025 decision, the Supreme Court of India allowed compounding of a cheque bounce case even after the accused was convicted by three lower courts. Read a comprehensive breakdown of the judgment, including the facts, legal reasoning, and new compounding rules.
Introduction—Detailed Background
Cases involving cheque dishonour under Section 138 of the Negotiable Instruments Act (NI Act) make up nearly half of India’s criminal litigation. Both lawmakers and judges acknowledge that these cases differ from ordinary crimes because they arise from financial disputes. The aim is not imprisonment but recovery of money.
Under Section 147 of the NI Act of the law treats cheque bounce cases as quasi-criminal, meaning civil disputes with criminal penalties. Hence, under Section 147 of the NI Act, such cases can be settled (compounded) at any stage.
In its 2025 ruling, the Supreme Court reaffirmed that compounding can be permitted even after multiple convictions, provided the settlement is genuine and the complainant agrees.
Key takeaways:
- The accused had already been convicted by three courts.
- The Supreme Court still allowed compounding.
- The conviction was set aside, and the appellant was released.
- New 2025 compounding guidelines were applied.
This reinforces India’s pro-settlement approach to cheque bounce litigation.
Factual Background
(a) Parties Involved
- Complainant: Manju Aggarwal (Proprietor, M/s Shiv Shakti Packing Industries)
- Accused: Virender Singh Dongwal (Proprietor, M/s Shivam Tools)
They had a business relationship concerning the supply of iron and packing materials.
(b) Business Dealings
The complainant supplied goods worth several lakhs. After settling accounts, ₹11,37,827 remained due—a fact supported by documents.
(c) Cheques Issued
To clear the dues, the accused issued four post-dated cheques totaling ₹11,37,827, thereby acknowledging liability.
(d) Dishonour of Cheques
On October 5, 2018, all cheques bounced due to “insufficient funds,” triggering Section 138 NI Act liability.
(e) Legal Notice
A statutory notice was sent on October 11, 2018. The accused failed to pay within 15 days, satisfying the legal conditions for prosecution.
(f) Complaint Filed
A criminal complaint under Section 138 NI Act was filed.
(g) Evidence
The complainant produced invoices, delivery challans, and tax records proving the supply of goods. The accused failed to rebut the evidence.
(h) Contradictory Defence
The accused changed his stance several times—from claiming he paid, to denying receipt of goods, to calling the cheques “security cheques.” This inconsistency weakened his credibility.
Judicial Journey
- Trial Court (18 July 2023): Convicted, sentenced to 6 months, and fined ₹14.5 lakhs.
- Sessions Court (25 Aug 2025): Appeal dismissed; accused jailed.
- High Court (15 Sept 2025): Revision dismissed.
- Supreme Court: The accused, having served over 2 months, sought compounding after a settlement.
Settlement Before the Supreme Court
Terms (29 Oct 2025):
- Total: ₹6,65,000
- Paid: ₹4,00,000
- Balance: ₹2,65,000 (paid in open court)
The complainant confirmed receipt and agreed to compounding—proving the settlement was voluntary and complete.
Legal Framework Explained
- Section 138 of the NI Act: Punishes cheque dishonour due to insufficient funds, account closure, or stop payment with up to 2 years imprisonment or double the cheque amount in fines.
- Section 147 of the NI Act: Allows compounding of offences at any stage, even post-conviction or partial sentence.
- Sections 118 & 139 NI Act: Presume cheques are issued for valid debts; the accused must disprove this.
Supreme Court’s Reasoning
- Quasi-Criminal Nature: The offence involves money recovery, not moral blame — so settlement aligns with justice.
- Legislative Intent: Section 147 aims for faster resolution and fewer pending cases.
- Genuine Settlement: Most money paid; complainant fully satisfied.
- Custody Already Served: Two months in jail showed good faith.
- New 2025 Guidelines Applied: Based on Sanjabij Tari v. Kishore Borcar (2025).
Compounding Cost Rules (2025)
| Stage | Cost |
|---|---|
| Before defence evidence | 0% |
| After defence evidence | 5% |
| Sessions/High Court | 7.5% |
| Supreme Court | 10% |
The accused must pay 10% (₹1,13,783) to the Supreme Court Legal Services Committee.
Final Order
The Supreme Court:
✔ Set aside all convictions (Trial, Sessions, High Court)
✔ Allowed compounding under Section 147 NI Act
✔ Ordered the release of the appellant
✔ Directed payment of ₹1,13,783 within 4 weeks
✔ Confirmed full settlement
✔ Closed the case
Broader Implications
- Encourages out-of-court settlements
- Reduces judicial backlog
- Preserves business ties
- Strengthens restorative justice
- Provides a clear cost framework
- Cuts litigation expenses
- Supports small businesses
FAQs: Supreme Court Permits Compounding of Cheque Bounce Case at the Final Stage
Can a case be compounded after conviction?
Yes, Section 147 allows it at any stage.
Can compounding happen after serving jail time?
Yes, if the settlement is genuine.
What if the compounding cost isn’t paid?
The compounding order may be cancelled, and the conviction restored.
