Most Section 138 complaints are about money, not punishment. The complainant wants the cheque amount; the accused wants the case closed without a conviction. That is why many cheque bounce cases end in a compromise rather than a judgment, and why the law makes settlement possible at almost every stage.
This guide explains how compounding works, what it costs at each stage, how to structure an instalment settlement that does not collapse, and what happens if the settlement cheques also bounce. It is written for advocates on either side and for parties trying to understand their options. For the offence itself, the notice and the complaint, read our Section 138 NI Act guide.
Why a Section 138 case can be settled
Section 147 of the Negotiable Instruments Act, 1881 says that every offence punishable under the Act is compoundable, notwithstanding anything in the Code of Criminal Procedure. The text is on India Code. Three consequences follow:
- Any stage. The case can be compounded before the trial court, in appeal, in revision and even in the Supreme Court.
- Consent is required. In JIK Industries Ltd. v. Amarlal V. Jumani (2012) 3 SCC 255, the Supreme Court held that Section 147 does not remove the need for the complainant's consent. The accused cannot compound the offence alone.
- The effect is an acquittal. Under the general compounding provisions (Section 320 CrPC, now Section 359 BNSS), the composition of an offence has the effect of an acquittal of the accused.
Can the court close the case without the complainant's consent?
For a time, Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2018) 1 SCC 560 suggested that a trial court could close the proceedings if the complainant had been fully compensated, even without consent. A Constitution Bench in In Re: Expeditious Trial of Cases under Section 138 of the NI Act (2021) held that Section 258 CrPC, the provision relied on for closing the case, does not apply to Section 138 complaints. In practice, the safe course is a settlement the complainant signs.
What settling costs at each stage
In Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663, the Supreme Court framed guidelines to encourage early settlement. The later the parties settle, the higher the costs the court may impose, usually deposited with the Legal Services Authority.
| Stage at which the case is compounded | Costs under the guidelines |
|---|---|
| First or second hearing, before the accused's evidence | No costs |
| Later in the trial court | 10% of the cheque amount |
| Before the Sessions Court or High Court in appeal or revision | 15% of the cheque amount |
| Before the Supreme Court | 20% of the cheque amount |
Courts treat these figures as guidelines, not a fixed tariff, and have reduced or waived the costs where the facts justified it. Ask for a reduction in the compounding application if there is a reason, such as a delay not caused by the accused, and expect the court to decide.
Pressure points that push settlement
Two provisions added in 2018 often bring the accused to the table:
- Interim compensation (Section 143A). The trial court may order the accused to pay up to 20% of the cheque amount while the case is pending.
- Deposit in appeal (Section 148). The appellate court may require the convicted accused to deposit at least 20% of the fine or compensation before the appeal is heard.
Amounts paid under either provision should be adjusted in the settlement figure. Say so in the terms, or the accused may end up paying twice.
A worked example: an instalment settlement
A cheque for ₹6,00,000 is dishonoured for insufficient funds. The complaint is filed in time, the accused appears, and the case reaches the stage of the complainant's evidence. The parties agree that the accused will pay ₹5,40,000 in three instalments, the complainant giving up the remaining interest claim.
A workable settlement records:
- The total amount and whether it is in full and final settlement of the cheque, the underlying debt and any civil claim.
- The schedule. ₹1,80,000 on the date the settlement is recorded, then two instalments on fixed dates, each paid by demand draft or bank transfer, not by a new post-dated cheque if it can be avoided.
- Adjustment of any interim compensation already paid under Section 143A.
- The default clause. If any instalment is missed, the complainant may ask the court to proceed with the complaint from the stage it had reached, and the amounts already paid are adjusted.
- Costs. Whether the Damodar S. Prabhu costs, here up to ₹60,000 at 10% of the cheque amount, are borne by the accused or shared, subject to the court's order.
- Other proceedings. Whether a pending civil recovery suit or a second complaint will be withdrawn once payment is complete.
The court usually records the statements of both parties and either compounds the offence immediately (if payment is made in full) or adjourns the case until the last instalment, compounding it once the complainant confirms receipt. Ask the court to record the default clause in its order, not only in the private agreement.
Where the settlement can happen
- Before the trial court. The parties file a joint compounding application, or record statements, and the court passes an order compounding the offence.
- Mediation. Many courts refer Section 138 cases to court-annexed mediation. A settlement agreement reached there comes back to the court to be recorded.
- Lok Adalat. Cheque bounce cases are regularly listed before Lok Adalats. In K.N. Govindan Kutty Menon v. C.D. Shaji (2012) 2 SCC 51, the Supreme Court held that a Lok Adalat award in a case referred by a criminal court is deemed a decree of a civil court and is executable. Our Lok Adalat guide explains the process.
- In appeal or revision. The appellate or revisional court can compound the offence and set aside the conviction, subject to the higher costs above.
If the settlement cheques also bounce
This is the most common way a settlement fails. In Gimpex Private Limited v. Manoj Goel (2021), the Supreme Court held that the complainant cannot pursue both the original complaint and a fresh complaint on the dishonoured settlement cheques. The complainant must choose one remedy. Pursuing the original complaint is usually stronger, because the case has already progressed.
This is why the default clause matters, and why payment by demand draft or bank transfer is safer than a fresh set of cheques.
Checklist for a compounding application
- Case number, court, and the stage the case has reached
- The cheque details: number, date, amount and bank
- The settlement amount, how and when it has been or will be paid
- Adjustment of any Section 143A interim compensation
- A request to compound the offence under Section 147 NI Act
- Any request to reduce or waive the Damodar S. Prabhu costs, with reasons
- Signatures of both parties, with their identity proof and advocates' details
- Whether the accused's personal appearance is needed on the day; if not, see our exemption application format for a 138 case
Read the current costs practice and rules of your court before filing. Some courts have their own forms for compounding and Lok Adalat references.
Before the case is filed
Settlement is cheaper before a complaint exists. The statutory demand notice gives the drawer 15 days to pay the cheque amount, and payment within that time means no offence is committed. If you are drafting that notice, see how to draft a legal notice for money recovery. If you have received one, read how to reply to a legal notice.
If you want a first draft of a compounding application or settlement terms, you can create a free JuniorLawyer account and adapt the draft to your court's format. Check every figure and date against the case record before filing.