A client convicted under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) for cheque dishonour can still escape conviction — if the complainant is willing to settle. The Supreme Court has repeatedly confirmed that Section 138 is a quasi-criminal, compensatory offence, compoundable at any stage under Section 147 NI Act, even after conviction has been upheld by the High Court.
The 2025 Supreme Court guidelines in Sanjabij Tari v. Kishore S. Borcar [2025 INSC 1158, indiankanoon.org/doc/198100584/] introduced a structured compounding cost scheme to discourage delay — and to incentivise settling at the earliest possible stage.
This guide explains, step by step, how to compound a Section 138 NI Act conviction at Sessions Court, High Court, or Supreme Court level.
Why Compounding After Conviction Is Still Possible
Section 147 NI Act: Compoundable at Any Stage
Section 147 of the Negotiable Instruments Act, inserted by the 2002 amendment, provides:
"Notwithstanding anything contained in the Code of Criminal Procedure, 1973, every offence punishable under this Act shall be compoundable."
The Supreme Court has definitively held that this covers compounding even after:
- Conviction by the trial Magistrate
- Dismissal of appeal by Sessions Court
- Affirmation of conviction by the High Court in revision
- Pendency of an SLP before the Supreme Court
The Court's rationale: Section 138 is primarily a compensatory mechanism — the criminal consequence is incidental. Once the complainant receives full payment and voluntarily settles, the punitive purpose of the proceeding is extinguished.
The 2025 SC Guidelines: Graded Compounding Costs
In Sanjabij Tari v. Kishore S. Borcar (2025 INSC 1158, decided 25 September 2025), the Supreme Court issued comprehensive guidelines for Section 138 NI Act proceedings, including a tiered cost framework designed to incentivise early settlement:
| Stage of Compounding | Compounding Cost (paid to complainant, in addition to cheque amount) |
|---|---|
| Magistrate Court (early stage / before first hearing) | Nil — cheque amount only |
| Sessions Court or High Court (appeal / revision stage) | 10–15% of cheque amount |
| Supreme Court (SLP / appeal stage) | 20% of cheque amount |
These costs go to the complainant as additional compensation — not to the court as fees or fines. They are separate from the cheque amount itself.
Example: A ₹5 lakh cheque case compounded at Sessions Court requires: ₹5 lakh (cheque amount) + ₹50,000–₹75,000 (10–15%) = ₹5.5–5.75 lakh total. The same case at SC level costs ₹6 lakh. Compound early; pay less.
Who Can Initiate Compounding?
Either party may move for compounding — the accused (through their advocate) or the complainant. The process unfolds in four steps:
- Out-of-court negotiation: Agree on total payment amount (cheque amount + applicable compounding cost)
- Payment made: Via demand draft, RTGS, or pay order to the complainant — never cash without documentation
- Complainant executes compromise affidavit: Confirming receipt and consent to compounding
- Joint application filed before court: Praying for compounding and quashing of conviction
Step-by-Step Procedure at Each Stage
Compounding at Sessions Court (After Magistrate Conviction, During Appeal)
Step 1 — Negotiate and pay. Agree on the cheque amount (if unpaid) plus 10–15% compounding cost. Pay by demand draft or RTGS. Retain documentary proof of payment (DD acknowledgement, RTGS UTR number, bank statement).
Step 2 — Complainant executes a notarised compromise affidavit. The affidavit must state: - Complainant's full name and relationship to the original complaint - That the accused has paid ₹_ in full and final settlement of all claims - That the complainant voluntarily consents to compounding under Section 147 NI Act - That the complainant has no objection to the accused being acquitted
Have the affidavit notarised or sworn before a Notary Public or Magistrate. Courts increasingly insist on notarisation to prevent coercion disputes.
Step 3 — File the joint compounding application. File before the Sessions Court in the pending criminal appeal. The application must: - State the criminal appeal number and the original complaint number - Cite Section 147 NI Act and Sanjabij Tari v. Kishore S. Borcar [2025 INSC 1158] - Annex: (a) notarised compromise affidavit; (b) proof of payment; (c) copy of Magistrate conviction order - Prayer: compounding allowed; conviction and sentence set aside; accused acquitted; bail bonds discharged
Step 4 — Hearing and order. Both parties (or advocates with vakalatnama) appear. Sessions Court passes a short order allowing compounding, setting aside the conviction, acquitting the accused, and discharging sureties.
Compounding at High Court (Revision or Second Appeal Stage)
The procedure mirrors the Sessions Court stage with these differences:
- Application type: Criminal Miscellaneous Application (Crl.M.A. / Crl.M.C. / Crl.M.P. — varies by High Court)
- Court fee: Check your HC's criminal miscellaneous fee schedule (typically ₹200–₹500; varies by state)
- Compounding cost: 10–15% of cheque amount
- On the hearing date, the HC records the settlement and passes a short order allowing compounding and quashing the conviction
If the HC itself convicted (reversed a Magistrate acquittal): File an SLP before the Supreme Court and compound there at 20% cost.
Compounding at Supreme Court (SLP Stage)
Step 1: File a Criminal Miscellaneous Application (Crl.M.A.) in the pending SLP, titled: "Application for compounding of offence under Section 147 of the Negotiable Instruments Act, 1881."
Step 2: Attach: (a) complainant's notarised affidavit/compromise deed; (b) documentary proof of payment; (c) copies of all lower court orders.
Step 3: The affidavit must confirm payment of 20% of cheque amount as compounding cost to the complainant.
Step 4: SC passes order: compounding allowed; convictions of all courts below set aside; accused acquitted; immediate release if in custody.
What the Court Will Verify Before Allowing Compounding
- Voluntary compromise. No coercion. Court may summon complainant for personal examination if there is any doubt.
- Full payment confirmed. Affidavit must specify the exact amount received. Partial payment is insufficient.
- Complainant's identity. Must be the original complainant, or their legal representative with a registered power of attorney or succession documentation.
- Consent is unconditional. A conditional settlement ("I consent provided accused withdraws their counter-FIR") cannot be recorded as compounding of separate proceedings.
What Happens to the Sentence After Compounding?
| Item | What Happens |
|---|---|
| Criminal conviction | Set aside entirely — accused is acquitted, not merely pardoned |
| Sentence of imprisonment | Vacated; time served is not counted as a prior conviction |
| Fine imposed by court | Refunded to the accused |
| Accused in custody | Immediate release directed by the compounding order |
| Bail bonds and sureties | Discharged on the date of compounding order |
| Effect on criminal record | For this case: nil — acquittal is recorded, not conviction |
This distinction between "acquittal" and "sentence served" matters for employment background checks, Bar Council of India registration, and passport/visa applications.
Common Errors to Avoid
| Error | Consequence |
|---|---|
| Compromise affidavit not notarised or witnessed | Court doubts authenticity; complainant may need personal appearance; adjournment |
| Payment in cash without documentation | Court cannot verify settlement; application returned |
| Wrong compounding cost percentage stated in affidavit | Non-compliant with Sanjabij Tari guidelines; application may be rejected |
| Affidavit signed by someone other than complainant without registered PoA | Application rejected |
| Filing application without proof of payment attached | Incomplete; returned for re-filing |
| Attempting to compound after SLP is dismissed (final order) | No forum available; compounding opportunity extinguished |
Frequently Asked Questions
Can I compound a Section 138 NI Act case after conviction even if the complainant initially refuses?
No. Section 147 NI Act requires the complainant's consent — courts cannot compound over a complainant's objection. If the complainant refuses despite full payment, some High Courts have entertained quashing petitions under Section 528 BNSS (formerly Section 482 CrPC) on the ground that the prosecution's compensatory purpose is met. This remains fact-specific and is not a guaranteed remedy.
My client's conviction was upheld by the High Court two years ago and they are mid-sentence. Is compounding still possible?
Yes. There is no time bar under Section 147 NI Act. The Supreme Court has allowed compounding even when the accused was serving sentence and directed immediate release. File an SLP (if not already filed) and then move a Crl.M.A. for compounding.
How is the 10–15% compounding cost calculated on a ₹10 lakh cheque?
Most courts apply 10% at the Sessions Court/first revision stage and 15% at the High Court second revision stage. On a ₹10 lakh cheque, the compounding cost is ₹1 lakh (10%) to ₹1.5 lakh (15%) — paid to the complainant over and above the ₹10 lakh principal. Total outflow: ₹11–11.5 lakh.
Can we compound mid-trial, after the accused has pleaded not guilty?
Yes. There is no restriction based on the stage of trial or the plea entered. Compounding can happen at any point — pre-cognizance, mid-trial, post-conviction, or pending appeal.
Does a private settlement agreement automatically set aside the conviction?
No. A private settlement alone does not set aside a criminal conviction. A court order is mandatory. File the joint compounding application, obtain the formal compounding order, and only then is the conviction legally set aside and the accused acquitted.
After Sessions Court dismissed my client's appeal, can we compound in the High Court revision?
Yes. File a Crl.M.A. in the HC revision petition (or as a standalone application if revision is already pending). The HC has full power to allow compounding in revision under Section 147 NI Act.
How Urava Can Help
Drafting a Section 138 NI Act compounding application requires the correct case citation, accurate computation of compounding costs, a precisely worded compromise affidavit, and an error-free prayer clause aligned with Sanjabij Tari [2025 INSC 1158] guidelines. A single drafting mistake — wrong cheque amount, missing citation, wrong cost percentage — can get the application returned or rejected.
With Urava, forward the conviction order, settlement amount, and case background to the Urava WhatsApp bot. In approximately 10 minutes you receive a court-ready research memorandum with verified citations, a draft prayer clause for the compounding application, the correct compounding cost calculation, and a document checklist — structured for court submission.
Urava's free plan gives 3 research memos to start. The Junior plan (₹399/month) covers 10 memos — enough for your full Section 138 NI Act docket.
Related guides on Urava: - Section 138 NI Act: Limitation Period and Complaint Procedure — covers the 3 strict filing deadlines and complaint procedure for complainants - How to Modify Bail Conditions Under BNSS Section 480 — step-by-step procedure to relax burdensome bail conditions pending trial or appeal