A Supreme Court bench comprising Justice Sanjay Karol and Justice Vipul M. Pancholi has set aside the conviction of an appellant in a cheque dishonour case after the parties entered into a settlement agreement. While allowing the appeal, the Court directed the appellant to deposit 10% of the cheque amount as compounding costs with the Supreme Court Legal Services Committee, in line with the modified guidelines for compounding offences under the Negotiable Instruments Act, 1881 (NI Act).
The legal issue before the Court was whether to allow the compounding of an offence under Section 138 of the NI Act after the conviction had been upheld by the Trial Court, Appellate Court, and the High Court. The bench, acknowledging the compromise between the parties and the legislative intent behind Section 147 of the NI Act, allowed the compounding of the offence. Consequently, the Court quashed the lower courts’ orders and directed the immediate release of the appellant, subject to the payment of requisite costs.
Background of the Case
The proceedings originated from a criminal complaint filed by the respondent, Manju Aggarwal, alleging that her firm, M/s Shiv Shakti Packing Industries, had supplied iron materials to the appellant’s firm, M/s Shivam Tools. Accounts settled between the parties revealed an outstanding liability of Rs. 11,37,827/- against the appellant.
To discharge this liability, the appellant issued four post-dated cheques totalling the outstanding amount. These cheques were dishonoured on October 5, 2018, with the remarks “funds insufficient.” Following the issuance of a statutory notice, the complaint was filed.
The Judicial Magistrate First Class (JMIC), Faridabad, convicted the appellant on July 18, 2023, and sentenced him to six months of simple imprisonment along with a direction to pay compensation of Rs. 14,50,000/-. The Trial Court relied on the appellant’s Sales Tax and VAT returns, which corroborated the receipt of material from the complainant.
The appellant’s appeal was dismissed by the Additional Sessions Judge, Faridabad, on August 25, 2025. Subsequently, the High Court of Punjab and Haryana dismissed his Criminal Revision Application on September 15, 2025. The appellant had been in custody since August 25, 2025.
Arguments of the Parties
Appellant’s Submission: Ms. Sugandh Rathor, learned counsel for the appellant, submitted that despite the concurrent findings of the lower courts, the interest of justice would be best served by compounding the offence. It was brought to the Court’s notice that the parties had entered into a Memorandum of Settlement/Compromise dated October 29, 2025, for a settlement sum of Rs. 6,65,000/-.
The counsel placed on record that the appellant had already paid Rs. 4,00,000/- via Demand Draft on October 8, 2025, and a second Demand Draft for the remaining balance of Rs. 2,65,000/- was ready to be handed over.
Respondent’s Submission: Mr. Kustubh Singh, learned counsel for the respondent, did not oppose the compounding of the offence, provided that the settlement amount and costs were paid.
Court’s Observations and Analysis
Justice Sanjay Karol and Justice Vipul M. Pancholi observed that Section 138 of the NI Act creates a quasi-criminal offence, which is explicitly made compoundable under Section 147 of the Act. The Court noted, “The legislative intent is to ensure the payment of money and promote the credibility of cheques.”
In determining the costs for compounding at this stage, the bench referred to its recent judgment in Sanjabij Tari v. Kishore S. Borcar & Anr. (2025 SCC OnLine SC 2069), decided on September 25, 2025. In that case, the Supreme Court had revisited the guidelines earlier laid down in Damodar S. Prabhu v. Sayed Babalal H. (2010), modifying the cost structure for compounding offences at various stages of litigation.
Quoting the modified guidelines from Sanjabij Tari, the Court noted:
“(d) Finally, if the cheque amount is tendered before this Court, the figure would increase to 10% of the cheque amount.”
Decision
In view of the settlement and the legal precedents, the Supreme Court allowed the appeal. The specific directions issued by the Court are as follows:
- Quashing of Conviction: The judgment of conviction dated July 18, 2023, passed by the Trial Court and affirmed by the High Court, was quashed and set aside.
- Release of Appellant: The appellant was ordered to be released from prison forthwith, provided his presence was not required in any other case.
- Imposition of Costs: Following the Sanjabij Tari guidelines, the Court directed the appellant to pay 10% of the cheque amount as compounding cost.
- Amount: Rs. 1,13,783/- (Rupees One Lakh Thirteen Thousand Seven Hundred Eighty-Three Only).
- Recipient: The amount is to be deposited with the Supreme Court Legal Services Committee.
- Timeline: The deposit must be made within a period of four weeks.
The appeal was disposed of in these terms.
Case Details
Case Title: Virender Singh Dongwal v. Manju Aggarwal
Case No: Criminal Appeal No. 5060 of 2025 (Arising out of SLP (Crl.) No. 18429 of 2025)
Coram: Justice Sanjay Karol and Justice Vipul M. Pancholi
Counsel for Petitioner: Ms. Sugandh Rathor, Mr. Mayank Dahiya, Mr. Sangram Singh Rathore (Advocates); Mr. Ajay Pal (AOR)
Counsel for Respondent: Mr. Kustubh Singh (Advocate); Mr. Subhro Prokas Mukherjee (AOR)
