S.138 NI Act | Guidelines In 'Damodar Prabhu Judgment' On Costs For Compounding Cheque Bounce Cases Not Binding: Supreme Court
The Supreme Court recently set aside the cost imposed by the Bombay High Court on a man convicted under Section 138 of the Negotiable Instruments Act, 1881, after noting that the complainant had no objection to the settlement and that the appellant was unable to pay the amount.A bench of Justice M.M. Sundresh and Justice Satish Chandra Sharma held that the guidelines in Damodar S. Prabhu v....
The Supreme Court recently set aside the cost imposed by the Bombay High Court on a man convicted under Section 138 of the Negotiable Instruments Act, 1881, after noting that the complainant had no objection to the settlement and that the appellant was unable to pay the amount.
A bench of Justice M.M. Sundresh and Justice Satish Chandra Sharma held that the guidelines in Damodar S. Prabhu v. Sayed Babalal H judgment, which provide for imposition of costs in NI Act depending on at which stage the case was compounded, could not be treated as binding.
“The law laid down in the aforementioned judgment cannot be regarded as a binding precedent, as every case must be considered on its own facts”, the Court observed.
In Damodar S. Prabhu, the Supreme Court had permitted compounding of offences under Section 138 of the Negotiable Instruments Act in a case where the parties had reached a settlement.
In that judgment, the Court endorsed a graded scheme of costs to discourage delayed compounding.
Under those guidelines, no cost would be imposed if compounding occurred at the first or second hearing.
Applications made later before the Magistrate would attract 10% of the cheque amount, 15% if made before the Sessions Court or High Court, and 20% if made before the Supreme Court, to be deposited with the relevant Legal Services Authority.
It also directed mandatory disclosure of multiple complaints arising from the same transaction and permitted transfer of such complaints with costs.
The Court had stated that these guidelines were framed in a legislative vacuum and invoked Article 142 to support early compounding.
The present case was an appeal filed by the man whose conviction had been affirmed by the Sessions Court. He had then approached the High Court in revision. During the pendency of the revision, the appellant and the complainant entered into an agreement. On that basis, the High Court acquitted him, but directed him to deposit cost with the State Legal Services Authority in line with the Supreme Court's judgment in Damodar S Prabhu.
The appellant challenged only the imposition of cost. Senior advocate Navin Pahwa argued that in Damodar S. Prabhu, the Court had invoked Article 142 of the Constitution, and therefore the directions in that judgment could not be treated as law. He submitted that treating those directions as binding would discourage settlements at the revisional stage.
He also said that the appellant was not in a position to comply with the order, and in any case, the direction was not for payment to the complainant but to the Legal Services Authority. Since the complainant had no objection, there could be no mandate requiring payment of any further amount.
The Court accepted these submissions. It noted that the respondent did not object to appropriate orders being passed. It found that the cost imposed on the appellant could not be sustained, especially because the complainant did not seek any further amount and the appellant had expressed inability to pay, which was not disputed.
It may be noted that recently, the Supreme Court, in Sanjabij Tari Vs Kishore S Borkar, had modifieed the guidelines in the Damodar Prabhu judgment regarding the costs to be paid on settlement.
Case no. – Special Leave to Appeal (Crl.) No. 14340/2025
Case Title – Rajeev Khandelwal v. State of Maharashtra & Anr.
Citation : 2025 LiveLaw (SC) 1103