S.138 NI Act | Conviction For Cheque Dishonour Can Be Quashed Based On Settlement Between Parties : Supreme Court

The Supreme Court recently allowed the compounding of offences under Section 147(offences to be compoundable) of the Negotiable Instruments Act after a settlement took place between the parties. Consequently, it set aside the conviction and sentence imposed under Section 138 of the NI Act for the offence of dishonour of a cheque for the insufficiency of funds.

A bench comprising Justice Aravind Kumar and Justice PB Varale passed this order, relying on its earlier decision in Gian Chand Garg v Harpal Singh(2025), in which it had said that once a settlement is entered between the complainant and the accused, conviction under Section 138 of the NI Act can't be sustained.

In this case, the appellant, Director of a Company, was convicted by a judgment in 2014 and was sentenced to one year of simple imprisonment and directed to pay Rs. 28,00,000, cheque amount, as compensation under Section 357(3) of the Code of Criminal Procedure. The judgment was affirmed by the Sessions Court and then by the High Court of Chhattisgarh.

The Director was then taken into custody to undergo the sentence, but within two days thereafter, a settlement took place on the payment of Rs. 30,00,000 by the appellant. But when an application was filed by the compounding of the offence, it was rejected by the Judicial Magistrate of First Class and then was affirmed by the High Court on grounds that the judgment can't be reviewed.

Setting this aside, the Court said: "Having heard the learned Advocates appearing for the parties and in view of the law laid down by this Court in the case of Gian Chand Garg vs. Harpal Singh and Another reported in 2025 SCC OnLine SC 2317, we have no hesitation to accept the compromise entered into and compound the offence, particularly in the light of settlement arrived at between the parties."

The Court has directed the Jail Superintendent, Central Jail, Raipur, to forthwith release the appellant and forward a mail to the Supreme Court's registry for compliance.

Case : PARSHARVANATH WELD WIRES PVT LTD & ANR v. STATE OF CHHATTISGARH & ANR.

Citation : 2026 LiveLaw (SC) 585

Click Here To Read Order

Appearances: For Appellant(s) : Mr. Salvador Santosh Rebello, AOR Mr. Aishwarya Kumar Dubey,Adv. Mr. Raghav Sharma, Adv. Ms. Moulishree Pathak, Adv. Ms. Manisha Gupta, Adv. Mr. Nishant Kumar, Adv.

For Respondent(s) : Mr. Parijat Kishore, AOR Ms. Mudita Arora, Adv. Mr. Aryan Sharma, Adv