The Hon’ble Supreme Court recently reiterated in Parsharvanath Weld Wires Pvt. Ltd. & Anr. v. State of Chhattisgarh & Anr.¹ that an offence under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) is compoundable even after the conclusion of trial and affirmation of conviction up to the level of the High Court, provided a genuine settlement has been arrived at between the complainant and the accused. The Court, relying on settled precedents, quashed the order of conviction and sentence and directed the immediate release of the accused-director who was in custody, reinforcing that the remedial and compensatory purpose of Section 138 proceedings prevails over the punitive, where the complainant’s grievance stands fully redressed.

Brief Facts
The Appellant, Parsharvanath Weld Wires Pvt. Ltd., was the accused in Criminal Complaint Case No. 143/2012, initiated by Respondent No. 2 (the complainant) for an offence punishable under Section 138 of the NI Act. The trial court convicted the Appellant vide judgment dated 6th May 2014 and sentenced it to one year of simple imprisonment, further directing payment of INR 28,00,000/- (equivalent to the cheque amount) as compensation to the complainant under Section 357(3) of the Code of Criminal Procedure, 1973, with a default sentence of six months simple imprisonment.

The conviction was affirmed by the Sessions Judge in Criminal Appeal No. 137/2014 vide judgment dated 7th January 2015, and a subsequent criminal revision preferred by the accused before the High Court of Chhattisgarh was dismissed vide judgment dated 12th August 2024, thereby confirming the concurrent findings of the courts below.

On 23rd April 2026, Appellant No. 2, the Director of the first Appellant-Company, was taken into custody to undergo the sentence. Within two days of his incarceration, a settlement was entered into between the parties on 25th April 2026, whereunder the complainant agreed to compound the offence upon receipt of INR 30,00,000/- in full and final satisfaction. The said amount was paid by the accused by way of a demand draft and duly acknowledged by the Complainant.

An application for compounding the offence under Section 147 of the NI Act was accordingly filed before the Judicial Magistrate First Class (JMFC), who rejected the same on the ground that the judgment cannot be reviewed. The High Court affirmed the rejection, prompting the Appellants to approach the Supreme Court by way of an appeal.

Issue
The primary issue before the Supreme Court was whether an offence under Section 138 of the NI Act, which is compoundable under Section 147 of the said Act, can be compounded and the conviction quashed even after the accused has been convicted by the trial court, the conviction has been affirmed in appeal and revision up to the High Court, and the accused has been taken into custody to serve the sentence provided a post-conviction settlement has been voluntarily reached between the complainant and the accused.

Decision
The Supreme Court allowed the appeal and accepted the settlement arrived between the parties. The Court, relying upon its earlier decision in Gian Chand Garg v. Harpal Singh and Another², held that there is no legal impediment to compounding an offence under Section 138 of the NI Act even at the stage of execution of sentence, particularly where a genuine and voluntary settlement has been arrived at between the complainant and the accused.

The Court set aside the impugned judgment of the High Court of Chhattisgarh at Bilaspur dated 11th May 2026 in CRMP No. 1328/2026 and quashed the order of conviction and sentence imposed on the Appellants. Further, noting that Appellant No. 2 remained in custody, the Court directed the Superintendent of Central Jail, Raipur, to forthwith release him and forward a compliance mail to the Registry of the Supreme Court.

Conclusion
The present decision reaffirms the well-settled position that proceedings under Section 138 of the NI Act are primarily compensatory in nature and that the compoundable character of the offence under Section 147 survives even a final conviction, so long as the parties arrive at a genuine settlement. The Court’s willingness to accept a post-conviction, post-incarceration compromise underscores the legislative policy that the satisfaction of the complainant’s pecuniary grievance must be treated as the paramount consideration in NI Act matters.

By - Gurdev Singh Tung and Debayan Dutta