Settling a cheque bounce case: compounding under s.147

Every offence under the Negotiable Instruments Act is compoundable under section 147, so a cheque bounce case can be settled at any stage, from the first hearing to the Supreme Court. Compounding ends the case with an acquittal of the accused. Since the Supreme Court’s judgment of 25 September 2025 in Sanjabij Tari v. Kishore S. Borcar, the costs for settling late are: nil before defence evidence, 5% before the trial court’s judgment, 7.5% in appeal or revision before the Sessions Court or High Court, and 10% before the Supreme Court.

Why most cheque cases settle

A complainant wants his money. An accused wants to avoid a conviction and a jail term of up to two years. Section 147, added by the 2002 amendment, gives both sides a legal route to a settlement. Courts encourage it because cheque cases make up a large part of the pending work of Magistrates’ courts.

Compounding differs from a withdrawal. In a withdrawal the complainant simply gives up the case. In compounding, the parties record a compromise and the court acquits the accused. That closes the case on that cheque for good.

Court permission and consent

Settlement outside court is possible, but the case only ends when the court passes an order. The complainant must tell the court that the matter has been settled, and the court records the compounding. Because the section says offences “shall be compoundable”, the NI Act does not follow the usual rule that some offences need court permission or cannot be compounded. The court still has to be satisfied that the compromise is voluntary and that the complainant has received what was agreed. Do not treat a private paper as the end of the case until the court order is passed.

The cost rules, old and new

Because people used to settle at the last stage, the Supreme Court in Damodar S. Prabhu v. Sayed Babalal H. (2010) laid down graded costs, to be paid to the Legal Services Authority, to push parties to settle early. They were: nothing at the first or second hearing; 10% of the cheque amount before the Magistrate later in the case; 15% before the Sessions Court or High Court; and 20% before the Supreme Court.

On 25 September 2025, in Sanjabij Tari v. Kishore S. Borcar, the Supreme Court revised these. The revised scale is:

The court directed that its guidelines be implemented from 1 November 2025. Each High Court and district court sets its own practice, so ask the court staff how it is applied in your court. The court also said that where the complainant wants more than the cheque amount, the Magistrate may suggest that the accused plead guilty under section 278 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (earlier section 255 of the CrPC) and may consider the benefit of the Probation of Offenders Act, 1958.

Costs are not a fixed rule

In Rajeev Khandelwal v. State of Maharashtra (2025) the Supreme Court set aside a cost imposed by a High Court on a settlement where the complainant had no objection and the accused could not pay, observing that the Damodar Prabhu cost guidelines are not a binding rule for every case. So a court may reduce or waive costs when the facts justify it.

Routes to settlement

• Pay through the court. The 2025 directions ask district courts to provide QR code or UPI payment links, and for the summons to tell the accused that he can pay the cheque amount at the start. After the complainant confirms receipt, the case can be compounded.
• Court-annexed mediation. Courts refer suitable cheque cases to their mediation centres.
• Lok Adalat. National Lok Adalats are held periodically and take up pending cheque cases. A Lok Adalat award is binding and final. See the Lok Adalat guide.
• Private settlement. Signed by both sides and filed with a compounding application.

How to write a safe settlement

1. State the total amount, the date and the mode of payment (bank transfer or demand draft), and give the cheque number and case number.
2. If paid in instalments, give each date and amount.
3. Add a default clause: if one instalment is missed, the complainant may carry on with the case and recover the balance.
4. State that on receipt of the full amount the complainant will compound the case under section 147.
5. Ask the court to record the compromise so it is enforceable.
6. Do not file for compounding, and do not withdraw, until the last instalment has cleared.

Examples

Harpreet, a wholesaler in Ludhiana, has a ₹3 lakh case pending. At the third hearing, before any defence evidence, the accused offers the full amount in three monthly instalments. They sign a settlement with a default clause and file it in court. After the third instalment clears, Harpreet files the compounding application. As this is before defence evidence, there is no cost under the revised scale.

Neha, a boutique owner in Chandigarh, files a complaint on a ₹1,20,000 cheque. The summons tells the accused he can pay by an online link. He pays before the first hearing, Neha confirms, and the court allows compounding. These are illustrations of how the process can run, not a promise of what any particular court will do.

Common mistakes

• Withdrawing the complaint on a promise, then not getting paid.
• Compounding on the first instalment.
• Making a settlement without a default clause.
• Waiting until appeal and paying 7.5% or more instead of settling before defence evidence.
• Asking for more than the cheque amount at compounding without court guidance. The 2025 judgment points such cases toward a guilty plea route.

Settlement is only one piece of recovery. You can also sue for the money in a civil court. The cheque bounce law certificate course covers both. The certificate is a certificate of completion issued by Lexfolio and is not a professional qualification.

Frequently asked questions

Can a cheque bounce case be settled after conviction?

Yes. Section 147 makes the offence compoundable at any stage, including appeal and revision. The cost is 7.5% in the Sessions Court or High Court under the 2025 scale.

Does compounding mean I will have a criminal record?

Compounding results in acquittal of the accused.

What if the accused misses an instalment after compounding?

That is why you should not compound until full payment, or have the court record the instalment plan with a default clause.

Who pays the compounding cost?

The accused, typically deposited with the Legal Services Authority or as the court directs.

Can the complainant refuse to compound?

The complainant’s agreement is the basis of compounding. In practice courts encourage settlement, and the 2025 judgment points to a guilty plea route where the complainant insists on more than the cheque amount.

Quick quiz

Sources

• Negotiable Instruments Act, 1881: ss.138, 147
• Bharatiya Nagarik Suraksha Sanhita, 2023: s.278
• Probation of Offenders Act, 1958
• Damodar S. Prabhu v. Sayed Babalal H. (2010)
• Sanjabij Tari v. Kishore S. Borcar (Supreme Court, 25 September 2025); Rajeev Khandelwal v. State of Maharashtra (Supreme Court, 2025)

This page is for education and general information, not legal advice for a specific case. Law as on 7 November 2026.