Holding

The High Court held that a voluntary settlement between the parties compounds the offence under Section 138, permitting the conviction to be quashed.

Summary

Vijaybhai Mohanbhai Shah was convicted under Section 138 of the Negotiable Instruments Act and sentenced to one year imprisonment and a fine. The original complainant later received a settlement of Rs.5,00,000 and voluntarily agreed to compound the offence. Both parties filed a criminal revision seeking quash of the conviction on the basis of the settlement. The High Court examined Supreme Court precedents allowing compounding of Section 138 offences even after conviction. Relying on Section 147 of the NI Act and recent case law, the Court allowed the revision, quashed the conviction, and ordered the applicant to deposit costs equal to 7.5% of the cheque amount with the Gujarat State Legal Services Authority.

Issues considered

Whether a post‑conviction settlement can be treated as a valid compounding of an offence under Section 138 of the Negotiable Instruments Act.
Whether the conviction and sentence may be quashed on the basis of such a settlement.
What costs, if any, must be paid by the applicant to effect the compounding.

Legislation cited

Negotiable Instruments Act, 1881s. 138, s. 147

Subjects

Negotiable Instruments ActSection 138Compounding of offenceCriminal revisionSettlementQuash convictionPost‑conviction compromiseGujarat High Court

Judgment

R/CR.RA/2360/2026 ORDER DATED: 11/08/2026

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/CRIMINAL REVISION APPLICATION (AGAINST CONVICTION -
NEGOTIABLE INSTRUMENT ACT) NO. 2360 of 2026
==========================================================
VIJAYBHAI MOHANBHAI SHAH(CHOPRA)
Versus
STATE OF GUJARAT & ANR.
==========================================================
Appearance:
MR.MRUDUL M BAROT(3750) for the Applicant(s) No. 1
MS. C.M. SHAH, APP for the Respondent(s) No. 1
==========================================================
CORAM:HONOURABLE MS. JUSTICE S.V. PINTO

Date : 11/08/2026

ORAL ORDER

1. Learned advocate Ms. Suman K. Chaudhary

submits that he has instructions to appear on behalf of the

respondent No.2 – original complainant and seeks permission

to le her appearance.

Registry to accept.

2. Rule. Learned APP waives service of rule for the

respondent No.1-State and learned advocate Ms. Suman K.

Chaudhary waives service of rule for the respondent No.2.

3. Learned advocate Mr. Mrudul M. Barot for the

applicant and learned advocate Ms. Suman K. Chaudhary for

the respondent No.2 – original complainant, jointly submit

that the matter is amicably settled between the parties and

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the present application be taken up for nal hearing and be

disposed of accordingly.

4. In view of the above submissions made by the

learned advocates for the respective parties, the matter is

taken up for nal hearing.

5. By way of the present application, the applicant

has prayed to quash and set aside the judgment and order

passed by the learned City Civil Judge & Sessions Court

No.15, Ahmedabad in Criminal Appeal No. 227 of 2009 dated

24.07.2026 con rming the judgment and order passed by the

learned Metropolitan Magistrate, N.I. Act, Court No.2,

Ahmedabad in Criminal Case No. 50 of 2008 dated

20.08.2009, whereby, the present applicant was sentenced to

simple imprisonment for one year and ne of Rs.5000/-, and in

default, simple imprisonment for three months for the o6ence

under Section 138 of the Negotiable Instruments Act, 1881.

6. Heard learned advocate Mr. Mrudul M. Barot for

the applicant, learned APP Ms. C.M. Shah for the respondent

No.1 – State and learned advocate Ms. Suman K. Chaudhary

for the respondent No.2 – original complainant.

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7. Learned advocate Mr. Mrudul M. Barot for the

applicant submits that the dispute between the parties has

been amicably settled and the respondent No.2 – original

complainant has received the entire settlement amount and

does not wish to prosecute the matter further. The

compromise has been entered into voluntarily, without any

coercion, undue in:uence or pressure and, therefore, the

respondent No.2 has no objection if the impugned judgment

and order of conviction as well as all other consequential

proceedings arising pursuant thereto are quashed against the

applicant – accused.

8. Learned advocate Ms. Suman K. Chaudhary for the

respondent No.2 – original complainant submits that the

respondent No.2, Vijaybhai Mohanbhai Shah (Chopra), -

original complainant is present in-person before this Court

and has produced a copy of a6idavit of the respondent No.2 –

original complainant, which is taken on record.

9. Learned APP Ms. C.M. Shah for the respondent

No.1 – State submits that the impugned judgment and order

of sentence is just and proper; however, considering the fact

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that the dispute between the parties is amicably settled,

necessary order may be passed.

10. The respondent No.2 – original complainant is

present in-person before this Court, and on inquiry, submits

that the dispute between them has been settled amicably and

the entire settlement amount has been received and he does

not wish to prosecute the matter further. He admits to the

contents of the a6idavit and submits that the compromise has

been entered into of his own free will without any fear, threat

and coercion.

11. The a6idavit led by the respondent No. 2 –

original complainant reads as under:

“I, Manhar Sukhlalbhai Patel, Aged: Years, Male,
Residing at: 32, Mahalakshmi Society,
Shahibaug, Ahmedabad, le the following
a6idavit and state on solemn a6irmation on
oath as under;
1. I state that I am the Respondent no. 2, i.e.
original complainant, in connection with the
Old Criminal Case No.102 of 2005 and New
Criminal Case No.50 of 2008 against the
Applicant for the o6ences punishable under
Section 138 of NI Act, 1881 and I state that I
have decided to settle the dispute with the
present Applicant, i.e. original accused. I am
ling the present a6idavit for the said
purpose. That I am well conversant with the
facts of the case and I have gone through the
entire contents of the present application; I
am competent to le the present a6idavit.

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2. In the present case, the matter has been
amicably resolved through mutual talks and
compromise between the parties.
3. I say and submit that, subsequently, a full and
nal settlement has been arrived at between
me and the Applicant. In pursuance thereof, I
have received a total sum of Rs. 5,00,000/-
(Rupees Five Lakhs Only) from the Applicant,
i.e. the Original Accused. Pursuant to the said
settlement, a Settlement Deed has also been
duly executed between the parties. I state that
I have no grievance, claim, or objection
whatsoever against the Applicant in respect of
the subject matter of the present proceedings.
A copy of the said Settlement Deed is annexed
herewith and marked as Annexure – R1.
4. I say and submit that I have no objection if the
impugned judgment and order dated
24.07.2026 passed by the Learned City Civil
Judge and Sessions Court, Ahmedabad in
Criminal Appeal No. 227 of 2009 and order
dated 20.08.2009 passed by the Ld.
Magistrate N.I.A Court No. 2, Ahmedabad in
Old Criminal Case No. 102 of 2005 and New
Criminal Case No.50 of 2008 and all
proceedings arising therefrom be quashed and
set aside in the interest of justice.
5. I say and submit that since the dispute is
settled, I do not want to pursue further with
the present Applicant, i.e. original accused
and therefore, I have settled the matter with
the present Applicant, i.e. original accused.
6. I say and submit that the present a6idavit is
being led by me on my own volition without
any force, threat, duress or coercion.”

12. Section 147 of the N.I.Act makes o6ences under

the Act compoundable notwithstanding anything contained in

the Code of Criminal Procedure. The Hon’ble Supreme Court

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in Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC

663, recognized that the primary object of proceedings under

Section 138 N.I. Act is compensatory in nature and

encouraged compounding even at later stages subject to

payment of appropriate costs.

13. Recently, in Gian Chand Garg v. Harpal Singh

and Another, 2025 SCC OnLine SC 2317, the Hon’ble

Supreme Court has observed in Para Nos. 5 to 10 as under :

“5. Be that as it may, at the outset, it is apposite to advert to
settled position of law enunciated by this Court with regard
to nature of proceedings under Section 138 of N.I.Act and
the legal consequences that ensues upon a compromise
being entered into between the parties.

6. This court in M/s. Meters and Instruments Private
Limited & Anr. v. Kanchan Mehta, 2018 (1) SCC 560
held that the nature of o6ence under section 138 of the
N.I.Act is a mainly a civil wrong and has been made
speci cally compoundable by section 147 of the N.I.Act
which was inserted by the 2002 amendment to the said Act.
The relevant observations have been extracted for reference:

“This Court has noted that the object of the statute was
to facilitate smooth functioning of business
transactions. The provision is necessary as in many
transactions’ cheques were issued merely as a device
to defraud the creditors. Dishonor of cheque causes
incalculable loss, injury and inconvenience to the Vide
the Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988
payee and credibility of business transactions su6ers a
setback. At the same time, it was also noted that
nature of o6ence under Section 138 primarily related
to a civil wrong and the 2002 amendment speci cally
made it compoundable.”

7. It is also apposite to reiterate the observations in P.
Mohanraj & Ors. v. M/s. Shah Brothers Ispat Pvt. Ltd.
(2021) 6 SCC 258 wherein this court referred the o6ence

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under section 138 N.I.Act as a “Civil Sheep” in “Criminal
Wolf’s Clothing” which meant issues agitated by the parties
under the said provision are of private nature which are
brought within the sweep of criminality jurisdiction in order
to strengthen the credibility of the negotiable instruments.

8. Further in M/s. Gimpex Private Limited v. Manoj Goel
(2021) SCC OnLine SC 925 this court took into
consideration the e6ect of settlement arrived between the
parties and observed that:

“38. When a complainant party enters into a compromise
agreement with the accused, it may be for a multitude
of reasons - Higher Compensation, faster recovery of
money, uncertainty of trial and strength of complaint,
among others. A complainant enters into a settlement
with open eyes and undertakes the risk of the accused
failing to honour the cheques issued pursuant to the
settlement, based on certain bene ts that the
settlement agreement postulates. Once parties
voluntarily entered into such an agreement and agree
to abide by the consequence of non-compliance of the
settlement agreement, they cannot be allowed to
reverse the e6ects of the agreement by pursuing both
the original complaint and the subsequent complaint
arising from such non-compliance. The Settlement
agreement subsumes the original complaint……”

9. In B.V. Seshaiah v. State of Telangana & Anr. (2023)
SCC OnLine SC 96 this court was of the view that when
parties enter into an agreement and compound the o6ence,
they do so to save themselves from the process of litigation
and when such a step is taken by the parties, the law very
well allows them to do so. Hence, the courts cannot override
such compounding and impose its will.

10. Therefore, it is very clear that although dishonour of cheque
entails criminal consequence, the legislature by virtue of
section 147 of the N.I.Act has made it compoundable
notwithstanding the provisions of the Code of Criminal
Procedure, 1973 and the same can be compounded at any
stage of the proceedings especially when the parties have
themselves arrived at a voluntary compromise.”

14. Further, in Sanjabij Tari v. Kishore S. Borcar

and Another (Criminal Appeal No. 1755 of 2010, decided

on 25.09.2025), the Hon’ble Supreme Court modi ed the

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earlier guidelines relating to compounding costs and observed

that where payment is made before the Sessions Court or

High Court in revision/appeal, compounding may be permitted

on payment of 7.5% of the cheque amount by way of costs.

15. So far as the objection that post-conviction

compromise may dilute the rigour of criminal process is

concerned, the same does not survive in view of the law laid

down in Gian Chand Garg (supra), wherein the Hon’ble

Supreme Court speci cally held that compounding under

Section 138 N.I. Act can be permitted even after conviction

and that such exercise does not violate the statutory scheme

but rather advances the object of ensuring payment and

reducing unnecessary litigation.

16. Accordingly, the present application is allowed.

17. The judgment and order of conviction passed by

the learned City Civil Judge & Sessions Court No.15,

Ahmedabad in Criminal Appeal No. 227 of 2009 dated

24.07.2026 con rming the judgment and order passed by the

learned Metropolitan Magistrate, N.I. Act, Court No.2,

Ahmedabad in Criminal Case No. 50 of 2008 dated 20.08.2009

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under Section 138 of the N.I.Act are hereby quashed and set

aside on the basis of compromise between the parties.

18. However, as the settlement has been arrived at the

stage of proceedings before this Court, the applicant shall

deposit costs equivalent to 7.5% of the cheque amount with

the Gujarat State Legal Services Authority within a period of

four weeks from the date of this order and shall place proof of

such deposit on record.

19. Subject to deposit of the aforesaid costs, the

o6ence shall stand compounded and the applicant shall stand

acquitted of the charge under Section 138 of the N.I.Act.

20. Rule made absolute.

21. Direct service is permitted.

(S. V. PINTO,J)
ROHAN SONI
Original copy of this order has been signed by the Hon'ble Judge.
Digitally signed by: ROHAN SONI(HC02356), ENGLISH STENO GRADE-II\, at High Court of Gujarat on 11/08/2026 19:00:24

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