Cheque Dishonour Cases Under Section 138 NI Act:
Revised Compounding Guidelines, Appellate Powers and the Path to Relief
Bombay High Court | W.P. Nos. 4815, 4808 & 4822 of 2025 | Decided: 10th June 2026 | Coram: Justice Madhav J. Jamdar
Abstract: The Bombay High Court has recently applied the Supreme Court's landmark guidelines in Sanjabij Tari v. Kishore S. Borcar (2025 SCC OnLine SC 2069) to a cluster of cheque dishonour appeals, quashing lower court orders that had rejected compounding applications. This article analyses the revised compounding cost structure, the interplay between Section 138 of the Negotiable Instruments Act, 1988 and Sections 255(2)/(3) of the Code of Criminal Procedure / Section 278 of BNSS 2023, and the critical tool of the Probation of Offenders Act, 1958 — providing practitioners and accused persons with a clear roadmap to resolve cheque dishonour litigation at every stage.
I. Introduction: The Persistent Problem of Cheque Dishonour Litigation
Section 138 of the Negotiable Instruments Act, 1881 ("NI Act") has been one of the most heavily litigated provisions in Indian criminal law for decades. Millions of cheque dishonour cases crowd the dockets of Magistrate Courts, Sessions Courts, and High Courts across the country, often causing prolonged hardship to both complainants who have been deprived of their dues and accused persons who remain enmeshed in criminal proceedings long after the underlying commercial dispute could have been resolved.
The root cause of this gridlock is well understood: the absence of a structured incentive framework for early settlement meant that accused persons had little reason to pay promptly, while complainants could hold out for amounts far exceeding what was legitimately owed. The Supreme Court addressed this imbalance first in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663, by introducing a graded costs framework for compounding, and revisited and substantially strengthened those guidelines in Sanjabij Tari v. Kishore S. Borcar (2025 SCC OnLine SC 2069).
The Bombay High Court judgment in Cambium Boitech Private Ltd v. State of Maharashtra (W.P. Nos. 4815, 4808 & 4822 of 2025, decided 10 June 2026) is a timely and authoritative application of these guidelines at the appellate level, making it essential reading for all practitioners handling NI Act matters.
II. Factual Background of the Bombay High Court Case
The petitioner, Cambium Boitech Private Ltd., was a commercial buyer of diesel from the respondent-complainant. The transaction history spanning March to July 2017 reflected a series of regular payments totalling well over Rs. 10 lakhs, demonstrating an ongoing commercial relationship. Three cheques were issued in September 2017 for Rs. 1,13,176/- each towards the outstanding purchase price. When presented through IDBI Bank on 28 November 2017, all three were returned dishonoured on 30 November 2017 with the endorsement "Funds Insufficient".
After statutory notice under Section 138 went unheeded and the petitioner denied liability, the complainant filed three separate complaints. The learned JMFC, Pimpalgaon, convicted the petitioner and sentenced him to three months' simple imprisonment in each case, with a fine of Rs. 1,60,000/- per case (Rs. 1,55,000/- as compensation to the complainant under Section 357(1)(b) CrPC, and Rs. 5,000/- towards prosecution expenses).
Three appeals were filed before the Sessions Judge, Niphad. Sentence was suspended under Section 389 CrPC on condition of depositing 20% of the cheque amount, which the petitioner complied with on 28 June 2024. Subsequently, in July 2025, the petitioner filed applications before the learned Additional Sessions Judge expressing willingness to pay Rs. 1,60,000/- per appeal (already deposited) and seeking acquittal. The Additional Sessions Judge rejected these applications on 14 August 2025, observing that the amount offered did not adequately compensate the complainant and that the complainant was unwilling to accept it. The writ petitions before the High Court challenged these rejections.
III. The Legal Framework: From Damodar S. Prabhu to Sanjabij Tari
A. The Original Guidelines in Damodar S. Prabhu (2010)
Confronted with the problem of free and easy compounding at any stage — which gave accused persons a perverse incentive to delay settlement for years — the Supreme Court in Damodar S. Prabhu laid down a graded costs regime to deter delay. Under these guidelines, the cost of compounding escalated the later in the proceedings it was sought:
| Stage of Compounding | Additional Cost Payable | Deposited With |
|---|---|---|
| At first or second hearing (Magistrate) | Nil | — |
| Subsequent stage before Magistrate | 10% of cheque amount | Legal Services Authority |
| Sessions Court or High Court (Revision/Appeal) | 15% of cheque amount | Legal Services Authority |
| Supreme Court | 20% of cheque amount | National Legal Services Authority |
B. Why Revision Became Necessary: Sanjabij Tari (2025)
Despite the Damodar S. Prabhu guidelines, a very large number of cheque dishonour cases remained pending. Additionally, interest rates had substantially fallen over the years since those guidelines were framed — meaning the original cost percentages were no longer as effective a deterrent. The Supreme Court in Sanjabij Tari took note of both these factors and undertook a comprehensive revisit of the guidelines. Critically, it also addressed the situation — frequently arising in practice — where the complainant was unwilling to consent to compounding even after the accused was ready to pay.
C. The Revised Guidelines in Sanjabij Tari (2025): Paragraph 38
The Supreme Court in paragraph 38 of Sanjabij Tari significantly restructured the cost framework, reducing percentage costs at each level but importantly tying the trigger to the stage of evidence rather than merely the stage of the court proceeding:
| Stage / Event Trigger | Payment Required | Additional Cost | Cost Deposited With |
|---|---|---|---|
| Before recording of defence evidence (Trial Court) | Cheque amount | Nil | — |
| Post defence evidence, before judgment (Trial Court) | Cheque amount | 5% of cheque amount | Legal Services Authority / as directed |
| Before Sessions Court or High Court (Revision/Appeal) | Cheque amount | 7.5% of cheque amount | Legal Services Authority |
| Before Supreme Court | Cheque amount | 10% of cheque amount | National Legal Services Authority |
Notably, the Sanjabij Tari guidelines reduce the additional costs compared to Damodar S. Prabhu (for instance, from 15% to 7.5% at the appellate level), while introducing a new early-stage sub-category within the trial (pre-defence evidence v. post-defence evidence). The rationale is to further incentivise early payment while still maintaining a credible cost deterrent against deliberate delay.
D. The Critical New Direction: Paragraph 39 of Sanjabij Tari
Perhaps the most significant innovation in Sanjabij Tari is paragraph 39, which directly addresses the impasse created when the complainant refuses to compound. The Supreme Court laid down the following:
"This Court is of the view that if the Accused is willing to pay in accordance with the aforesaid guidelines, the Court may suggest to the parties to go for compounding. If for any reason, the financial institutions/complainant asks for payment other than the cheque amount or settlement of entire loan or other outstanding dues, then the Magistrate may suggest to the Accused to plead guilty and exercise the power under Section 255(2) and/or 255(3) of the Cr.P.C. or 278 of the BNSS, 2023 and/or give the benefit under the Probation of Offenders Act, 1958 to the Accused."
This paragraph effectively prevents a complainant from holding the accused to ransom by demanding amounts beyond the cheque amount and the prescribed costs — a practice that had been a major source of prolonged litigation. Where a complainant makes such unreasonable demands, the accused now has a clear legal avenue: plead guilty, receive the benefit of Sections 255(2)/(3) CrPC or Section 278 BNSS, and potentially secure the benefit of the Probation of Offenders Act, 1958.
IV. The Bombay High Court's Application of These Principles
A. The Sessions Court's Error
The learned Additional Sessions Judge, Niphad, committed a fundamental legal error by rejecting the petitioner's applications on the sole ground that (i) the amount offered was not sufficient to compensate the complainant, and (ii) the complainant was unwilling to accept it. This approach — effectively allowing the complainant's refusal to veto the accused's right to a structured resolution — was squarely contrary to the Supreme Court's directions in both Damodar S. Prabhu and Sanjabij Tari.
The position of respondent No. 2 before the High Court — that the accused was obliged to pay twice the cheque amount under Section 138 before any order could be passed — was equally untenable. Section 138 prescribes the maximum extent of the fine (up to twice the cheque amount), not a minimum pre-condition for relief. Courts retain full discretion in sentencing and in considering settlement frameworks within the guidelines laid down by the Supreme Court.
B. The High Court's Dispositive Order
Justice Madhav J. Jamdar held that paragraph 39 of Sanjabij Tari, though framed in terms of directions to the Magistrate, applies equally at the appellate stage. The reasoning is straightforward and important: the guidelines govern compounding of Section 138 offences comprehensively across all levels — trial, appellate, revisional, and the Supreme Court. The powers under Sections 255(2) and (3) CrPC, Section 278 BNSS 2023, and the Probation of Offenders Act, 1958 are equally available to appellate courts. Therefore the directions in paragraph 39 cannot be confined to trial courts alone.
The High Court accordingly:
- Quashed and set aside the impugned orders dated 14 August 2025.
- Restored the applications to the file of the Additional Sessions Judge, Niphad, for fresh consideration.
- Directed the petitioner to deposit a further Rs. 30,000/- per appeal (7.5% of Rs. 1,13,176/- ≈ Rs. 8,488/- was already provided for, and an additional sum was added) within eight weeks.
- Directed the Appellate Court to consider the applications in light of paragraph 39 of Sanjabij Tari and, if an order is passed in those terms, to also direct costs to the District Legal Services Authority and balance amount to the complainant in accordance with law.
V. Key Legal Instruments Available Post-Conviction
A. Sections 255(2) and 255(3) CrPC / Section 278 BNSS 2023
Section 255 CrPC governs the order of acquittal or conviction in summary trials. Under sub-section (2), even after convicting an accused, the Magistrate may, after recording reasons, release the accused on probation of good conduct or after due admonition, invoking the Probation of Offenders Act, 1958 or Section 360 CrPC. Sub-section (3) correspondingly preserves the discretion not to impose imprisonment in summary trials in appropriate cases. Section 278 of BNSS 2023 carries forward this framework under the new procedural code. These provisions allow courts — including appellate courts — to resolve the matter without actual imprisonment even after a conviction, provided the accused is genuinely willing to pay and circumstances justify the exercise of discretion.
B. The Probation of Offenders Act, 1958
The Probation of Offenders Act, 1958 empowers courts to release a convicted accused on probation of good conduct, on his entering into a bond to appear and receive sentence when called upon and to keep the peace and be of good behaviour, for a period not exceeding three years. For first-time or minor offenders — categories into which most Section 138 accused would fall — this Act provides a significant avenue for rehabilitation and resolution without the stigma of imprisonment. The Supreme Court's directive in Sanjabij Tari that courts consider extending its benefit where complainants refuse to compound is a progressive and pragmatic recognition of the realities of commercial litigation.
VI. Practical Implications: A Stage-wise Action Guide for Accused Persons
Given the revised framework, the following strategy guide is designed to help accused persons and their counsel make timely and optimal decisions in Section 138 proceedings:
| Stage | Action | Cost Payable | Key Consideration |
|---|---|---|---|
| Trial — before defence evidence | Pay cheque amount; seek compounding | Nil | Best outcome — minimum cost, clean exit |
| Trial — post defence evidence, pre-judgment | Pay cheque amount + cost; seek compounding | 5% of cheque amount to LSA | Still better than appeal stage; small additional cost |
| Sessions Court (Appeal / Revision) | Pay cheque amount + cost; invoke Sanjabij Tari Para 38(c) | 7.5% of cheque amount to LSA | If complainant refuses, invoke Para 39 — seek Probation Act benefit |
| High Court (Revision / Appeal) | Pay cheque amount + cost; file writ if lower court refuses | 7.5% of cheque amount to SLSA | Present Cambium Boitech / Sanjabij Tari; High Court will remand |
| Supreme Court | SLP; pay cheque amount + cost | 10% of cheque amount to NLSA | Last resort; full stack of guidelines applies |
LSA = Legal Services Authority at the relevant level; SLSA = State Legal Services Authority; NLSA = National Legal Services Authority.
VII. Implications for Complainants
- ▸A complainant who demands payment beyond the cheque amount and reasonable interest, or insists on settlement of extraneous dues, risks losing any leverage over the proceedings. The Court may, under paragraph 39 of Sanjabij Tari, suggest to the accused to plead guilty and seek relief under the Probation of Offenders Act — leaving the complainant with no criminal remedy and a separate civil suit as the only recourse.
- ▸Once a compounding application is moved at the appellate level with the requisite 7.5% costs, it is in the complainant's interest to agree to compounding and receive the full cheque amount plus compensation, rather than risk an outcome where the accused secures probation and the complainant receives lesser compensation.
- ▸Complainants should note that the fine/compensation amounts directed by trial courts may be withdrawn promptly upon compounding, reducing the time and cost of further appellate proceedings.
VIII. Conclusion
The Bombay High Court's judgment in Cambium Boitech Private Ltd v. State of Maharashtra represents a firm and welcome application of the Supreme Court's updated compounding guidelines to the appellate arena. Its key contributions are threefold:
- It confirms that paragraph 39 of Sanjabij Tari — mandating consideration of Sections 255(2)/(3) CrPC or Section 278 BNSS 2023 and the Probation of Offenders Act where the complainant refuses to compound — applies fully at the appellate stage, not just before the trial Magistrate.
- It establishes that a Sessions Court cannot reject a structured compounding application merely because the complainant is unwilling or the amount does not match the complainant's demand for extraneous dues — a position that would defeat the entire purpose of the Supreme Court's guidelines.
- It provides a clear corrective pathway: writ petition to the High Court, deposit of outstanding amounts, and remand to the Appellate Court for fresh consideration under the correct legal framework.
For all practitioners handling Section 138 matters — whether advising accused persons on the best time and terms to approach settlement, or advising complainants on when to accept a compounding offer — an up-to-date understanding of the Damodar S. Prabhu to Sanjabij Tari continuum is now indispensable. The era of open-ended delay followed by free compounding is definitively over. What replaces it is a disciplined, cost-sensitive framework that rewards early settlement and provides structured relief even at advanced stages — provided the accused is genuinely willing to pay what is legitimately due.
Cases Referred
- Cambium Boitech Pvt Ltd v. State of Maharashtra & Anr — W.P. Nos. 4815, 4808 & 4822 of 2025 (Bombay High Court, 10 June 2026; Coram: Madhav J. Jamdar J.)
- Sanjabij Tari v. Kishore S. Borcar & Anr — 2025 SCC OnLine SC 2069 (Supreme Court of India)
- Damodar S. Prabhu v. Sayed Babalal H. — (2010) 5 SCC 663 (Supreme Court of India)
Legislation Referenced
Section 138, Negotiable Instruments Act, 1881 | Sections 255(2), 255(3) & 357, Code of Criminal Procedure, 1973 | Section 278, Bharatiya Nagarik Suraksha Sanhita, 2023 | Section 389 CrPC | Probation of Offenders Act, 1958 | Section 360 CrPC
AEQUITAS LEGIS ASSOCIATES | Advocates & Solicitors | Pune | Mumbai | Delhi
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