The Negotiable Instruments Act, 1881, requires courts to promote the compounding of offenses.

The Supreme Court reaffirmed this position while noting that the "compensatory aspect" of a remedy should take precedence over the "punitive aspect."

The Court made this statement while also pointing out that there are a lot of cases involving dishonored cheques that are still waiting in court, which is quite concerning for our legal system.

A criminal appeal under Section 138 of the Negotiable Instruments Act of 1881 was being heard by the court.

In Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 6631, Gimpex Private Limited v. Manoj Goel (2022) 11 SCC 7052, and Meters And Instruments Private Limited And Anr. v. Kanchan Mehta (2018) 1 SCC 560, the bench comprising Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah, cited the following cases as support for their ruling: "It is to be remembered that dishonouring cheque is a regulatory offense that was made an offense only in view of public interest so that the reliability of these instruments can be ensured."

There are a lot of cases about dishonored cheques that are still pending in court, which is extremely concerning for our legal system.

Keeping in mind that the ‘compensatory aspect’ of remedy shall have priority over the ‘punitive aspect’, courts should encourage compounding offenses under the NI Act if parties are willing to do so.”

Brief Facts-

Appellant No. 2 borrowed money from the respondent in 2006 but did not pay it back. Appellant No. 2 sent a cheque from his partnership business, Appellant No. 1, to pay the obligation. Because there was not enough money to honour the cheque, the respondent filed a complaint under Section 138 of the NI Act.

The appellants were found guilty by the trial court and were each given a one-year sentence of simple imprisonment.

Later, the Appellate Court cleared them, but the conviction from the trial court was upheld by the High Court.

Thus, the Supreme Court heard this appeal. According to the Court, dishonoring of cheque is a regulatory offense that was only made illegal for the sake of the public in order to guarantee the dependability of these documents.

The Court cited the ruling in Raj Reddy Kallem v. The State of Haryana & Anr. [2024] 5 S.C.R 203, in which the Supreme Court used its authority under Article 142 to overturn a conviction obtained under the NI Act, despite the fact that the complainant in that case declined to consent to compounding, noting that the accused had adequately compensated the complainant. After taking into account all of the facts and the parties' compromise, the court dismissed the challenged decision and granted the appeal.