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Can a cheque bounce case be settled out of court?

Last reviewed

Yes, s.147
Short answer

Yes. Section 147 of the Negotiable Instruments Act, 1881 makes every offence under the Act compoundable, so a Section 138 cheque bounce case can be settled between the parties before or during trial, and even on appeal. The court records the compromise, and compounding has the effect of an acquittal. Courts have also closed proceedings where the accused paid the cheque amount with interest and costs.

The law this relies on

Negotiable Instruments Act, 1881

Sections 138, 143A, 147 and 148

Offence, interim compensation up to 20 per cent, compoundability, and deposit on appeal.

Bharatiya Nagarik Suraksha Sanhita, 2023

Section 359

General compounding provisions (replacing Section 320 of the CrPC); Section 147 of the NI Act overrides the usual limits.

Supreme Court of India

Meters and Instruments v. Kanchan Mehta (2018) 1 SCC 560; Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663

Section 138 cases are largely compensatory; graded costs were suggested for late compounding.

Explained

Is a cheque bounce case compoundable?

Section 147 of the NI Act, added in 2002, provides that every offence punishable under the Act is compoundable despite the Code of Criminal Procedure (now the Bharatiya Nagarik Suraksha Sanhita, 2023, where Section 359 deals with compounding). The Supreme Court treats a Section 138 case as essentially a civil wrong with a criminal remedy, which is why settlement is encouraged. In Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2018) 1 SCC 560, the Court held that a court may close proceedings where the cheque amount with interest and costs is paid, even without the complainant’s consent in appropriate cases.

When can you settle?

Settlement is possible at any stage: after receiving the demand notice (paying within 15 days stops a complaint from arising), before the court takes cognisance, during trial, and at the appeal or revision stage. The best time is early, because costs and interim compensation rise as the case advances. The court can also direct the accused to pay interim compensation of up to 20 per cent of the cheque amount under Section 143A, and an appellant against conviction must deposit at least 20 per cent of the fine or compensation under Section 148.

What about costs for late compounding?

In Damodar S. Prabhu v. Sayed Babalal H. ((2010) 5 SCC 663) the Supreme Court laid down graded costs for compounding at later stages, paid to the Legal Services Authority. In September 2025, Sanjabij Tari v. Kishore S. Borcar modified those guidelines, and in November 2025 the Court observed in Rajeev Khandelwal v. State of Maharashtra that the Damodar Prabhu costs guidelines are not binding precedent and that each case turns on its facts. Check the current position before agreeing to a payment.

How do you document a settlement?

Put the settlement in a written agreement stating the amount, instalments if any, interest, withdrawal or compounding of the complaint, and consequences of default. File a joint application for compounding in the court, or a consent memo, and pay any costs ordered. Keep receipts. A properly drafted settlement avoids later disputes, and pairing it with a post-dated payment schedule and e-signed consent terms keeps a clean record.

Frequently asked questions

Can I settle after the court has already convicted me?

Compounding is possible at the appeal or revision stage with the court’s leave, and the Supreme Court has recognised settlements even after conviction. The court may impose costs.

Does the complainant have to agree to compound?

Usually yes, but courts have held they may close proceedings on payment of the cheque amount with interest and costs even where the complainant refuses. This is discretionary.

What if the accused defaults on the settlement?

Depending on the terms recorded, the complainant may revive the proceedings or enforce the settlement. Draft the default consequences clearly.

Is payment after the notice period enough to stop the case?

Payment within 15 days of receiving the demand notice prevents the offence from being complete. After that, settlement requires compounding with the court’s leave.

This guide is general information about Indian law, not legal advice for a specific dispute, document or jurisdiction. Laws and rules change by notification; for a decision with legal or financial consequences, consult a qualified advocate.

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