Settling a Cheque Bounce Case: Compounding at Every Stage

Can a cheque bounce case be settled, and at what stage?

Yes, at any stage. Section 147 says that every offence under the Negotiable Instruments Act is compoundable, notwithstanding anything in the criminal procedure code. That non obstante clause matters: the ordinary rules about which offences can be compounded, and by whom, do not limit section 147. A cheque case can be compounded before the Magistrate, during an appeal before the Sessions Court, in revision before the High Court and before the Supreme Court.

Compounding is not the same as withdrawal. When a complainant withdraws a complaint in a summons case, the accused is acquitted, but nothing records why. When the parties compound, the court records that the offence has been compounded on the terms agreed, and the composition has the effect of an acquittal of the accused. If there is already a conviction, compounding sets it aside. For an accused, that difference matters on the record, in later loan applications and in any background check.

Settlement before the complaint is filed is not compounding at all, because there is no case yet. If the drawer pays within 15 days of receiving the legal notice, no offence under section 138 is ever committed. That is the cheapest settlement of all, and our post on the cheque bounce legal notice explains the deadlines that govern it.

What settlement costs at each stage

Costs here are the compounding costs payable to the legal services authority or as the court directs, on top of whatever is paid to the complainant. They follow the guidelines in Sanjabij Tari v Kishore S. Borcar (September 2025).

These are guidelines for the exercise of discretion, not a fee schedule fixed by statute. In November 2025 a bench of the Supreme Court set aside a compounding cost entirely, in a case where the complainant had no objection and the accused's inability to pay was undisputed, observing that each case must be considered on its own facts. Ask for a reduction where the facts justify it, but plan on the scale.

What changed in 2025: the Sanjabij Tari guidelines

For fifteen years the governing guidelines came from Damodar S. Prabhu v Sayed Babalal H. (2010). The Supreme Court had then set graded costs to discourage accused persons from waiting until the last stage to settle: nothing at the first or second hearing, 10% of the cheque amount later before the Magistrate, 15% before the Sessions Court or High Court, and 20% before the Supreme Court. In practice the higher figures discouraged settlements in appeals and revisions, which was the opposite of what the system needed.

In Sanjabij Tari v Kishore S. Borcar, decided in September 2025, the Supreme Court revised the scheme to its present form: no cost if the case is compounded before the accused's evidence is recorded, 5% if after that but before judgment, 7.5% in the Sessions Court or High Court, and 10% in the Supreme Court. The judgment also directed that summons in cheque cases should tell the accused that the cheque amount can be paid at the initial stage through an online link, asked district judges to set up QR code or UPI payment facilities, and required complainants to effect dasti service and file an affidavit of service in addition to the usual modes.

The same judgment dealt with a familiar deadlock. Where the complainant insists on more than the cheque amount, such as the whole of a larger loan, the Magistrate may suggest that the accused consider pleading guilty under section 278 BNSS (section 255 of the old CrPC) or seek the benefit of the Probation of Offenders Act 1958. That is a pressure valve, not a forced settlement: compounding still needs the complainant's consent, and an accused should take advice before pleading guilty to anything.

Does the complainant have to agree to a settlement?

Yes. Compounding is a bilateral act. The accused cannot compound the offence by depositing the cheque amount in court and asking the Magistrate to close the case, and the Supreme Court has said more than once that the complainant's consent is necessary. A Magistrate can encourage settlement, refer the parties to mediation, and take a dim view of a complainant who rejects a fair offer, but cannot compel the complainant to accept it.

Consent also has to be real. If the complainant later says the settlement was signed under coercion, or that the terms recorded are not the terms agreed, the court may have to look into it. That is one reason to record a settlement before the court or the mediation centre rather than in a lawyer's office, with the complainant's statement taken by the court on the record.

From the accused's side, the practical point is that the complainant's demands usually rise with the length of the case: interest, legal costs, and the irritation of years of court dates. An offer of the cheque amount with reasonable interest at the first hearing is far more likely to be accepted than the same offer after three years. A point Advocate B.K. Singh often makes to accused clients is that the cheapest day to settle a cheque case is the day before the first hearing, when no evidence has been recorded and the complainant has not yet invested much in the prosecution.

Settling after the notice period but before a complaint

This is the stage people handle worst. The drawer did not pay within the 15 days, so the offence is complete, but no complaint has been filed yet. The complainant has one month from the end of those 15 days to file, under section 142(1)(b). If the drawer now offers to pay in instalments, the complainant faces a real risk: if he waits for the instalments and they stop, the month may have run out, and a late complaint needs condonation of delay, which is not automatic.

The safer course for a complainant is usually to file the complaint within time and settle inside the case, where the court can supervise the payments. If he does agree to wait, the settlement deed should be signed before the month expires, should record the drawer's admission of the debt and the cheque, and should give the complainant the right to proceed if a payment is missed. Even then, a court will examine any delay in filing carefully.

For the drawer, paying in full at this stage, before any complaint, ends the matter without any court record at all. When Advocate B.K. Singh advises a drawer who has missed the 15 days, he usually suggests paying whatever can be paid at once and getting a written acknowledgment that the cheque stands discharged, rather than proposing a long schedule that the complainant has every reason to distrust.

Settling at the first hearing, before evidence

This is the stage where most cases should settle and many do. When the accused first appears in response to the summons, the Magistrate usually asks whether the matter can be settled and, if there is any possibility, refers it to the mediation centre in the same court complex. Delhi's district courts at Tis Hazari, Saket, Karkardooma, Rohini, Dwarka and Patiala House all have court-annexed mediation centres, and the NI Act courts send a large share of their cases there. The Gautam Buddh Nagar court at Surajpur and the Ghaziabad district court have their own mediation arrangements.

In mediation, a trained mediator meets both sides, separately and together, and helps them reach terms. If they agree, the mediator records the settlement agreement, both parties sign, and the agreement goes back to the Magistrate, who records the parties' statements and compounds the offence once the payment is made. If the payment is in instalments, the court usually keeps the case pending until the last instalment, with the next date fixed for each payment.

Before defence evidence, there is no compounding cost under the 2025 guidelines. The accused pays only what is agreed with the complainant. That makes early settlement attractive even for an accused who thinks he has a defence, if the defence depends on disputed facts that will take years to prove. An accused with a strong technical defence, such as a notice sent after 30 days, is in a different position, and should weigh the defence before offering money.

How much should a cheque bounce settlement be?

There is no fixed formula, but the cheque amount is the floor in almost every negotiation. Complainants usually ask for interest from the date of the cheque and their legal costs; accused persons usually offer the cheque amount alone. The realistic middle depends on how long the case has run, how strong the defence is, and what a court would likely award at the end.

That last point is a useful anchor. On conviction, Magistrates commonly award compensation of the cheque amount plus interest, and sometimes up to twice the cheque, along with a sentence. An accused who settles early for the cheque amount and modest interest pays less than he would on conviction and avoids the sentence. A complainant who settles early gets money now instead of a decree he may have to execute later. Both sides should run those numbers before the mediation, not during it.

Remember the costs that sit outside the settlement figure: the compounding cost if you are past defence evidence, the time and legal fees of further hearings, and any amounts already deposited that will be credited. A settlement figure that looks high on the first date may look cheap two years later.

How compounding is recorded in court

The usual sequence before a Magistrate in Delhi. Appellate courts follow the same pattern.

1. Agree the terms

   Settle the total amount, the schedule, the mode of payment, what happens to any amounts already deposited, and which other proceedings will be withdrawn. Put it in writing, either as a mediation settlement or a signed settlement deed.

2. File a joint application

   Both parties file an application for compounding under section 147, with the settlement agreement attached. A company party files a board resolution or authority letter for its signatory.

3. Appear in person

   The court records the statements of the complainant and the accused, confirming that the settlement is voluntary and that the complainant has received, or will receive, the agreed sum. Identity proof is checked.

4. Pay the agreed amount

   Payment is made in court by demand draft, through the court's online facility, or by bank transfer with proof filed. For instalments, the court fixes dates and keeps the case pending.

5. Pay compounding costs, if any

   Where the guidelines require costs, they are deposited with the legal services authority or as directed, and the receipt is filed.

6. Order of compounding

   The court records that the offence is compounded and the accused stands acquitted. Bail bonds are cancelled and sureties discharged.

7. Close linked matters

   Withdraw any summary suit, arbitration or other complaint on the same debt, as the settlement provides, and file the compounding order in each.

Documents for a settlement

Instalment settlements: protecting both sides

Instalment deals are where settlements go wrong. The complainant's fear is that the accused will pay two instalments, get the case closed and stop. The accused's fear is that he will pay most of the money and the complainant will still pursue the case. Both fears are met the same way: keep the case pending in court until the last payment, with a date fixed for each instalment, and compound only when the full amount has been paid.

If an instalment is missed, the complainant's remedy depends on how the settlement was structured. In Gimpex v Manoj Goel (2021), the Supreme Court held that a complainant who settles and accepts fresh cheques under the settlement cannot run two parallel prosecutions for the same transaction, one on the original cheque and one on the settlement cheques. The complainant has to choose. So if the settlement involves fresh post-dated cheques, the settlement deed should say clearly what happens to the original complaint on default, and the parties should keep it pending until the settlement is performed.

Undertakings given to the court also carry weight. Where the accused undertakes before the court to pay on specific dates, and the undertaking is recorded in the order sheet, a deliberate breach can have consequences beyond the cheque case itself. Courts treat such undertakings seriously and are slow to let an accused out of them.

Settling through mediation or Lok Adalat

Both routes are common in cheque cases, and both are free of court fee for the parties. Court-annexed mediation is a process: the mediator helps the parties reach terms, and the settlement goes back to the trial court, which compounds the offence. A Lok Adalat is a forum: the case is referred to a bench of the Lok Adalat, often at a National Lok Adalat held on a fixed Saturday, and the settlement is recorded as an award.

A Lok Adalat award under the Legal Services Authorities Act 1987 is final, and no appeal lies against it. In K.N. Govindan Kutty Menon v C.D. Shaji (2012), the Supreme Court held that where a criminal court refers a cheque case to a Lok Adalat and it is settled there, the award is deemed to be a decree of a civil court and can be executed as one. That gives the complainant a real remedy if the accused defaults on payments agreed in a Lok Adalat. Our post on Lok Adalat settlements explains how these sittings work, and our page on alternate dispute resolution covers mediation more broadly.

Which is better depends on the deal. A one-time payment on the day suits a Lok Adalat well. A settlement with a long instalment schedule is often easier to supervise through mediation and a pending trial court case, because the Magistrate can keep a watch on each payment date.

Settling after conviction: appeal and revision

Compounding is still open after a conviction. If the parties settle while the drawer's appeal is pending before the Sessions Court, or while a revision is pending before the High Court, they file a joint application in that court, and on compounding the conviction is set aside. Under the 2025 guidelines, the compounding cost at this stage is 7.5% of the cheque amount, which is lower than the old 15% and makes appellate settlements more realistic.

By this stage the accused has usually paid something already: interim compensation under section 143A at trial, and perhaps a deposit of 20% of the fine or compensation under section 148 at the appeal stage. The settlement deed should state how those amounts are treated. Usually they are credited towards the settlement figure, and any amount still held by the court is released to the complainant on compounding. Our post on the appeal and the 20% deposit explains the deposit itself, and our post on interim compensation under section 143A covers the trial-stage payment.

Courts have allowed compounding even where a conviction has been upheld in appeal and the matter is in revision. A settlement at this stage is especially valuable for an accused facing a custodial sentence, because it ends the case completely, rather than relying on the uncertain outcome of a revision.

Settling before the Supreme Court

The Supreme Court compounds cheque cases regularly, often at the stage of a special leave petition against a High Court order in revision. The cost under the 2025 guidelines is 10% of the cheque amount, and the parties file a compromise application with the settlement terms. The Court records the settlement, sets aside the conviction and disposes of the case.

Settling in the Supreme Court involves the cost of an Advocate-on-Record and travel to Delhi for parties who live elsewhere, so it is rarely the right place to start negotiating. But it is a real option for an accused whose conviction has been confirmed by two courts, and some complainants are more willing to settle once a case reaches that stage. Our Supreme Court lawyer page explains how matters are filed and listed there.

Settling a company cheque case

When the drawer is a company, the settlement should cover every accused. A single settlement by the company, recorded with the consent of the complainant, can lead to compounding for the company and all the directors named in the complaint. The settlement deed and the compounding application should list each accused by name, so that no director is left facing a prosecution after the company has paid.

The company's representative needs authority. File a board resolution authorising a named person to sign the settlement and to appear in court for compounding. If the complainant is a company, the same applies on its side. Where one director disputes the company's settlement, or the company is in insolvency and cannot settle without the resolution professional, the position becomes complicated; our post on when directors are liable for a company cheque explains how insolvency affects the case against directors.

Mistakes that undo settlements

• Paying outside court and not recording it. The complaint stays alive. Always get a compounding order or a recorded withdrawal.
• Compounding before the last instalment. Once the case is closed, the complainant has nothing left to hold over the accused, and the accused has no incentive to finish paying.
• Taking fresh cheques without saying what happens to the old case. After Gimpex, the complainant cannot run both prosecutions at once.
• Leaving out directors or co-accused. The compounding order should name every accused who is to be discharged.
• Forgetting linked proceedings. A summary suit or arbitration on the same debt continues unless the settlement provides for its withdrawal.
• No default clause. If the deed does not say what happens on a missed payment, the parties will argue about it in court.
• Waiting for the 'right moment'. Costs rise and positions harden as the case goes on.

Before you sign a cheque bounce settlement

• The total amount, including interest and costs, is written in figures and words.
• Each instalment has a date and a mode of payment.
• The deed says what happens if a payment is missed.
• Amounts already paid under s.143A or s.148 are credited.
• All accused, including directors and partners, are named.
• Linked suits, arbitrations and complaints on the same debt are listed for withdrawal.
• The original cheque is to be returned or declared discharged.
• The settlement will be recorded before the court, mediation centre or Lok Adalat.
• A company signatory has a board resolution.

When not to settle, and how we help

Settlement is not always right. An accused with a clean technical defence, such as a time-barred complaint or a notice served outside 30 days, may do better to defend the case, particularly if the complainant is demanding far more than the cheque. A complainant facing a drawer with no assets may find that a modest, quick settlement is worth more than a conviction that yields nothing. Our post on whether to file a criminal case, a summary suit or both covers the recovery side of that choice.

If you want an advocate to look at a proposed settlement, or to work out what a settlement would cost at your current stage, the team of Advocate B.K. Singh can read the papers and tell you; send them through our online enquiry form.