Section 138 NI Act: Supreme Court's Latest Guidelines on Compounding Cheque Bounce Cases (September 2025)

The Supreme Court has recently revised the guidelines for compounding dishonour of cheque cases under Section 138 of the Negotiable Instruments Act, 1881, in the judgment of Sanjabij Tari vs Kishore S. Borcar & Others, 2025, dated September 25, 2025. This modification represents a significant departure from the previous framework established in Damodar S. Prabhu vs Sayed Babalal H. (2010).

Read full judgment here: Click here.

Original Damodar Prabhu Guidelines (2010)

The original guidelines established in 2010 prescribed the following cost structure for compounding:

·       First or Second Hearing: No cost required if compounding application made

·       Subsequent stage before Magistrate: 10% of cheque amount as cost

·       Sessions Court or High Court: 15% of cheque amount as cost

·       Supreme Court: 20% of cheque amount as cost

New Modified Guidelines (2025)

The Supreme Court, recognizing that "a very large number of cheque bouncing cases are still pending and interest rates have fallen in the last few years," decided to "revisit and tweak the guidelines". The modified guidelines now prescribe:

1. Before Recording of Defence Evidence

If the accused pays the cheque amount before recording of his evidence (namely defence evidence), then the Trial Court may allow compounding of the offence without imposing any cost or penalty on the accused.

2. After Recording Evidence but Before Judgment

If the accused makes payment post the recording of his evidence but prior to pronouncement of judgment by the Trial Court, the Magistrate may allow compounding on payment of additional 5% of the cheque amount with the Legal Services Authority or such other Authority as the Court deems fit.

3. Sessions Court or High Court Level

If payment is made before the Sessions Court or High Court in Revision or Appeal, such Court may compound the offence on condition that the accused pays 7.5% of the cheque amount by way of costs.

4. Supreme Court Level

If the cheque amount is tendered before the Supreme Court, the figure would increase to 10% of the cheque amount.

Key Changes Made

The most significant changes from the Damodar Prabhu guidelines include:

1.       Substantial Reduction in Costs:

o   Magistrate level: Reduced from 10% to 5%

o   Sessions/High Court level: Reduced from 15% to 7.5%

o   Supreme Court level: Reduced from 20% to 10%

2.       Maintained No-Cost Provision: The provision for no cost at the initial stage (before recording of defence evidence) remains unchanged.

3.       Rationale for Reduction: The Court explicitly acknowledged that interest rates have fallen in recent years, making the original percentages potentially excessive.

Additional Provisions

The Supreme Court also held that if the accused is willing to pay in accordance with these guidelines, the Court may suggest compounding to the parties. Furthermore, if financial institutions or complainants seek payment beyond the cheque amount or settlement of entire loans, the Magistrate may suggest the accused to plead guilty and exercise powers under relevant provisions of the Criminal Procedure Code or Bharatiya Nagarik Suraksha Sanhita, 2023, or provide benefits under the Probation of Offenders Act, 1958.

Implementation Timeline

The Supreme Court directed that High Courts and District Courts shall implement these modified guidelines not later than November 1, 2025.

This revision reflects the Supreme Court's continued effort to balance the need for deterrence with practical considerations of promoting early settlement and reducing the massive backlog of cheque bouncing cases, which as of September 1, 2025, stood at 6,50,283 cases in Delhi District Courts alone.

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