Supreme Court Sets Aside Cost Imposed for Settlement in Cheque Bounce Case: A Detailed Analysis
14-Nov-2025 TACIT LEGAL
The Supreme Court of India recently delivered an important judgment concerning compounding of offences under Section 138 of the Negotiable Instruments Act, 1881, holding that the guidelines laid down in Damodar S. Prabhu v. Sayed Babalal H. cannot be treated as binding in every case. The ruling has significant implications for cheque bounce matters, especially where parties reach a settlement at a later stage of proceedings.
A Bench comprising Justice M.M. Sundresh and Justice Satish Chandra Sharma set aside the cost imposed by the Bombay High Court on an appellant convicted under Section 138 NI Act. The High Court had directed him to deposit cost with the State Legal Services Authority despite the fact that the complainant had no objection to the settlement and the appellant claimed inability to pay.
Background of the Case
The appellant had been convicted for a cheque bounce offence, and the conviction was upheld by the Sessions Court. He later approached the High Court in revision. During the pendency of the revision petition, he and the complainant entered into a settlement. The High Court acquitted him on the basis of the compromise but still imposed costs as per the percentage-based scheme laid down in Damodar S. Prabhu.
Aggrieved, the appellant approached the Supreme Court challenging only the direction to pay costs.
Supreme Court’s Observations
The Court examined whether the guidelines in Damodar S. Prabhu which prescribe graded costs depending on the stage of compounding could be applied uniformly. It held that:
The law laid down in the aforementioned judgment cannot be regarded as a binding precedent, as every case must be considered on its own facts.”
The Bench noted that in Damodar S. Prabhu, the Supreme Court had invoked Article 142 while issuing the graded cost guidelines. Directions under Article 142 are meant to do complete justice in a particular case and do not automatically become binding law for all future cases.
The Court also highlighted that:
The complainant had no objection to the settlement without costs.
The appellant had expressed inability to pay, and this was not disputed.
Imposing costs payable not to the complainant but to the Legal Services Authority, despite the complainant’s consent to waive any amount, was unsustainable.
Accordingly, the Apex Court set aside the cost imposed by the Bombay High Court.
Understanding the Damodar S. Prabhu Guidelines
In the landmark 2010 decision, the Supreme Court had facilitated early compounding of Section 138 cases and laid down a graded scheme of costs:
No cost if compounding occurs at the first or second hearing.
10% of cheque amount for compounding before the Magistrate at a later stage.
15% before the Sessions Court or High Court.
20% before the Supreme Court.
The Court had justified these guidelines as necessary in a legislative vacuum, invoking Article 142 to support early settlements and discourage delayed compounding.
Recently, in Sanjabij Tari v. Kishore S. Borkar, the Supreme Court also modified certain aspects of the cost guidelines, further indicating that the scheme is flexible and not rigidly binding.
Why This Judgment Matters
This ruling reaffirms that settlement-friendly approaches in cheque bounce matters should not be hindered by mechanical imposition of costs. Key takeaways include:
Damodar S. Prabhu guidelines are not binding precedents
Courts must consider the facts of each case, including parties’ financial condition and willingness to settle.
Cost cannot be imposed when the complainant raises no objection
If parties settle voluntarily and the complainant waives further claim, courts should not insist on additional payment.
Directions under Article 142 are case-specific
They do not automatically create statutory obligations applicable to all courts.
Encourages settlements even at the revisional stage
The fear of mandatory cost payment should not discourage accused persons from resolving disputes amicably.
This judgment strengthens the principle that criminal proceedings under Section 138 NI Act primarily serve a compensatory rather than punitive purpose.
Conclusion
The Supreme Court’s decision in Rajeev Khandelwal v. State of Maharashtra & Anr. is a significant development in cheque bounce jurisprudence. By recognising that the Damodar S. Prabhu scheme is not binding in all cases, the Court has paved the way for more flexible, equitable, and settlement-friendly outcomes in Section 138 matters.
It emphasises that justice must reflect practical realities, including the financial capacity of parties and their willingness to resolve disputes without prolonged litigation.
Case Details
Case No.: Special Leave to Appeal (Crl.) No. 14340/2025
Case Title: Rajeev Khandelwal v. State of Maharashtra & Anr.
Citation: 2025 LiveLaw (SC) 1103
This article cover the legal point Sidelining the existing Precedent on negotiable instrument act where cost on accused was mandatory but now it is decided that even is compromise between the parties occured in NIA act still he can be let go without imposing cost on him further you can read here important judgements and legal principles laid down by Hon’ble supreme court of India, this article is posted by Advocate Shivaji Rathore (J&K high court jammu) for more important legal topics stay connected with us, on tacit legal we post on YouTube channel also named as Tacit Legal helpful for Law students newely enrolled Advocate in India and other states, Follow us on Instagram also, Read our articles on important Questions of Law. #tacitlegal visit my website Tacit Legal dot in search on google, this website is made from Hostinger and wordpress follow our latest updates for legal news follow us on YouTube also for young lawyers law students helpful for Advocates, this blog is written by Advocate Shivaji Rathore practicing in Jammu and Kashmir high court and district court at Jammu. The website Tacit Legal is available on Google created with Hostinger and wordpress keep in touch and read our daily articles and reporting for law students and advocates as we provide you important legal information on Tacit Legal.in
Author: Advocate Shivaji Rathore
Founder – Tacit Legal | tacitlegal.in
