top of page

Supreme Court Quashes Criminal Proceedings in Cheque Dishonour Case After Full Compensation


In the realm of legal jurisprudence, the intersection of civil transactions and criminal liabilities often presents intriguing scenarios. A recent judgment by the Supreme Court of India (‘SC’) provides a compelling examination of this interplay. The case in question, Raj Reddy Kallem v. State of Haryana[i], revolves around the Appellant’s failure to deliver a Promotec Fiber Laser Cutting Machine (‘PFLC machine’) despite receiving an advance payment, leading to a series of legal proceedings under the Negotiable Instruments Act, 1881 (‘NI Act’) and the Indian Penal Code, 1860 (‘IPC’). This case brings to light the nuances of compounding offences under the NI Act and the role of consent in such proceedings.

Brief Facts

  • In 2012, the Complainant placed a purchase order for a PFLC machine with the Appellant’s company, M/s Farmax. An advance payment of Rs. 1.55 crores was made. However, Farmax failed to supply the machine to the Complainant, and hence, the Appellant issued 5 cheques to return the advance money. Some cheques were dishonoured, leading to proceedings under s. 138 of the NI Act. Thereafter, the Complainant filed a complaint under s. 156(3) of the Code of Criminal Procedure, 1973 (‘CrPC’), leading to a first information report (‘FIR’) being registered under ss. 406, 420, and 120B of the IPC against the Appellant. The Appellant was convicted under s. 138 of the NI Act by the trial court and sentenced to 2 years of rigorous imprisonment. He was also directed to pay the amount of the cheques to the Complainant.

  • The Appellant challenged the conviction before the Additional Sessions Judge (‘ASJ’), whereby both parties attempted to settle the dispute and reached a settlement in the Lok Adalat. The Appellant agreed to pay back the entire amount of Rs. 1.55 crores within about 16 months. However, the Appellant failed to do so, leading to the ASJ declaring the settlement frustrated.

  • Between 2016 and 2020, the Appellant approached various courts seeking an extension of time to pay back the amount. The Appellant’s wife filed a special leave petition (‘SLP’) before the SC, which directed her to deposit Rs. 20 lakhs before the trial court within 3 weeks, as only Rs. 20 lakhs were remaining out of the total amount of Rs. 1.55 crores at that time. The Appellant’s wife failed to comply with the order, leading to the dismissal of the SLP.

  • Subsequently, the Appellant approached the trial court and presented a demand draft of Rs. 20 lakhs in favour of the Complainant. He prayed that the criminal proceedings against him should either be quashed or compounded. However, the trial court refused to accept the demand draft and dismissed the application as not maintainable, considering the submission of the Complainant that the SLP in which the Appellant’s wife was directed to deposit Rs. 20 lakhs had already been dismissed.

  • This order was challenged before the High Court (‘HC’) by the Appellant through an application under s. 482 of the CrPC. The HC dismissed the application on the ground that the Appellant had failed to deposit Rs. 20 lakhs within 3 weeks as per the SC directions, leading to the present appeal before the SC.


  • The SC allowed the appeal and set aside the HC’s order. It quashed all criminal proceedings against the Appellant and set aside the conviction and sentence awarded thereby. The SC noted that the Appellant had fully compensated the Complainant, including Rs. 10 lakhs as interest for delayed payment.

  • The SC observed that the Appellant had already been in jail for more than a year before being released on bail and had compensated the Complainant. It held that the transaction between the parties was purely civil in nature and did not attract criminal law. The SC differentiated between the quashing of a case and compounding, stating that quashing is applied by the Court, while compounding is primarily based on the consent of the injured party. The SC held that even though the Complainant was unwilling to compound the case, considering the totality of facts and circumstances, the proceedings must come to an end.

  • The SC referred to its previous judgments, stating that in cases of s. 138 of the NI Act, the accused must try for compounding at the initial stages. However, there is no bar to seek the compounding of the offence at later stages of criminal proceedings, including after conviction.

Our Analysis

This judgment brings to the fore the complexities involved in the compounding of offences under the NI Act. The SC’s decision to quash the criminal proceedings, despite the Complainant’s unwillingness to compound the case, is noteworthy. The judgment highlights a critical issue regarding the necessity of consent in compounding offences under the NI Act. While the SC stated that compounding occurs with consent, there was no consent of the Complainant in this case. This raises questions about the role and importance of consent in the compounding of offences under the NI Act. Furthermore, the SC observed that this case involved a transaction between the parties that was purely civil in nature. It is a practical reality that most offences under the NI Act usually involve purely civil transactions only, raising further questions about the classification of offences under the NI Act.

Having said that, the impact of this decision is significant. It sets a precedent for future cases involving the compounding of offences under the NI Act and provides a fresh perspective on the interpretation of the law. However, it also opens up a Pandora’s box of legal debates and discussions, particularly around the role of consent in the compounding of offences and the nature of transactions under the NI Act. As the legal fraternity grapples with these questions, one thing is clear – this judgment has added a new dimension to the discourse on the compounding of offences under the NI Act.

End Note

[i] [2024] 161 784, [dated: 08.04.2024]

Authored by Srishty Jaura, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


bottom of page