Cheque bounce case? From zero to 10%, what a late settlement can cost

A cheque-bounce case can be settled even after it has travelled through multiple courts, but waiting longer to resolve the dispute can come at a price.

In Short

• Cheque-bounce settlement gets trickier as the case moves forward
• A recent High Court case puts settlement rules back in focus
• Timing can make a big difference in cheque-bounce disputes

If you are fighting a cheque-bounce case and have the option of settling it, waiting could prove expensive. The further the dispute travels through the courts, the more you may have to pay to bring it to an end.

A recent Punjab and Haryana High Court case is a good example. An accused who had already been convicted and lost his appeals before the Sessions Court eventually reached a settlement with the complainant while the matter was before the High Court.

The High Court allowed the compromise, but in doing so referred to an important Supreme Court framework: the cost of settling a cheque-bounce case can increase depending on the stage at which the dispute is resolved.

Settle early enough and there may be no additional cost. Wait until after defence evidence is recorded and it can rise to 5% of the cheque amount. At the Sessions Court or High Court stage, it can climb to 7.5%, and at the Supreme Court, to 10%.

So, if a settlement is possible, when should you make the move—and what happens if you have already been convicted?

HOW MUCH CAN A LATE SETTLEMENT COST?

Cheque-bounce cases are prosecuted under Section 138 of the Negotiable Instruments Act, 1881.

The Supreme Court has over the years encouraged the compounding, or settlement, of such cases where the parties are willing to resolve their dispute.

In its 2025 judgment in Sanjabij Tari vs Kishore S. Borcar, the Supreme Court revisited the guidelines governing the additional costs that can be imposed depending on when the cheque amount is paid.

Under the framework reproduced in the Punjab and Haryana High Court's August 3 order, if the accused pays the cheque amount before the recording of defence evidence, the trial court may allow the offence to be compounded without imposing any additional cost or penalty.

If payment is made after defence evidence has been recorded but before the trial court pronounces its judgment, compounding may be allowed on payment of an additional 5% of the cheque amount.

If the cheque amount is paid when the matter has reached the Sessions Court or High Court in appeal or revision, the additional cost can be 7.5%.

And if payment is made only after the case reaches the Supreme Court, the figure rises to 10%.

For example, in a cheque-bounce dispute involving Rs 10 lakh, the additional cost could work out to Rs 75,000 if the matter is settled at the Sessions Court or High Court stage. If it reaches the Supreme Court before being settled, 10% would amount to Rs 1 lakh.

These costs are over and above the cheque amount itself.

WHY DOES SETTLING LATE COST MORE?

The graded costs are intended to encourage parties to resolve cheque-bounce disputes early rather than allowing them to consume years of judicial time before eventually reaching a compromise.

The framework has evolved through a series of Supreme Court judgments.

In Damodar S. Prabhu vs Sayed Babalal H. in 2010, the Supreme Court laid down graded costs for delayed compounding, observing that allowing parties to settle freely at any stage could incentivise an accused to prolong litigation.

The Supreme Court revisited those guidelines in Sanjabij Tari in 2025 and reduced the costs applicable at different stages.

It is this revised Supreme Court framework that the Punjab and Haryana High Court referred to in its August 3 order.

WHAT HAPPENED IN THE LATEST CASE?

Subhash Chander had been convicted by a Judicial Magistrate First Class in Sonipat in March 2019 in two cheque-bounce cases involving complainant Sunil Kumar.

He was sentenced to one year and six months of rigorous imprisonment and directed to pay compensation of Rs 5.10 lakh in one case and Rs 1.55 lakh in the other.

His appeals were subsequently dismissed by the Additional Sessions Judge, Sonipat, in November 2025.

However, while his revision petitions were pending before the Punjab and Haryana High Court, Chander and the complainant reached a settlement before the Mediation and Conciliation Centre in Sonipat on May 22, 2026.

The complainant confirmed the compromise before the High Court and said he had no objection to the offences being compounded and Chander being acquitted.

The High Court allowed the settlement and set aside Chander's convictions and sentences as well as the Sessions Court orders.

CAN YOU SETTLE A CHEQUE-BOUNCE CASE AFTER CONVICTION?

Yes.

But importantly, the Punjab and Haryana High Court did not establish a new principle on this issue in the latest order.

Relying on existing Supreme Court judgments and the relevant statutory provisions, the High Court reiterated that an offence under Section 138 can be compounded at all stages of litigation, including after conviction by a magistrate and dismissal of the subsequent appeal by the Sessions Court.

The latest case is therefore an example of how the established principle can operate when parties reach a genuine settlement at a late stage.

CAN THE ADDITIONAL COST BE WAIVED?

Yes, but not as a matter of course.

The High Court noted that despite the graded cost framework, courts retain the discretion to reduce or waive the additional cost depending on the circumstances of an individual case.

It stressed, however, that such discretion should be exercised only where there are "exceptional, compelling and accentuating circumstances".

A court granting a waiver must also record clear reasons explaining why the case warrants a departure from the usual rule.

In Chander's case, the High Court decided not to impose additional costs, noting that he had been facing criminal litigation since around 2014.

WHY IT PAYS TO SETTLE EARLY

For anyone involved in a cheque-bounce case, there are two separate points worth understanding.

First, settlement can remain possible even at an advanced stage of litigation, including after conviction, if the parties reach a genuine compromise and the appropriate court permits the offence to be compounded.

Second, waiting longer can make that settlement more expensive.

Under the Supreme Court framework referred to by the High Court, an early settlement before defence evidence may attract no additional cost. The cost can rise to 5% after defence evidence but before judgment, 7.5% at the Sessions Court or High Court stage, and 10% once the matter reaches the Supreme Court.

Courts can waive these costs in exceptional circumstances, but such a waiver cannot be assumed.

For anyone who sees a realistic possibility of resolving a cheque-bounce dispute, the financial incentive is therefore clear: settling earlier could mean spending less money—and considerably less time—in court.

- Ends