In a significant ruling, the Supreme Court has reiterated that the primary objective of the Negotiable Instruments Act is to ensure the payment of money and maintain the credibility of cheques, rather than merely punishing the offender.

The Supreme Court of India has set aside the conviction and six-month prison sentence of a businessman in a cheque dishonour case, observing that offences under Section 138 of the Negotiable Instruments (NI) Act are "quasi-criminal" in nature. The Court emphasized that since the law explicitly allows for "compounding" (settling) of these offences under Section 147, a settlement between parties should ideally lead to the closure of criminal proceedings.

The Bench, comprising Justices Sanjay Karol and Vipul M. Shah, delivered the judgment in the case of Virender Singh Dongwal Vs Manju Aggarwal, noting that the legislative intent behind the NI Act is to promote the credibility of cheques and facilitate the recovery of dues.

The case dates back to 2018 and involves a business transaction between two firms. Manju Aggarwal, the proprietor of M/s Shiv Shakti Packing Industries (the complainant), alleged that her firm had supplied iron material to Virender Singh Dongwal’s firm, M/s Shivam Tools.

According to the complaint, an amount of Rs 11,37,827 remained outstanding for the goods supplied. To clear this debt, Dongwal issued four post-dated cheques. However, when the complainant presented these cheques for payment on October 5, 2018, they were returned by the bank with the remark "funds insufficient."

Despite a statutory legal notice sent on October 11, 2018, Dongwal failed to make the payment, leading Aggarwal to file a criminal complaint under Section 138 of the NI Act in Faridabad.

During the trial, Dongwal raised multiple defenses. He initially claimed that he had made payments over time. Later, he shifted his stance, asserting that no goods were ever supplied or that the cheques were merely given as "security" for a friendly loan.

However, the Faridabad trial court found these defenses inconsistent. A crucial piece of evidence used against Dongwal was his own Sales Tax and VAT returns, which clearly reflected the receipt of material worth the disputed amount from the complainant’s firm.

Under the NI Act, there are "statutory presumptions" (Sections 118 and 139) which assume that a cheque was issued for a valid debt unless the accused can prove otherwise. The trial court held that Dongwal failed to rebut these presumptions. Consequently, in July 2023, he was convicted and sentenced to six months of simple imprisonment and ordered to pay a compensation of Rs 14,50,000.

Dongwal’s subsequent appeals before the Additional Sessions Judge in Faridabad and a criminal revision petition before the Punjab and Haryana High Court were both dismissed, upholding his conviction.

Dongwal moved the Supreme Court while he was in custody (having been incarcerated since August 25, 2025). During the pendency of the appeal, a breakthrough occurred: both parties entered into a compromise.

On October 29, 2025, a settlement was reached for a reduced sum of Rs 6,65,000. By the time the matter reached the final hearing:

Dongwal had already paid Rs 4,00,000 via a demand draft.
He had prepared another draft for the remaining Rs 2,65,000 to be handed over to the complainant.

The complainant, Manju Aggarwal, informed the Court that she did not oppose the request to "compound" the offence, provided the full settlement amount and the required legal costs were paid.

The Supreme Court took this opportunity to clarify the nature of cheque bounce cases. Unlike traditional crimes (like theft or assault), a cheque bounce is essentially a civil wrong that has been given a criminal color to ensure people take cheque payments seriously.

The Court noted that Section 147 of the NI Act makes these offences compoundable. This means the law encourages parties to settle the matter and move on, rather than clogging the judicial system with jail sentences. The "quasi-criminal" label signifies that while there is a penalty, the primary goal is compensation and recovery, not just retribution.

While the Court allowed the settlement, it also addressed the "Damodar S. Prabhu" guidelines regarding the costs of compounding. These guidelines state that the later a person settles a case, the higher the "compounding cost" they must pay to the legal aid services.

The Bench referred to a recent 2025 judgment, Sanjabij Tari v. Kishore S. Borcar, which modified these rules. Since the settlement was reached at the highest level—the Supreme Court—the Court imposed a compounding cost equivalent to 10% of the original cheque amount.

Taking all facts into account, the Supreme Court passed the following orders:

Conviction Quashed: The conviction and the six-month sentence passed by the trial court were set aside.
Release Ordered: Virender Singh Dongwal was ordered to be released from custody immediately, provided he is not required in any other case.
Compounding Costs: Dongwal was directed to deposit Rs 1,13,783 (10% of the original cheque amount) with the Supreme Court Legal Services Committee within four weeks.

This judgment serves as a reminder of the flexible nature of the Negotiable Instruments Act. For business owners and litigants, the key takeaways are:

Settlement is Always an Option: Even after being convicted by a trial court and a High Court, the law allows for a settlement at the Supreme Court stage.
Documentary Evidence is King: The trial court’s reliance on tax returns shows that business records often carry more weight than oral testimonies in financial disputes.
The Penalty of Delay: While you can settle late, it comes with a financial cost (compounding fees) payable to the court.

By prioritizing the "legislative intent" of payment over punishment, the Supreme Court has once again reinforced the idea that the NI Act is a tool for economic justice rather than just a means of incarceration.

Case Details:

Case Title: Virender Singh Dongwal Vs Manju Aggarwal
Date of Judgment: November 18, 2025
Bench: Justice Sanjay Karol and Justice Vipul M. Shah