Supreme Court Rules Damodar Prabhu Guidelines on Cheque Bounce Compounding Costs Not Binding
Court says costs for compounding under Section 138 NI Act must be flexible, not mandatory.
Ruling provides relief to litigants, emphasizes settlement over rigid cost imposition.
By Our Legal Reporter
New Delhi: November 15, 2025:
In a landmark ruling, the Supreme Court of India has clarified that the Damodar S. Prabhu guidelines (2010) on imposing costs for compounding cheque bounce cases under Section 138 of the Negotiable Instruments Act (NI Act), 1881 are directory, not mandatory.
The judgment, delivered by a bench of Justice M.M. Sundresh and Justice Satish Chandra Sharma on November 13, 2025, sets aside the Bombay High Court’s order that had imposed costs on a litigant despite the complainant having no objection to settlement.
Background of the Case
The dispute arose when a man convicted under Section 138 NI Act sought to compound the offence after reaching a settlement with the complainant. The Bombay High Court allowed compounding but imposed costs based on the Damodar Prabhu guidelines, which prescribe a graded cost structure depending on the stage of compounding.
The appellant challenged this, arguing that he was financially unable to pay the costs and that the complainant had no objection to compounding without costs.
The Damodar Prabhu Guidelines (2010)
- At first or second hearing: No cost.
- Before Magistrate at later stage: 10% of cheque amount.
- At Sessions Court or High Court stage: 15% of cheque amount.
- At Supreme Court stage: 20% of cheque amount.
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These costs were intended to reduce pendency and encourage early settlements.
Supreme Court’s Observations (2025)
- The Damodar Prabhu guidelines are not binding; they are meant to guide courts, not restrict them.
- Courts must consider the facts of each case, including the complainant’s stance and the accused’s financial condition.
- Imposing costs when both parties agree to settle without objection defeats the purpose of compounding.
- The primary objective of Section 138 NI Act is to ensure compensation and settlement, not punishment.
Justice Sundresh observed: “The guidelines in Damodar Prabhu cannot be treated as mandatory. They are directory in nature and must be applied flexibly.”
Impact of the Ruling
- Flexibility in Compounding: Courts can waive costs if parties mutually agree.
- Relief for Litigants: Financially weak litigants will not be burdened with mandatory costs.
- Encouragement for Settlement: By removing rigid cost barriers, the ruling promotes faster resolution of cheque bounce cases.
- Reduced Pendency: With over 40 lakh pending cheque bounce cases in India, flexible compounding could ease the burden on courts.
Broader Context: Cheque Bounce Cases in India
Cheque bounce cases under Section 138 NI Act are among the most common criminal cases in India. They often clog lower courts, leading to delays.
Recent reforms, including the Supreme Court’s 2025 ruling in Sanjabij Tari v. Kishore Borcar, have sought to streamline procedures by:
- Allowing online payments for settlements.
- Reinforcing statutory presumptions in favour of cheque holders.
- Encouraging mediation and compounding at early stages.
The latest ruling adds to these reforms by ensuring that settlements are not hindered by rigid cost structures.
Expert Opinions
Legal experts welcomed the ruling. “The Supreme Court has rightly emphasized that settlement should not be burdened with unnecessary costs. This will encourage parties to resolve disputes quickly,” said a senior advocate in Delhi.
Another lawyer noted that the ruling balances judicial efficiency with fairness, ensuring that genuine settlements are not obstructed.
Conclusion
The Supreme Court’s clarification that the Damodar Prabhu guidelines are not binding marks a turning point in cheque bounce litigation. By prioritizing settlement over rigid cost imposition, the Court has reinforced the spirit of Section 138 NI Act—ensuring compensation and resolution rather than prolonged litigation.
For litigants, the ruling provides relief and flexibility. For the judiciary, it offers a pathway to reduce pendency and promote faster justice.
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