Accused cannot be jailed for inability to pay compounding costs after settlement in cheque bounce case: Raj HC

Jodhpur: The Rajasthan High Court has held that an accused cannot be kept in custody solely for inability to comply with a condition requiring payment of compounding costs in a cheque bounce case, especially when the dispute between the parties stands settled. The Court observed that deprivation of liberty cannot be made contingent upon economic capacity and that continued incarceration in such circumstances violates Article 21 of the Constitution.

The judgment was delivered by Justice Farjand Ali in S.B. Criminal Misc. Application No. 181/2026, Santosh Dangi vs Firm M/s Royal Sanitary & Anr., decided on March 19, 2026.

The present application was filed under Section 482 CrPC seeking modification of a condition imposed by a coordinate Bench while permitting compounding of an offence under Section 138 of the Negotiable Instruments Act, 1881. The earlier order dated November 22, 2024 had directed the petitioner to deposit 15% of the cheque amount as costs in terms of the Supreme Court judgment in Damodar S. Prabhu v. Sayed Babalal H.

The petitioner had been convicted by the trial court for an offence under Section 138 NI Act, and his appeal was dismissed. During pendency of the revision petition before the High Court, the parties amicably settled the dispute, upon which the Court permitted compounding of the offence and set aside the conviction and sentence, subject to deposit of costs.

It was not disputed that the petitioner failed to comply with the condition of depositing 15% of the cheque amount. Consequently, the trial court issued an arrest warrant and the petitioner was taken into custody, where he remained confined. The Court noted that the petitioner’s incarceration was a direct consequence of non-compliance with the cost condition and not due to any subsisting adjudication of guilt.

The petitioner contended that the dispute had been fully settled and the complainant had no surviving grievance. It was argued that continued incarceration was solely due to financial incapacity and not on account of any criminal liability, rendering such detention disproportionate and violative of Article 21.

The Court examined the nature of costs imposed under the judgment in Damodar S. Prabhu and observed that such costs are regulatory and deterrent in nature, intended to encourage early settlement, and cannot be treated as a substantive penal consequence. It held that the application of such costs is flexible and must depend on the facts of each case.

Placing reliance on the Supreme Court’s decision in Rajeev Khandelwal vs State of Maharashtra (2025), the Court reiterated that the guidelines relating to costs are not mandatory and must be applied keeping in view the financial capacity of the accused and the stand of the complainant.

The Court further referred to the principles laid down in Maneka Gandhi vs Union of India and Jolly George Varghese vs Bank of Cochin, emphasizing that any deprivation of personal liberty must be just, fair and reasonable, and that imprisonment for non-payment of money is impermissible unless there is willful default despite sufficient means.

On facts, the Court found no material to indicate that the petitioner had deliberately avoided payment despite having the capacity to do so. It held that the petitioner’s continued custody was solely attributable to his inability to deposit the costs.

The Court observed that the offence under Section 138 NI Act is primarily compensatory in nature, and once the complainant has accepted the settlement, continued incarceration solely on account of non-payment of costs would be disproportionate and defeat the very object of compounding.

Addressing the scope of its powers, the Court clarified that although it cannot review its earlier order in view of the bar under Section 362 CrPC, it can exercise inherent jurisdiction to prevent abuse of process and to secure the ends of justice, particularly where a condition operates in a manner resulting in manifest injustice.

Framing the core issue, the Court held that where a prosecution under Section 138 NI Act stands settled and the complainant has no subsisting grievance, continued incarceration of the accused arising solely from non-compliance of a condition of costs cannot be sustained in the absence of willful default.

In conclusion, the Court allowed the application and waived the condition requiring deposit of 15% of the cheque amount as costs. The arrest warrant issued by the trial court was set aside, and the petitioner was directed to be released forthwith, if not required in any other case.

Case Title
Santosh Dangi vs Firm M/s Royal Sanitary & Anr.

Case Number
S.B. Criminal Misc. Application No. 181/2026

Court
High Court of Judicature for Rajasthan, Jodhpur Bench

Bench
Justice Farjand Ali

Date of Order
March 19, 2026

Advocates
For Petitioner: Mr. Tushar Moad
For Respondents: Mr. N.S. Chandawat, DyGA