The Rajasthan High Court has ruled that when a prosecution under Section 138 of the Negotiable Instruments Act, 1881, stands fully settled between the parties and the complainant has no subsisting grievance, the continued incarceration of the accused solely on account of non-compliance with the condition of depositing costs cannot be sustained in the absence of any wilful default. The Court emphasised that poverty or financial incapacity cannot be permitted to become a ground for deprivation of personal liberty under Article 21 of the Constitution.
A single bench of Justice Farjand Ali observed that the costs contemplated by the Supreme Court in Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663 are regulatory and deterrent in nature and are ancillary to the process of compounding. They cannot be equated with a substantive penal consequence. Their application, therefore, necessarily admits of flexibility depending upon the facts of each case, including the financial capacity of the accused and the stand of the complainant.
The Court was hearing a petition filed under Section 482 CrPC (now Section 528 BNSS) seeking modification of the condition imposed by a coordinate bench while permitting compounding of the offence. The petitioner had been convicted under Section 138 of the Act and his appeal was dismissed. During pendency of the revision petition, the parties amicably settled the dispute. The Court permitted compounding and set aside the conviction and sentence subject to the petitioner depositing 15% of the cheque amount as costs in terms of the Damodar S. Prabhu judgment.
It was not in dispute that the petitioner could not comply with the said condition due to financial incapacity. Consequently, the trial court issued an arrest warrant, and the petitioner was taken into custody, where he continued to remain confined. The petition was filed contending that such deprivation of liberty was disproportionate and violative of Article 21 of the Constitution, particularly when the underlying dispute stood settled and the complainant had accepted the compromise.
The Court noted that the petitioner’s incarceration was a direct consequence of non-compliance with the condition of costs and not on account of any subsisting adjudication of guilt. Referring to the Supreme Court’s decision in Rajeev Khandelwal v. State of Maharashtra & Anr. (order dated 04.11.2025), the Court observed that the guidelines in Damodar S. Prabhu are not mandatory and must be applied having regard to the facts of each case. Where the complainant has no objection to the settlement and the accused demonstrates genuine inability to comply, insistence on payment of such costs would be unjustified.
The Court further underscored that the offence under Section 138 is primarily compensatory in character. Once the complainant stands satisfied, continuation of incarceration solely on account of non-payment of costs would be disproportionate and would defeat the very object of compounding. To permit such a consequence would be to allow a regulatory condition to assume the character of a coercive deprivation of liberty, which is impermissible.
The Court clarified that while it does not possess the power to review its own final order in view of the bar contained in Section 362 CrPC (Section 401 BNSS), the present exercise did not amount to a review. It was confined to examining the consequence of the condition imposed, in light of subsequent events and its impact on the petitioner’s personal liberty. The inherent jurisdiction of the Court could always be invoked to secure the ends of justice and to prevent abuse of process, particularly where a condition, though valid at the time of its imposition, operates in a manner resulting in manifest injustice.
Accordingly, the petition was allowed. The condition directing the petitioner to deposit 15% of the cheque amount as costs was waived in its entirety. The order dated 06.03.2026 passed by the trial court issuing arrest warrant and committing the petitioner to custody was set aside. The petitioner, who was in custody, was directed to be released forthwith, if not required in any other case.
Case Title: Santosh Dangi v. Firm M/s Royal Sanitary & Anr.
Case No.: S.B. Criminal Misc. Application No. 181/2026
Date of Order: 19 March 2026
Coram: Hon’ble Mr. Justice Farjand Ali
Click HERE for full Judgment.
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