Why did the Supreme Court lay down the original Damodar Prabhu cost guidelines?

In Damodar S. Prabhu (2010), the Court used its power under Article 142 to frame a cost-regime that discourages delay in compounding cheque bounce offences, offering a graded scale of costs to encourage early settlement.

Can I avoid paying compounding costs now, after this new judgment?

Yes. Depending on the case details – such as the complainant's willingness to settle and your financial ability – a court may reduce or waive costs that would otherwise apply under the old Damodar Prabhu scale.

Do the 2025 compounding guidelines replace Damodar Prabhu completely?

The new Supreme Court compounding guidelines (effective November 2025) revise the cost slabs (e.g., 5%, 7.5%, 10%) and align with the Court’s recent ruling that the older Damodar Prabhu costs are not binding in every case.

How can Prime 8 Legal help me in a cheque bounce compounding case after this ruling?

Prime 8 Legal can advise on settlement strategy, negotiate compounding terms with minimized cost burden, prepare and file compounding applications, and represent you in court or appeal to challenge excessive cost imposition.

Damodar Prabhu Guidelines on Costs for Compounding S 138 NI Act Cases Not Binding : Supreme Court Clarifies

Q: What does it mean that Damodar Prabhu guidelines are not a binding precedent?

It means courts are not required to mechanically apply the graded cost percentages from the Damodar S. Prabhu judgment. The Supreme Court has clarified that these were issued under Article 142, and judges now have discretion to reduce or waive costs based on the facts of each compounding settlement.

prime8legal
1 day ago
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Overview of the Case

The Supreme Court has ruled that the Damodar S. Prabhu guidelines on costs for compounding cheque-bounce offences under Section 138 of the Negotiable Instruments Act (NI Act) are not a binding precedent.
The court held that the earlier guidelines were issued under Article 142 of the Constitution to do “complete justice,” and thus should not be rigidly applied in all compounding cases.
In the case before the court, the appellant (Rajeev Khandelwal) had settled with the complainant, and was acquitted by the High Court subject to payment of costs to the Legal Services Authority—but he challenged that condition.
The Supreme Court allowed his appeal and set aside the cost direction, especially noting that the complainant did not demand any further payment and the appellant was financially unable to comply.
The judgment emphasises case-by-case discretion: courts can decide whether to impose or waive costs based on the specific facts of each compounding settlement.

Case Title, Number & Court Name

Court: Supreme Court of India
Case Title: Rajeev Khandelwal vs State of Maharashtra & Anr.
Legal Provision: Section 138 of the Negotiable Instruments Act, 1881; Cost guidelines under Damodar S. Prabhu (2010) judgment; Powers under Article 142 of the Constitution.

Detailed Legal Analysis

A. Background: Damodar S. Prabhu Guidelines

In Damodar S. Prabhu v. Sayed Babalal H. (2010), the Supreme Court had laid down a cost-scale for compounding Section 138 NI Act cases:

10% of the cheque amount (if settled at Magistrate after first/second hearing),
15% at Sessions or High Court,
20% at the Supreme Court level. These costs were to be paid to the Legal Services Authority to discourage delayed settlement and promote early compounding.

B. Supreme Court’s Clarification in the New Judgment

The Court observed that Damodar Prabhu guidelines were given under Article 142 (justice-doing power), not under a formal legislative or statutory mandate.
Because of this origin, the Court held these guidelines do not bind every court in future cases — judges must consider facts of each case rather than mechanically applying the cost slabs.
In the present appeal, since the complainant did not seek further payment and the appellant lacked capacity to pay, imposing the cost would thwart the essence of a settlement.
The Court emphasized that the goal of compounding is resolution, and cost imposition must not become a barrier to amicable settlement.

C. Policy Implications

The judgment restores flexibility in compounding cheque bounce cases: courts can now refuse costs or reduce them if the circumstances justify it.
It aims to encourage genuine settlements, ensuring that the financial burden does not unduly penalize the accused where complainants are willing to settle.
By not treating Damodar Prabhu as a rigid rule, courts avoid a “one-size-fits-all” approach and can tailor outcomes based on equity, financial status, and willingness of parties.

D. Recent Developments

Note: Newer compounding guidelines (effective November 2025) have been issued by the Supreme Court, reducing cost slabs (e.g., 5% after defence evidence, 7.5% at HC level, 10% before SC)
This fresh framework aligns with the Court’s view that cost imposition must remain realistic, proportionate, and conducive to settlement.

How Prime 8 Legal Can Help

Prime 8 Legal has strong expertise in negotiable instrument litigation, criminal defense, and settlement strategy. We can assist in such cases by:

Advising clients (accused or complainants) on compounding strategy under the new legal landscape.
Representing clients in court to negotiate mutual settlement terms, avoiding rigid cost impositions.
Drafting and filing compounding applications, ensuring they reflect financial realities and leverage the Court’s discretion post this ruling.
Providing risk analysis and litigation planning: assessing whether to push for compounding or proceed with trial, depending on cost burden and case facts.
Representing clients in appeals or further litigation, especially where prior cost obligations are being challenged.

Important FAQs

Q1. What does it mean that Damodar Prabhu guidelines are “not a binding precedent”?

It means that the cost percentages set out in Damodar S. Prabhu (2010) are not mandatory for every case: courts have discretion based on individual facts and may reduce or waive those costs.

Q2. Why did the Supreme Court create these guidelines in the first place?

Because before them, there was no standard cost regime for compounding under Section 138 NI Act. The Court used Article 142 to frame a cost structure to discourage delays and encourage early settlement.

Q3. Can I avoid paying costs if I settle later in the litigation?

Yes, potentially. If you reach a settlement and the complainant doesn’t demand more, and you show financial inability, a court may not impose the full cost under Damodar Prabhu — following this new judgment.

Q4. Do the new 2025 guidelines replace the Damodar Prabhu cost-scale?

Yes, the new compounding cost framework (Nov 2025) updates the earlier cost slab, reducing it and promoting more realistic settlement terms.

Q5. How can Prime 8 Legal help me in a Section 138 compounding case?

Prime 8 Legal can help negotiate terms that minimize cost burden, draft compounding applications, argue for cost waiver or reduction, and guide you through appeals or settlement strategy tailored to your financial situation.

Contact Us

If you or your business is involved in a cheque bounce case under Section 138 NI Act and are considering compounding or settlement, Prime 8 Legal is well-equipped to support you. Our team offers:

Strategic legal advice on compounding costs
Tailored negotiation and settlement representation
Litigation and appellate support

Contact us today:

Address: 318-B, Saraswati Kunj, Sector 53, Golf Course Road, Gurgaon, Haryana, India

Phone: +91-9717586165

Email: prime8legal@gmail.com

Website: www.prime8legal.com

We serve clients in Gurgaon, Delhi NCR, Mumbai, Pune, Bangalore, Chennai, and globally — in London (UK), New York, California, Washington DC, Dubai, Los Angeles, and more.

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