Compounding costs for cheque dishonour settlements ordinarily apply in Lok Adalat, subject to recorded special reasons for waiver.

Graded costs for belated compounding of cheque dishonour offences under Section 138 of the Negotiable Instruments Act ordinarily apply even when parties settle in Lok Adalat, because Section 147 contains no contrary exemption and the deterrent purpose of the costs regime would otherwise be undermined. The settlement mechanism under the Legal Services Authorities Act remains effective, but it does not bypass the compounding-cost framework for delayed settlements. Courts may still reduce or waive the costs where special reasons are recorded and the parties show bona fide settlement, consistent with the discretion recognised in the governing guidelines.

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Issues: Whether the graded cost guidelines for compounding of offences under Section 138 of the Negotiable Instruments Act, 1881 apply when the matter is settled in Lok Adalat; and whether the concerned court may reduce or waive such costs in appropriate cases.

Analysis: The settlement machinery under the Legal Services Authorities Act, 1987 serves an important public purpose, but the object of discouraging delayed compounding of cheque dishonour cases cannot be defeated by routing an already-settled dispute through Lok Adalat to bypass the costs framework laid down for belated compounding. The Court held that the guidelines in Damodar S. Prabhu are ordinarily applicable even in Lok Adalat matters, because Section 147 of the Negotiable Instruments Act, 1881 contains no contrary exemption and the graded costs were framed to deter delay and encourage early settlement. At the same time, the Court recognised that the very judgment creating the guidelines permits reduction of costs for special reasons, and that discretion can be exercised where the parties demonstrate bona fide settlement and a proper case for waiver or reduction.

Conclusion: The compounding-cost guidelines normally apply to settlements in Lok Adalat, but the court may reduce or waive the costs for recorded special reasons in appropriate cases.

Final Conclusion: The impugned order was sustained, while the governing approach was clarified for future cases so that Lok Adalat settlements and the deterrent object of the compounding-cost regime both remain effective.

Ratio Decidendi: A belated compounding-cost regime for cheque dishonour cases continues to apply even where settlement is reached in Lok Adalat, unless the court records special reasons to reduce or waive the costs in exercise of the discretion already recognised by the governing guidelines.

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