Karnataka HC Equalises Default Sentences in Three NI Act Cases Arising From One Loan Transaction

Justice M. Nagaprasanna held that cumulative default imprisonment for non-payment of fine across three cheque-dishonour cases rooted in a single loan agreement was disproportionate, and ordered immediate release of the accused from judicial custody.

The High Court of Karnataka, sitting at Bengaluru, on 4 June 2026 allowed a criminal petition filed by Dinesh Malpani, who was serving default imprisonment across three Section 138 Negotiable Instruments Act cases, all arising from a single loan agreement and a single statutory demand notice. Justice M. Nagaprasanna, sitting singly, held that the aggregate default sentence of nine months — three months in each of the three calendar cases — was constitutionally disproportionate when measured against the statutory ceiling under Section 65 of the Indian Penal Code, now Section 8(3) of the Bharatiya Nyaya Sanhita, 2023. The Court equalised the total default sentence to the period already undergone and directed the petitioner's release within four days, while expressly preserving the complainant's right to pursue recovery of the fine amounts through attachment proceedings.

The Dispute Before the Court

On 22 December 2017, the third respondent, M/s Jupiter Capital Pvt. Ltd., entered into a loan agreement with Malpani and disbursed Rs. 5,96,00,000 to him. By 15 August 2020, the outstanding amount was due for repayment. Malpani issued three cheques — for Rs. 50 lakhs, Rs. 3.5 crores and Rs. 5 crores — towards repayment of the loan along with interest. All three cheques were presented on the same day and dishonoured for want of sufficient funds. On 11 September 2020, Jupiter Capital issued a single statutory demand notice under Section 138 of the Negotiable Instruments Act, 1881.

Jupiter Capital thereafter filed three separate complaints, one for each dishonoured cheque. Three criminal cases were registered: C.C. No. 15234 of 2021, C.C. No. 15235 of 2021 and C.C. No. 15236 of 2021, before the XVII Additional Small Causes and ACMM, Mayo Hall Unit, Bengaluru.

On 14 December 2023, the trial court convicted Malpani in all three cases under Section 138 of the Act. The sentences imposed were:

• C.C. No. 15234/2021 (cheque for Rs. 50 lakhs): Fine of Rs. 61,67,000; default simple imprisonment of three months.
• C.C. No. 15235/2021 (cheque for Rs. 3.5 crores): Fine of Rs. 4,31,66,670; default simple imprisonment of three months.
• C.C. No. 15236/2021 (cheque for Rs. 5 crores): Fine of Rs. 6,16,67,000; default simple imprisonment of three months.

Nearly two years after conviction, Malpani had neither paid the fine amounts nor indicated willingness to do so. On 29 September 2025, the Magistrate, after specifically inquiring whether the accused was ready to pay, and receiving a refusal in each case, issued conviction warrants and committed him to judicial custody at Central Prison, Parapana Agrahara, Bengaluru. Separately, on 6 November 2025, the Magistrate invoked Section 421(1) of the Code of Criminal Procedure and directed attachment of the petitioner's properties in two of the three cases.

Having served six months in custody across two of the three cases, Malpani approached the High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, seeking reduction of the default sentences and immediate release.

The Legal Issue

The pivotal question framed by the Court was whether the imposition of separate default sentences in three distinct prosecutions, all springing from one indivisible transaction, resulted in punitive excess contrary to the mandate of Section 65 of the Indian Penal Code, now mirrored in Section 8(3) of the BNS, thereby entitling the petitioner to immediate release.

Counsel for the petitioner, Smt. Keerthi Reddy, argued that the maximum imprisonment under Section 138 of the Act is two years. Reading Section 65 of the IPC alongside Section 138, the maximum default sentence in any single case could not exceed one-fourth of two years, i.e., six months. She contended that the three complaints arose from a single transaction and a solitary demand notice, and that the cumulative default sentence of nine months was excessive. She relied on the Supreme Court's decision in K. Pranil Reddy v. State of Telangana and the Delhi High Court's decision in Sanjay Vasudeva v. State of NCT, Delhi.

Senior counsel Sri Vikram Huilgol, appearing for Jupiter Capital, countered that default sentences cannot run concurrently and must run consecutively, relying on the Supreme Court's decisions in Sumit Bansal v. MGI Developers & Promoters, reported in (2026) SCC OnLine SC 49, and Sharad Hiru Kolambe v. State of Maharashtra, reported in (2018) 18 SCC 718. He submitted that each dishonoured cheque constituted an independent cause of action, and the petitioner was therefore required to serve nine months in default, not six.

How the Bench Reasoned

Justice Nagaprasanna began by setting out the statutory framework. Section 65 of the IPC, now Section 8(3) of the BNS, provides that where an offence is punishable with both imprisonment and fine, the term of imprisonment in default of payment of fine shall not exceed one-fourth of the maximum term of imprisonment prescribed for the offence. Section 138 of the Negotiable Instruments Act prescribes a maximum of two years' imprisonment. The outer limit of default imprisonment in any Section 138 case is therefore six months per case.

The Court accepted the respondent's position that default sentences cannot run concurrently, citing Sharad Hiru Kolambe. The three default sentences of three months each were individually within the six-month ceiling. The question, however, was whether their consecutive operation — producing nine months of default custody — was proportionate in the circumstances of this case.

The Court surveyed three decisions from other High Courts. In K. Pranil Reddy v. State of Telangana, the Supreme Court reduced default sentences from three months to one month each across eight cases, noting the accused's cardiac condition and thirteen months already served. In Sanjay Vasudeva v. State of NCT, Delhi, the Delhi High Court, exercising inherent jurisdiction under Section 528 of the BNSS, equalised default sentences to the period already undergone by a petitioner convicted in 82 complaints who had served nearly seven years and ten months. The Delhi High Court had observed that prolonging incarceration would amount to a “virtually a life sentence” of approximately seventeen years, which was manifestly disproportionate. In Cyrus Noshirwan Kartak v. State of Maharashtra, reported in 2026 SCC OnLine Bom 2921, the Bombay High Court held that the ceiling under Section 65 of the IPC is absolute, that default imprisonment is coercive and remedial rather than punitive, and that compelling the petitioner to serve eight and a half years in default for inability to pay compensation would be ex facie unreasonable and shockingly disproportionate under Article 21 of the Constitution.

Drawing on these decisions, Justice Nagaprasanna held that imprisonment in default of payment of fine is not an additional punishment for the offence itself. It is a coercive mechanism to secure compliance with the Court's monetary direction. The legislative intent underlying Section 65 of the IPC and Section 8(3) of the BNS is to prevent default imprisonment from assuming a disproportionately oppressive character. The Court observed that even after a convict undergoes default imprisonment, the liability to pay the fine does not extinguish: Section 421(1) of the Cr.P.C. continues to empower the Court to issue warrants for recovery of fine amounts. The complainant is therefore not remediless.

On the facts, the Court noted that all three cheques were issued out of a single loan transaction and that a single statutory demand notice dated 11 September 2020 had been issued. Malpani had demonstrated financial incapacity to satisfy the substantial fine amounts. His continued incarceration was causing acute hardship to his family. The Court held that these circumstances, taken together, made out a compelling case for relief under Section 528 of the BNSS.

The Court expressly declined to render a conclusive finding on the academic question — raised by the petitioner's counsel and examined at length in Sanjay Vasudeva — of whether Section 138 of the Negotiable Instruments Act, which does not itself provide for imprisonment in default of payment of fine, can at all authorise such a sentence. The Court noted that no such prayer had been made in the petition, the relevant conviction orders had not been placed on record, and adopting that position would have far-reaching consequences across multiple statutes. The question was left open for determination in an appropriate case.

Order

The Criminal Petition was allowed. The Court made the following directions:

The aggregate default sentence of imprisonment imposed on Malpani was proportionately staggered, moderated and equalised to the period of imprisonment already undergone by him in default of payment of fine in C.C. No. 15234/2021, C.C. No. 15235/2021 and C.C. No. 15236/2021.

The petitioner was directed to be enlarged from custody and set at liberty forthwith, and in any event within four days from the date of receipt of a certified copy of the order, provided his detention was not required in connection with any other case or proceedings.

The Court clarified that the order does not absolve Malpani of his liability to pay the fine amounts. The proceedings initiated under Section 421(1) of the Code of Criminal Procedure for attachment and recovery of the petitioner's properties shall continue independently and uninfluenced by the observations in the order. The State and the complainant remain at liberty to pursue recovery in accordance with law, including under Section 421 of the Cr.P.C.