Supreme Court Establishes Guidelines for Interim Compensation in Cheque Dishonour Cases under Section 143A of the NI Act

Supreme Court Establishes Guidelines for Interim Compensation in Cheque Dishonour Cases under Section 143A of the NI Act

The Supreme Court has noted that simply filing a complaint of cheque dishonour under the Negotiable Instruments Act does not automatically entitle the complainant to request interim compensation under Section 143A(1) of the N.I. Act. The court clarified that the authority of the court to award interim compensation is not obligatory but discretionary and must be determined after a preliminary assessment of the case's merits.

Disregarding the conclusions of both the High Court and Trial Court, the bench, consisting of Justices Abhay S. Oka and Ujjal Bhuyan, remarked that courts should refrain from immediately granting interim compensation to the complainant. Additionally, the court observed that interpreting the word'may' in Section 143A(1) of the NI Act as 'shall' would result in significant consequences, wherein the accused would be obligated to pay interim compensation of up to 20 percent of the cheque amount in every Section 138 complaint.

Justice Abhay S. Oka observed that “considering the drastic consequences of exercising the power under Section 143A and that also before the finding of guilt is recorded in the trial, the word “may” used in the provision cannot be construed as "shall." The provision will have to be held as a directory and is not mandatory. Hence, we have no manner of doubt that the word “may” used in Section 143A cannot be construed or interpreted as "shall." Therefore, the power under sub-section (1) of Section 143A is discretionary.”

Section 143A of the N.I. Act grants the court the authority to award interim compensation to the complainant. This provision was introduced as an amendment to tackle the problem of prolonged resolution in cases of cheque dishonor. The statement of objects and reasons behind this amendment highlighted that dishonest drawers of cheques often prolong legal proceedings by filing appeals and obtaining stays, resulting in injustice to the payee, who must invest significant time and resources in court proceedings to recover the value of the dishonored cheque.

The court provided broad parameters for exercising discretion under Section 143A of the N.I. Act, which are as follows:

i. Prima facie evaluation: The court must preliminary assess the merits of the case presented by the complainant and the defense put forward by the accused in response to the application. The financial situation of the accused can also be taken into consideration.

ii. Prima Facie Case: Interim compensation may only be directed if the complainant establishes a prima facie case.

iii. Plausible Defense: If the defense of the accused appears prima facie plausible, the court may choose not to grant interim compensation.

iv. Determination of Quantum: If the court concludes that a case warrants interim compensation, it must also determine the amount to be granted. This determination should consider various factors, such as the nature of the transaction and the relationship between the accused and the complainant.

v. Other Relevant Factors: Depending on the specific circumstances of each case, there may be additional relevant factors beyond those explicitly mentioned. The parameters outlined above are not exhaustive, and the court should consider all relevant factors in the given case.

The core of the dispute revolved around the fact that the complainant/respondent No. 2 had filed a complaint under Section 138 of the N.I. Act against the appellant/accused subsequent to the dishonor of a cheque worth Rs.2,20,00,000/- by the bank. While the legal proceedings were ongoing, the complainant submitted an application under Section 143A(1) of the N.I. Act, seeking a directive for the accused to provide compensation equivalent to 20% of the cheque amount.

Dissatisfied with the High Court's decision, the appellant/accused lodged a criminal appeal before the Supreme Court.

The accused argued before the Supreme Court that both the High Court and Trial Court erred in granting the complainant's application for interim compensation without providing adequate reasons for their decision. The accused contended that merely filing a complaint under the NI Act does not authorize the court to compel the accused to pay interim compensation to the complainant. The accused further asserted that the term 'may' in Section 143A(1) should not be interpreted as 'shall', and the determination of whether to award compensation should be based on the specific facts and circumstances of each case.

Agreeing with the submission made by the Appellant/accused, the Supreme Court ruled that the term 'may' in Section 143A(1) should not be interpreted as 'shall'. Therefore, the payment of interim compensation to the complainant is not obligatory but rather discretionary in nature.

Furthermore, the court noted that interpreting the word 'may' as 'shall' would lead to severe and unjust consequences. It would mandate that in every complaint under Section 138, the accused must pay interim compensation of up to 20 percent of the cheque amount. Such an interpretation would violate principles of fairness and justice, potentially rendering the provision manifestly arbitrary. Additionally, it could be viewed as a violation of Article 14 of the Constitution. Essentially, this interpretation would mean penalizing an accused before their guilt is established under subsection (1) of Section 143A.

The court emphasized that an order mandating the accused to provide interim compensation to the complainant should not be issued in a mechanical manner. Instead, the Court must conduct a prima facie assessment of both the complainant's case and the defense presented by the accused in response to the application under subsection (1) of Section 143A. This evaluation is crucial in determining the application seeking interim compensation.

The court noted that solely relying on the presumption under Section 139 of the N.I. Act is insufficient to mandate interim compensation. This is because the presumption is subject to rebuttal, and its application will be determined during the trial. Interim compensation can only be directed if the complainant establishes a prima facie case.

The court further mentioned that various factors need consideration, including the nature of the transaction, any existing relationship between the accused and the complainant, and the financial capability of the accused. In summary, the court stressed that when deciding on the plea under Section 143A, it is imperative for the court to provide concise reasoning reflecting the examination of all pertinent factors.

The court held that the trial court's decision lacked proper reasoning while directing the accused to pay interim compensation to the complainant. Consequently, the Supreme Court directed the trial court to reconsider the application for interim compensation. Additionally, the court ordered that the amount of Rs.10,00,000/- deposited by the appellant would remain invested in a fixed deposit until the disposal of the application. The trial court was instructed to issue an appropriate order regarding the refund, withdrawal, or investment of this amount upon disposal of the application.