Supreme Court Clarifies Discretionary Power of Interim Compensation Under Section 143A of Negotiable Instruments Act: Rakesh Ranjan Srivastava vs. State of Jharkhand (2024)

Date of the Judgment: 15 March 2024

Citation: 2024 INSC 205

Judges: Abhay S. Oka, J., Ujjal Bhuyan, J.

Can a court automatically order an accused to pay interim compensation in a cheque dishonor case? The Supreme Court of India recently addressed this crucial question, clarifying the discretionary nature of the power to order interim compensation under Section 143A(1) of the Negotiable Instruments Act, 1881. This judgment impacts how courts handle cheque bounce cases, balancing the interests of both the complainant and the accused.

The core issue was whether the word “may” in Section 143A(1) of the Negotiable Instruments Act, 1881, should be interpreted as “shall,” making the provision for interim compensation mandatory. The Supreme Court held that the provision is discretionary, not mandatory, and outlined factors courts must consider before ordering interim compensation.

The judgment was delivered by a two-judge bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan, with the opinion authored by Justice Abhay S. Oka.

Case Background

The case revolves around a complaint filed by the 2nd respondent (complainant) against the appellant (accused) under Section 138 of the Negotiable Instruments Act, 1881, for cheque dishonor. The complainant and the appellant had various business dealings, forming companies with different profit-sharing terms.

On 23rd September 2011, the appellant, in his capacity as Managing Director of M/s Thermotech Synergy Pvt. Ltd., offered the complainant the position of Executive Director with a salary of Rs. 1,00,000 per month. Subsequently, on 1st June 2012, a partnership was formed with Rahul Kumar Basu, where the complainant was shown as an indirect partner. M/s Tech Synergy was later merged with M/s Megatech Synergy Pvt. Ltd.

In August 2012, an agreement was allegedly made to pay the complainant 50% of the profits. Another partnership firm was formed on 3rd June 2013, with the appellant, complainant, and Rahul Kumar as partners. The complainant alleged that the appellant agreed to give him 50% share in the profits of Geotech Synergy Pvt. Ltd. However, the appellant failed to pay the amounts due, leading to a legal notice issued by the complainant.

The complainant claimed that the appellant owed him Rs. 4,38,80,000. A civil suit was filed in the Civil Court at Bokaro for recovery of this amount. On 13th July 2018, a meeting was held where the appellant agreed to pay Rs. 4,25,00,000. Two cheques were issued, one for Rs. 2,20,00,000 dated 6th August 2018, and another for Rs. 2,05,00,000 dated 19th September 2018. The first cheque was dishonored, leading to the complaint under Section 138 of the Negotiable Instruments Act, 1881.

Timeline:

Course of Proceedings

The complainant filed an application under Section 143A of the Negotiable Instruments Act, 1881, seeking interim compensation of 20% of the cheque amount. The Judicial Magistrate allowed the application on 7th March 2020, directing the appellant to pay Rs. 10,00,000 as interim compensation within 60 days.

The Sessions Court affirmed the Magistrate’s order in a revision application. The appellant then challenged these orders before the High Court of Jharkhand, which dismissed the petition. This led to the present appeal before the Supreme Court.

Legal Framework

The core of this case involves the interpretation of Section 143A of the Negotiable Instruments Act, 1881, which was introduced by Act No. 20 of 2018, effective from 1st September 2018. This section empowers courts to order interim compensation in cheque dishonor cases.

Section 143A of the Negotiable Instruments Act, 1881 states:

“143-A. Power to direct interim compensation.—(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the Court trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant — (a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and (b) in any other case, upon framing of charge. (2) The interim compensation under sub-section (1) shall not exceed twenty per cent of the cheque amount. (3) The interim compensation shall be paid within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque. (4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant. (5) The interim compensation payable under this section may be recovered as if it were a fine under Section 421 of the Code of Criminal Procedure, 1973 (2 of 1974). (6) The amount of fine imposed under Section 138 or the amount of compensation awarded under Section 357 of the Code of Criminal Procedure, 1973 (2 of 1974), shall be reduced by the amount paid or recovered as interim compensation under this section.”

The purpose of introducing Section 143A was to address the issue of unscrupulous drawers of cheques prolonging proceedings and causing injustice to the payee. The amendment aimed to strengthen the credibility of cheque transactions by providing a mechanism for interim relief.

The court also considered Section 148 of the Negotiable Instruments Act, 1881, which allows the Appellate Court to order a deposit of a minimum of 20% of the fine or compensation awarded by the trial court in appeals against convictions under Section 138. This provision was also introduced by Act No. 20 of 2018.

Arguments

Appellant’s Submissions:

• The appellant argued that the use of the word “may” in Section 143A(1) of the Negotiable Instruments Act, 1881, indicates that the provision is discretionary, not mandatory.
• The appellant contended that the trial court cannot order interim compensation mechanically and must apply its mind to the facts of the case.
• It was submitted that the existence of a prima facie case is essential before exercising the power under Section 143A. The court should consider the merits of the complainant’s case and the defense of the accused.
• The appellant argued that even if a case for interim compensation is made out, the court must apply its mind to the quantum and not automatically grant 20% of the cheque amount.

Respondent’s Submissions:

• The respondent argued that Section 143A(1) should be interpreted as mandatory, given the object of Section 138 of the Negotiable Instruments Act, 1881.
• The respondent submitted that there is a presumption under Section 139 of the Negotiable Instruments Act, 1881, that the holder of a cheque received it for the discharge of a debt or liability, and this presumption is only rebuttable during the trial.
• It was argued that the defense of the accused is irrelevant at the stage of considering an application under Section 143A(1) and that an order for interim compensation should follow in every case.
• The respondent contended that unless Section 143A(1) is held to be mandatory, the legislative intent behind enacting the provision would be frustrated.

Table of Submissions:

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the provision of sub-section (1) of Section 143A of the Negotiable Instruments Act, 1881, which provides for the grant of interim compensation, is directory or mandatory.
2. If it is held to be a directory provision, what are the factors to be considered while exercising powers under sub-section (1) of Section 143A of the Negotiable Instruments Act, 1881.

Treatment of the Issue by the Court:

Authorities

The Supreme Court considered the following authorities:

Cases:

1. Surinder Singh Deswal v. Virender Gandhi [(2019) 11 SCC 341] – The Supreme Court considered this case in relation to the interpretation of the word “may” in Section 148 of the Negotiable Instruments Act, 1881. The Court noted that in the context of Section 148, “may” is generally construed as “shall” or “rule,” but the same interpretation does not apply to Section 143A.
2. Jamboo Bhandari v. Madhya Pradesh State Industrial Development Corporation Limited & Ors. [(2023) 10 SCC 446] – The Supreme Court referred to this case to highlight that a purposive interpretation should be made of Section 148 of the Negotiable Instruments Act, 1881. It was observed that appellate courts are generally justified in imposing the condition of deposit under Section 148, but exceptions can be made with specific reasons.

Legal Provisions:

• Section 138 of the Negotiable Instruments Act, 1881 – This section defines the offense of cheque dishonor. The court considered the object of this section, which is to ensure the sanctity of cheque transactions.
• Section 139 of the Negotiable Instruments Act, 1881 – This section establishes a presumption that the holder of a cheque received it for the discharge of a debt or liability. The court noted that this presumption is rebuttable and arises at the trial stage.
• Section 143A of the Negotiable Instruments Act, 1881 – This section provides for the power to direct interim compensation. The court’s interpretation of this section was the core issue of the case.
• Section 148 of the Negotiable Instruments Act, 1881 – This section provides the power of the Appellate Court to order payment pending appeal against conviction. The court distinguished the application of “may” in this section from its application in Section 143A.
• Section 2 of the Code of Criminal Procedure, 1973 – The court referred to clauses (w) and (x) of this section to determine that cases under Section 138 of the Negotiable Instruments Act, 1881, are triable as summons cases.
• Sections 262 to 265 of the Code of Criminal Procedure, 1973 – These sections deal with the summary procedure for trials. The court noted that Section 143 of the Negotiable Instruments Act, 1881, mandates the adoption of this procedure.
• Section 259 of the Code of Criminal Procedure, 1973 – This section allows a Magistrate to convert a summons case into a warrant case. The court noted that the framing of charge under Section 143A(1)(b) applies only in warrant cases.
• Section 421 of the Code of Criminal Procedure, 1973 – This section deals with the recovery of fines. The court noted that interim compensation under Section 143A can be recovered as if it were a fine under this section.

Table of Authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ Surinder Singh Deswal v. Virender Gandhi [(2019) 11 SCC 341]: The Court distinguished the interpretation of “may” in Section 148 from Section 143A, stating that the mandatory interpretation of “may” in Section 148 does not apply to Section 143A.

✓ Jamboo Bhandari v. Madhya Pradesh State Industrial Development Corporation Limited & Ors. [(2023) 10 SCC 446]: The Court noted that while a purposive interpretation should be made of Section 148, the same cannot be applied to Section 143A because the latter is invoked before the conviction of the accused.

✓ Section 138 of the Negotiable Instruments Act, 1881: The Court acknowledged the object of this section but held that it does not mandate a mandatory interpretation of Section 143A.

✓ Section 139 of the Negotiable Instruments Act, 1881: The Court clarified that the presumption under this section is rebuttable and arises at the trial stage, not at the stage of considering an application under Section 143A.

✓ Section 143A of the Negotiable Instruments Act, 1881: The Court held that this section is directory, not mandatory, and the power under it is discretionary.

✓ Section 148 of the Negotiable Instruments Act, 1881: The Court distinguished the use of “may” in this section from Section 143A, noting that Section 148 operates at a different stage after conviction.

✓ Section 421 of the Code of Criminal Procedure, 1973: The Court referred to this section to show how interim compensation can be recovered as a fine.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to balance the rights of the complainant and the accused. The Court emphasized that the power to order interim compensation under Section 143A of the Negotiable Instruments Act, 1881, should not be exercised arbitrarily or mechanically. The Court was concerned about the potential for injustice if interim compensation were to be ordered in every case without considering the merits of the defense and the financial implications for the accused.

The Court’s reasoning also took into account the drastic consequences of non-payment of interim compensation, including the potential sale of the accused’s movable and immovable property. The Court noted that the presumption under Section 139 of the Negotiable Instruments Act, 1881, is rebuttable and arises at the trial stage, not at the stage of considering an application under Section 143A.

The Court also emphasized that the word “may” in Section 143A cannot be interpreted as “shall” because it would lead to manifest arbitrariness and violate Article 14 of the Constitution, as it would penalize an accused even before their guilt is established.

Sentiment Analysis Table:

Fact:Law Ratio Table:

Logical Reasoning Flowchart:

Key Takeaways

• The power to order interim compensation under Section 143A(1) of the Negotiable Instruments Act, 1881, is discretionary, not mandatory.
• Courts must evaluate the merits of the complainant’s case and the defense of the accused before ordering interim compensation.
• The presumption under Section 139 of the Negotiable Instruments Act, 1881, is rebuttable and arises at the trial stage, not at the stage of considering an application under Section 143A.
• Courts must consider various factors, such as the nature of the transaction, the relationship between the parties, and the financial capacity of the accused, while determining the quantum of interim compensation.
• The financial distress of the accused is a relevant factor to be considered while deciding whether to grant interim compensation.
• The court must record brief reasons indicating consideration of all relevant factors while deciding the prayer made under Section 143A.

Directions

The Supreme Court set aside the orders of the Trial Court and the High Court, and restored the application under Section 143A(1) of the Negotiable Instruments Act, 1881, to the file of the Judicial Magistrate First Class, Bokaro. The Trial Court was directed to hear and decide the application afresh in light of the observations made in the judgment. The amount of Rs. 10,00,000 deposited by the appellant was ordered to be invested in a fixed deposit until the disposal of the application.

Specific Amendments Analysis

This judgment primarily deals with the interpretation of Section 143A of the Negotiable Instruments Act, 1881, which was introduced by Act No. 20 of 2018. The court analyzed the legislative intent behind this amendment, which was to address the issue of undue delay in the final resolution of cheque dishonor cases. The court also considered the impact of Section 148 of the Negotiable Instruments Act, 1881, which was also introduced by the same amendment, but distinguished its application from that of Section 143A.

Development of Law

The ratio decidendi of this case is that the power to order interim compensation under Section 143A(1) of the Negotiable Instruments Act, 1881, is discretionary and not mandatory. This judgment clarifies the interpretation of the word “may” in Section 143A(1) and provides guidelines for courts to exercise this power judiciously. The Supreme Court has thus clarified that the provision is directory and not mandatory.

This ruling has changed the previous position where some courts were interpreting Section 143A as mandatory, leading to automatic orders of interim compensation. The Supreme Court has now set a precedent that requires courts to apply their minds to the facts of each case and consider the merits of both the complainant’s case and the accused’s defense before ordering interim compensation. This ensures a more balanced approach, preventing undue hardship on the accused.

Conclusion

In conclusion, the Supreme Court’s judgment in Rakesh Ranjan Srivastava vs. State of Jharkhand (2024) clarifies that the power to order interim compensation under Section 143A(1) of the Negotiable Instruments Act, 1881, is discretionary and not mandatory. This ruling ensures a more balanced approach in cheque dishonor cases, requiring courts to consider the merits of both sides before ordering interim compensation. This judgment is a significant step towards preventing the misuse of Section 143A and protecting the rights of the accused in cheque bounce cases.