SECTION 143-A NEGOTIABLE INSTRUMENTS ACT: AS IT EVOLVED

 

Section 143-A Negotiable Instruments Act: As it evolved

                                  PART-II

The provision of Section 143-A in the Negotiable instruments Act (In short “The Act”) has been provided for by virtue of amendment in the act and the same is made effective w.e.f 01.09.2018. Clearly, the law in this regard is still evolving. Though, I have already written on this aspect previously, still, in view of significance of the issue and ramification, the present write up is written as Part-II to accord further impetus to the topic.  As narrated above, as the provision is made effective only in 2018, therefore, the judicial authorities are relatively fewer. The offences relating to bouncing of cheque are being filed in large numbers and with a view to restore sanity to transaction of cheques not only Section 138 is made part of the Act, but there has been gradual amendments in due course. The underlying object is to provide assurance in commercial transactions made through cheques. In this context, the legislature has provided for Section 143-A in the Act which stipulates payment up to 20% of the cheque amount to the complainant before setting up of complaint for trial. Once, notice is framed and the accused pleads “not guilty” the complainant may opt to file the application u/s 143-A of the Act for seeking the deposit. As the provision is not retrospective, therefore, the provision shall only be applicable qua complaints lodged after 01.09.2018. One may ponder over the fact as to whether the provision of Section 143-A of the Act shall apply in the relevant stage in all cases, filed after 01.09.2018 or there are any fetter attached to that? Whether the provision is directory, discretionary or mandatory?  What are the judicial precedents in this regard? The answer shall be found in the discussion that follows hereinafter.

Before continuing with the discussion, it may be worthwhile to refer to the provision of Section 143-A of the Act. The same is reproduced as under:

 “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 amount of the cheque.

(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 11974).

(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.”.

 

S.N	Title	High CourtS	Remark
1.	Smt  Vijaya Vs Shekharppa CRIMINAL PETITION NO.100261/2022	Karnataka	The power of the court in granting interim compensation is discretionary. The order should be reasoned and after appreciation of facts only and not in matter of course.
2.	V.Krishnamurthy Vs Diary Classic ICE Creams Pvt Ltd 2022 SCC OnLime Kar 1047	Karnataka	Same as above and conduct of accused is also held relevant
3.	Sri Narayanswami Vs Shri Ramesh J.S  Crl Pet No. 1550/2022 Order dated 31.03.2022	Karnataka	same as above
4.	LGR Enterprises Vs P Anbazhvgan Crl R No. 112/2022	Madras	Same as above
5.	JSB Cargo & Freight Forwarder Pvt Ltd Vs State & Anr2021 SCC OnLineDel 5425	Delhi	The power is not mandatory, but discretionary. The order should reflect application of mind as such orders are serious in nature

 

In Smt Vijaya (Supra) The Karnataka High Court has held as under in the following respective paragraphs:

“10. The afore-extracted order passed by the Court does not bear reason as to why 20% of the amount is awarded as interim compensation. All that the Court records on going through the entire amended provision is, if the drawer of the cheque has not pleaded guilty, then he shall pay interim compensation at the rate of 20%. The petitioner in the case at hand did not plead guilty. Therefore, the Court grants interim compensation. There is no application of mind as to why the said compensation has to be awarded. Section 143A is completely misread that once the accused does not plead guilty, the complainant becomes automatically entitled to 20% of the cheque amount as interim compensation. Sub-section (1) of Section 143A reads that notwithstanding anything contained in the Cr.P.C. the Court trying an offence under Section 138 may order drawer to pay interim compensation to the complainant. If an order is passed for payment of interim compensation, it shall be paid within 60 days from the date of the order”.

 

“11. Therefore, the Legislature has cautiously worded sub-section (1) of Section 143A not to make it mandatory in all cases where clauses (a) and (b) of sub-section (1) would empower the learned Magistrate before whom proceedings are pending consideration to award interim compensation. It is the discretion conferred, as the word used is “may”. If the order is passed, then the payment is mandatory. Therefore, the learned Magistrate who is hearing the application for interim compensation should apply his mind, record his reasons in exercise of his discretion, as to why 20% of the cheque amount is to be granted, as interim compensation in any given case”.

 

12. The other side of the coin of discretion available to the learned Magistrate is that the amount should not exceed 20%. Therefore, it is not that 20% has to be the interim compensation in every case. Here again the discretion is required to be exercised by the learned Magistrate as the interim compensation can vary from 1% to 20% but shall not exceed 20%. The language of Section 143A being couched with such discretion, the discretion if not exercised in a manner known to law, becomes an arbitrary action.

“13. Application of mind in exercise of discretion is discernible only in an order that contains reasons, and reasons can be found only if they are recorded in writing, and if reasons are recorded in writing, it is only then the order will be within the counters of law.”

 

In paragraph 14 of Smt Vijaya (Supra) the Karnataka High Court has further expressed its anxiety in as much as it is observed that the consequence of non-payment of interim compensation so awarded is penal, as proceedings can be initiated by the complainant under Sections 357 and 421 of the Cr.P.C. which are recoverable as fine paid under Section 421 of the Cr.P.C. As the consequences of such order are grave , since the liability of the accused is yet to be determined, still, he will have to face grave hardship in the event of non-payment. Therefore, it is all the more necessary for a Magistrate to pass appropriate orders which bear application of mind and record reasons as to why interim compensation is to be awarded in a given case.

In the above backdrop, in Smt Vijaya (Supra), petition preferred by the accused, the Karnataka High Court was pleased to set aside the order impugned and the ld Magistrate was directed to pass appropriate order in sync with law.

In V.Krishnamurthy (Supra) the Karnataka High Court has succinctly delved into the aspect. The findings are as under:

13. Application of mind and passing of a reasoned order of grant of compensation becomes necessary in the light of penal consequences that ensue an accused who failed to comply with the order granting 20% compensation as the complainant is given several remedies of recovery which result in the accused being taken into custody. Therefore, such orders which result in such penal consequences should be rendered giving cogent reasons which would demonstrate application of mind and such orders should be passed only after hearing the accused in the matter. In cases where the learned Magistrate is to exercise discretion, such discretion should become two fold.

First fold: Where an application is so made, the learned Magistrate has to apply his mind whether such an application is to be considered at all, as every application that is made need not result in grant of 20% interim compensation. Several factors need be gone into for considering such applications bearing in mind the reason and backdrop of the amendment. As quoted herein-above the bedrock of the amendment was to stall unscrupulous drawers of cheques drawing proceedings with frivolous applications, absenting themselves, seeking continuous adjournments causing delay and grave prejudice to the case of the complainants. In these factors, the learned Magistrate after analyzing the conduct of the accused should grant compensation which would vary from 1% to 20% after recording reasons.

In a given case if the accused is cooperating with the trial without seeking any unnecessary adjournments, not absenting himself or his counsel on any date and cooperating with the conclusion of the trial in such cases, the learned Magistrate will have to apply his mind, exercise his discretion as to whether such applications should be entertained at all. Therefore, it forms two classes of litigants. One who would cooperate with the proceedings and the other who would not. In cases where there is complete co-operation from the hands of the accused in the trial, the Court may consider whether interim compensation has to be granted at all and in cases where there is no cooperation on the part of the accused, the Court may proceed to consider the application.

Second fold: The second fold of discretion in any given case , the compensation may vary from 1% to 20%. It is nowhere depicted in the statute that the amount of interim compensation should be of a particular figure. It can vary from 1% to 20%. It is this variance that gives the learned Magistrate power to exercise discretion to grant such compensation. The mandate of the statute is that it should not exceed 20%. In the cases where learned Magistrate proceeds to grant compensation, has to bear in mind the amount involved in the instrument, as certain transactions would run to several cores and the accused may have formidable defence against the complainant. In such cases, the learned Magistrate should exercise discretion in a cautious manner. Here again the conduct of the accused should be noticed. Therefore, the aforesaid two fold discretion is sine qua non for an order to be passed by the learned Magistrate while considering the application under Section 143 A  of the Act.

As the order was bereft of above, hence, the order passed by the Magistrate was set aside and remitted for orders in accordance with law.

In Sri Narayanswami (Supra) also, the Karnataka High Court has held as under:

“The order afore-extracted passed by the Court does not bear reason as to why 20% of the amount is awarded as interim compensation. All that the Court records on going through the entire amended provision is if the drawer of the cheque has not pleaded guilty, then he shall pay interim compensation at the rate of 20%. The petitioner in the case at hand did not plead guilty. Therefore, the Court grants interim compensation. There is no application of mind as to why the said compensation has to be awarded and the provision of Section 143 A  is completely misread that once the accused does not plead guilty, the complainant becomes automatically entitled to 20% of the cheque amount as interim compensation. Sub-section (1) of Section 143 A reads that notwithstanding anything contained in the Cr.P.C,. the Court trying an offence under Section 138 may order drawer to pay interim compensation to the complainant. If an order is passed for payment of interim compensation it shall be paid within 60 days from the date of the order. Therefore, the Legislature has cautiously worded sub-section (1) of Section 143-A not to make it mandatory in all cases where clauses (a) and (b) of sub- section (1) would empower the learned Magistrate before whom the trial is pending consideration to award interim compensation. It is a discretion conferred as the word used is "may". If the order is passed then the payment is mandatory, but not an order under the Act. Therefore, the learned Magistrate who is hearing the application for interim compensation should apply his mind, record his reasons in exercise of his discretion as to why an amount of 20% of the cheque amount is to be granted in any given case”.

The Delhi High Court in JSB Cargo (Supra) while setting aside the impugned order passed by the ld Magistrate was pleased to remit the matter for passing appropriate order in accordance with law. The para no. 53 of the said judgment shall be worth reference:

“53. Furthermore, the observations of the learned Trial Court to the effect that even if it be assumed that the provisions of Section 143-A   of the NI Act, 1881 is discretionary in nature, the Court is still clothed with the powers to grant interim compensation to the complainant after providing sufficient reasons, it is essential to observe that the award of interim compensation in terms of Section 143-a of the NI Act, 1881 has to be after providing sufficient reasons and whilst taking the same into account, the determination of interim compensation directed to be paid by the petitioners herein to the extent of the maximum of 20% of the cheque amount to the complainants without even considering the submissions that have been sought to be raised by the petitioners in relation to bank statements of the complainant and without resorting to the provisions of Section 294 of the Cr.P.C., 1973 cannot be held to be within the contours of Section 143-A of the NI Act, 1881 to be with sufficient reasons. Furthermore, there are no inherent powers conferred on a criminal court of a Magistrate de hors enabling provisions of a statute”.

It may be noted that the aforesaid judgment of Delhi High Court in JSB Cargo (Supra) and Karnataka High Court judgment in Smt Vijaya (Supra) are broadly on the same line. In fact, Karnataka High Courts in other cases as referred to above, besides the Madras High Court has also held on similar lines.

                                        REMARK

The judicial precedent that has evolved ever since the insertion of Section 143 A of the Act may be summarized in the judgments of judgments passed by various high courts. The broad parameter of the judgments are as under:

(i)           Section 143-A of the Act is a discretionary power accorded to the Magistrate trying with the offence u/s 138 of the Act;

(ii)         The Section 143-A is not mandatory, rather it is directory and discretion is to be exercised properly and after ascertaining the facts of the cases;

(iii)        The order cannot be passed in mechanical manner;

(iv)        Framing of notice and pleading not guilty is not enough in itself in granting order in favour of complainant for depositing 20% of the cheque amount;

(v)          The order cannot be passed on the basis of assumptions , but prima facie satisfaction should be evident from the record;

(vi)        It therefore follows that The signature on cheque in itself is not enough, if the doubt existed in respect of issuance of cheque and circumstances under that the cheque may have been issued;

(vii)       Once the order granting deposit of 20% of the amount is passed, then, its enforcement mechanism is inbuilt and then it becomes mandatory, not before. In this regard sub-clause 143-A (3)(4)(5) & (6) may be perused. Therefore, the court passing the order has to be very circumspect before passing judgment granting deposit of 20% of the cheque amount;

(viii)     The Section 143-A (1) sub-clause (2) it is stipulated that the interim compensation shall not exceed 20%, therefore what clearly implies that the interim compensation could be upto 20%, however, the same should be read as 1% to 20% and upper limit being 20%. Therefore, it cannot be construed as if once interim compensation is granted, 20% of interim shall have to be granted. The discretion of court is therefore not accorded in granting interim compensation, but also the extent of it i.e 1% to 20%.

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Anil K.Khaware

Founder & Senior Associate

Societylawandjustice.com