SCOPE OF APPEALS UNDER SECTION 13 (1A) OF COMMERCIAL COURTS ACT APPEAL

 

Scope of APPEALS UNDER Section 13 (1A)  OF COMMERCIAL COURTS ACT  APPEAL

The Commercial Courts Act (CCA) 2015 is enacted with a view to accord expediency in cases related to commercial transactions. The need of a separate and comprehensive Act was felt in view of delay in disposal of ordinary suits and hence, in the Commercial Act, the tiers related to appeals impugning judgments on adjudication on interlocutory application are dispensed with. The commercial courts are constituted at the District level for a specified sum and Commercial Divisions are also constituted in High Courts. The High Court also has appellate Commercial Division qua the appeals that could be filed against the judgment/decree of a single bench of high Court. Similarly, the judgment/decree passed by District Judge could be challenged before the High Court under the said Act. It is worthwhile in the context to refer that Section 115 of Code of Civil Procedure relating to revisionary jurisdiction appears to have been completely dispensed with in the Commercial Courts Act and thereby a substantive rights of parties to the lis is absent as per the CCA. For instance, in cases which is not of commercial nature under the CCA, once, application under Order VII Rule 11 (a) (b) (c) or (d) of Code of Civil Procedure are dismissed by a District Court, the revisionary jurisdiction of High Court could be invoked u/s 115 of Code of Civil Procedure. Similarly, if application under Order 12 Rule 6 of Code of Civil Procedure is dismissed by a District Court, , in a general suit, the revisionary jurisdiction of High Court shall continue to exist. However, if such orders are passed by a District Court under CCA, then, revisionary jurisdiction of high court cannot be invoked. Gracefully, though, it is now settled that one can, nevertheless, approach high court under Article 226 under the supervisory jurisdiction of the high court and therefore, those who wished to challenge such orders passed by Commercial District Courts are not rendered remediless, irrespective of fetter of Order XLIII of CPC. However, what is not understood is the fact that if a High Court has Commercial Division and Commercial Appellate Division, then, why the orders rejecting the application under Order 7 Rule 11 of CPC or order for refusing to return the plaint under  Order VII Rule 10 of CPC or decisions Order XXXVII when leave to defend was allowed conditionally or unconditionally, and/or other such interlocutory application by a single judge bench of high court cannot be impugned before the appellate division of high court? If commercial appellate division of high court can adjudicate in appeal from orders passed by a single judge bench of high court which finds mention under Order XLIII of CPC, then, why no substantive orders such as above should be heard by the appellate division of a high court. The object of expediency cannot be allowed to circumvent the basic rights of parties. The Section 13 (1A) of CCA no doubt, clearly carved out details as regards appeals against orders could be impugned before commercial division or commercial appellate division of high court as the case may be , provided, the appeals are provided for under Order 43 of Code of Civil Procedure and in no other cases. The additions however are made as regards the appeals that could be filed under Section 37 of Arbitration & Conciliation Act 1996 ( as amended and up to date).

SECTION 13 & SECTION 13 (1A) of CCA

In the light of above, it is therefore, endeavored herein to discuss Chapter IV and provisions for appeal under Section of CCA Section 13 (1A) of CCA and while so doing judicial precedents shall also be analysed. Before doing so, the provision of Section 13 (1A) may be reproduced:

13. Appeals from decrees of Commercial Courts and Commercial Divisions—

(1) [Any person aggrieved by the judgment or order of a Commercial Court below the level of a District Judge may appeal to the Commercial Appellate Court within a period of sixty days from the date of judgment or order.

(1A) Any person aggrieved by the judgment or order of a Commercial Court at the level of District Judge exercising original civil jurisdiction or, as the case may be, Commercial Division of a High Court may appeal to the Commercial Appellate Division of that High Court within a period of sixty days from the date of the judgment or order:

Provided that an appeal shall lie from such orders passed by a Commercial Division or a Commercial Court that are specifically enumerated under Order XLIII of the Code of Civil Procedure, 1908 (5 of 1908) as amended by this Act and section 37 of the Arbitration and Conciliation Act, 1996

(2) Notwithstanding anything contained in any other law for the time being in force or Letters Patent of a High Court, no appeal shall lie from any order or decree of a Commercial Division or Commercial Court otherwise than in accordance with the provisions of this Act.

The perusal of above recitations makes it clear that no appeals are contemplated under CCA from any interlocutory or intermediate orders, before high court, unless, stipulated under Order XLIII of Code of Civil Procedure. However, the difficulty is removed in a great deal since, it is now settled that under CCA, through, revisionary power under Section 115 of CPC is no longer available to high court, but, still, aggrieved party may approach high court under article 226 of Constitution of India. However, if orders are passed by a high court on applications in respect whereof appeals are not provided for under Order 43 of CPC and unless, the appeal is preferred under section 37 of Arbitration & Conciliation Act. It is therefore not understood as to, if appellate division is provided for even in the high court against the orders of single judge, then why should that be circumvented by putting fetter that appeals against order could be filed only as per Order XLIII or not otherwise?

LAW

Earlier, there were conflicting views in this regard from Delhi High Court , but now, it appears to have been settled to the effect that no appeal by the commercial court or commercial appellate division could be heard, unless, it is provided for under Order XLIII of CPC or under Section 37 of Arbitration & Conciliation act. The mandate emanates from Section 13 (1A) of CCA.

                          DELHI HIGH COURT        

(Division Bench)

(1)  D & H INDIA LTD Vs Superon Schweisstechnik India Ltd FA (OS) (COMM) 237/2019 reported as AIR Online 2020 Del 463

Para 21 of the above judgment is reproduced as:

21: On a plain reading, the proviso to section 13 (1A) of the Commercial Courts Act is an enabling, rather than a disabling, provision. There is nothing, in the said proviso, which would seem to indicate that it dilutes the effect  of sub-section 13(1A) of section 13. If we were to read the said proviso as excluding, from the jurisdiction of the appellate court, all orders , passed by a Commercial Court, save and except those which finds specific enumeration in Order XLIII of the Code of Civil Procedure,1908, as amended by this Act under section 37 of the Arbitration & Conciliation act 1996. “ we are not convinced that the province of our jurisdiction, in the present case, allows us to legislate. To our mind, therefore, sub- section (1A) of section 13 of the Commercial Courts Act allows appeals to be preferred against all judgments and orders of Commercial Division of the High Court, to the Commercial Appellate Division thereof, and the proviso, to the said sub-section merely clarifies that, in the case of orders specifically enumerated in Order XLIII of CPC, such appeals shall lie.”

(2)  Arindam Chaudhuri Vs Zest Systems Pvt Ltd & Anr AIR ONLINE 2021 DEL1677

Para 8 of the above judgment reads as:

“8. We had doubts about the correctness of the view taken in D & H India Ltd (Supra). We felt that the said view went against the very purpose for which the Commercial Courts Act was enacted i.e to provide for speedy disposal of high value commercial disputes, as is evident from the statement of objects and reasons for the said Act. The effect of judgment ion D & H India Ltd (Supra) was that all orders passed by the Commercial Courts or the Commercial Divisions of the High Court, would be appealable when, before the enactment of the Commercial Courts Act, only such orders were appealable, which were either specifically made appealable, such as, under section 104, or within XLIII of CPC, or qualified as “judgments” within the meaning of that expression, as explained by the Supreme Court in Shah Babulal Khimji Vs jayaben D.Kania & Anr AIR 1981 SC1786.. Thus, right to prefer an appeal-if D& H India Ltd (Supra) were to be accepted as the correct view, stood expanded by the Section 13 of the Commercial Courts Act, when compared to the rights of appeal available prior to its enactment. We were of the prima facie view that this would go contrary to the purpose and object of the Commercial Courts Act, as creation of rights and appeal against all and sundry orders passed in original commercial cases would impede the progress of the causes. Every appeal at the interlocutory stage of the proceedings acts as a speed breaker in the progress of the cause. Moreover, if the proviso to Section 13 (1A) were to be read as not limiting or qualifying the rights of appeal contained in section 13 (1) and the first part of section 13 (1A), then, there was no need to enact the proviso.The view taken in D&H India Ltd (Supra) rendered the proviso to section 13 (1A) a surplusage-which is not to be presumed in respect of any part of a legislation. Thirdly, the view taken by the division bench in D & H India ltd (Supra) neither took into account Section 13 (2), nor the interpretation adopted by the division bench could be reconciled with the clear plain meaning of Section 13 (2). A party aggrieved by an order passed at an interlocutory stage of the proceedings is not entirely remediless, in as much as section 105 CPC entitles the party aggrieved by any such interlocutory order, to assail the same which appealing against the decree by raising a ground in Memorandum of Appeal. Moreover, the option to assail the interlocutory order before the Supreme Court, by preferring a Special Leave Petition, is also available. Since, we were finding it difficult to persuade ourselves to accept the view expressed in D & H India Ltd (Supra), we decided to hear the submissions of learned counsels, and directed them to place on record copies of the judgments that they wished to rely upon”.      

(3)   Delhi Chemical and Pharmaceutical Works Pvt Ltd Vs Himgiri Realtors Pvt Ltd & Anr 2021 SCC Online Del 3603

Para 25:

“Though, we, with due deference to the members of the Division bench in D & H India Ltd (Supra) entertain doubts as to the correctness of the view taken in D & H India Ltd, but do not in the facts of the present case, feel the need to make a reference of the question to a larger bench; the reason is that Bhandari Engineers & Builders Pvt Ltd (supra) on which the impugned orders are based, while laying down law therein, also directs all Courts to abide thereby, resulting in plethora of similar challenges as made herein and it is deemed expedient to settle the law in that regard and which would remain pending if the question of maintainability of the appeal were to be referred to a larger bench”. 

 

BOMBAY HIGH COURT

(Division Bench)

(1). Bank of India Vs M/s Maruti Civil Works & Ors (Appeal from Order no. 362 of 2021 in Commercial Suit No. 6 of 2019

The Bombay High Court has observed in para no. 15 as under:

“15. If we compare the unamended provision with the amended provision of section 13 of the act of 2015, what we find is that earlier an appeal was provided against a “decision” of a Commercial Courts or Commercial Divisions of a High Court to Commercial division of that high court, whereas after the amendment the expression “decision” has been substituted by the expression “:judgment or order”. It is also noticeable that the proviso appended to sub-section 1 of section 13 which earlier existed has been retained in the amended provision as well. To determine as to whether the instant appeal is maintainable, we may also refer to sub section (2) of section 13 of the Commercial Courts Act which begins with a non obstante clause and provides that notwithstanding anything contained in any other law for the tine being in force or Letters Patent of a High Court, no appeal shall lie from any order or decree under section 13 otherwise than in accordance with the provisions of the said Act.”

In the aforesaid case, the hon’ble Division Bench of Bombay High Court had dismissed the appeal that was preferred against the order passed by District Commercial Judge under Order VII Rule 10 and Rule 11 (d) of CPC, since that was not enumerated under Order XLIII of CPC.

The Bombay High Court has also held that in Delhi Chemical and Pharmaceutical Works Pvt Ltd Vs Himgiiri Realtors Pvt Ltd & Anr 2021 SCC Online Del 3603, that the division bench of Delhi High Court had itself  expressed doubts about correctness of the decision of D& H India Ltd(Supra).

(2)      Skil Himachal Infrastructure & Toursim Ltd & Ors Vs FS Financial Services Ltd 2022 SCC Online Bom3152

(3)   Shailendra Bhaduria Vs matrix partners India Investment Holdings LIC 2018 SCC Online Bom 13804

“44.Now the Commercial Courts (Amendment) Act 2018 amends the Act 4 of 2016 and deletes the word “decision” from section 13…..After the judgment of hon’ble Supreme Court delivered in the in the case of Fuerest day Lawson Limited Vs Jindal Exports Limited (2011) 8 SCC 33 and authoritative and binding pronouncements in the case of Kandla Export Corporation Vs OCI Corporation (2018) 14 SCC 715, the statute has to confer a right of appeal, that has to be conferred in clear words. We cannot as suggested by Mr Andhyaarjuna, by an interpretative process carve out a right of appeal, when the law is not creating it.

In para 27 of Bank of India (Supra) it is held by Bombay High Court that:

27. referring to the order which was under appeal in Skil Himachal (Supra), the Division bench in this case held that an order under Order XXXVII of CPC is not enumerated in Order XLIII and that it is only and order and not decree and therefore in view of law laid down in kandla Export (Supra) and Shailendra bhaudaria 9Supra), such an order is not appealable under the Act of 2015.”

The above discussion based on judicial precedents therefore makes it amply clear that the appeal in the Commercial Courts of High Court or Appellate Division of High Court shall not lie against such orders which are not featured under Order XLIII of CPC. Resultantly, any appeal against orders not rejecting plaint under Order VII Rule 11 of CPC or order of not returning of plaint under Order VII Rule 10 of CPC or, order passed under Order XXXVII of CPC thereby granting leave to defend either conditionally or unconditionally or order rejecting application under Order XII Rule 6 of CPC for instance shall not be appealable. In commercial division, clearly there is no provision for revision either. However, the order passed by the District Commercial Court can be entertained by high Court under Article 227 of Constitution of India under supervisory jurisdiction, but no corresponding remedy shall be available, if such orders are passed by the single bench of commercial division of High Court. Therefore, the only remedy, if a party is aggrieved by such orders passed by a single bench of commercial division of high court shall be to prefer Special leave Petition before the Supreme Court.

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                                        Anil K Khaware

Founder & Senior Associate

Soicietylawandjustice.com 

WRIT PETITION AND SECURITIZATION ACT: MAINTAINABILITY

 

 

Writ Petition and Securitization act: Maintainability

 

A Three (3) Judge bench of Supreme Court in a most recent judgment reported as. 2024 INSC 297 and captioned as PHR INVENT EDUCATIONAL SOCIETY VERSUS UCO BANK AND OTHERS has recently emphatically reiterated and laid down law in respect of maintainability of writ petition under Article 226 of Constitution of India for matters arising out of the Securitisation and reconstruction of Financial Assets FINANCIAL and Enforcement of Security Interest act 2002 (In short SARFAESI Act).

Section 17 of the SARFAESI Act is a comprehensive Act and it clearly provides that any aggrieved person, including borrower , who is aggrieved because of the action of Secured creditor action of secured creditor under Section 13 (4) of the SARFAESI Act, may approach Debt Recovery Tribunal (DRT) by way of an application and as such in the face of clear remedy available to an aggrieved party and since the Tribunal exercises wide jurisdiction under Section 17 of the SARFAESI Act, in as much as , even power of setting aside an auction sale. That being so, writ petition, being extra-ordinary in nature shall not lie.

The iteration of facts of PHR INVENT (Supra) in brief, may be relevant in its context.

(1)The Borrower had availed of a loan from the Respondent- Bank and had mortgaged four properties as collateral security. As the Borrower defaulted in the repayment of the loan amount, thus, the Respondent-Bank had initiated proceedings against the borrower under the SARFAESI Act.

(2) Auction notice was issued for auctioning off the mortgaged properties and publication by way of auction sale was carried out and date of auction was notified.

(3) The borrower , aggrieved by the Auction Sale Notice, preferred a securitization application before Debt Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act, thereby praying for setting aside of the same.

(4) In the meanwhile, the auction was conducted and the PHR Invent Educational Society and was declared as the highest bidder and 25% of bid amount inclusive of earnest money was duly deposited. The fact remains that the Borrower did not deposit the amount.

(5) On the same day, DRT passed an interim order in S.A. No. 1476 of 2017, thereby refusing to interfere with the sale of the scheduled/mortgaged properties which was to be conducted on that very day. The Borrower had also filed an interlocutory application, praying for stay of further proceedings qua the auction of the scheduled properties, wherein DRT directed the Respondent-Bank not to confirm the sale of the scheduled properties subject to the Borrower depositing 30% of the outstanding dues as claimed for in the Auction Sale Notice in two equal installments. The first installment of 15% amount was to be deposited within a week from the date of the said order, and the second installment of 15% amount was to be

deposited within two weeks thereafter. The DRT further directed that, in the event that the Borrower failed to make the aforesaid deposits, the interim stay would stand vacated and the Respondent-Bank would be at liberty to confirm the sale in favor of the highest bidder, although the sale itself was made subject to the final outcome in S.A. No. 1476 of 2017.

(6) Subsequently, the PHR Invent Educational Society  (appellant) deposited the balance auction price.

(7) In the meanwhile, the Borrower proposed One Time Settlement (‘OTS’) for all the outstanding loan accounts. However, the Respondent-Bank refused to accept the same and requested the Borrower to settle all the outstanding loan accounts with interest payable at the contractual rate, as applicable thereon.

(8) The DRT passed an order dated 21^st September 2020, whereby S.A. No. 1476 of 2017 was dismissed as withdrawn at the behest of the Borrower who submitted that the matter had been settled out of court. On the other hand, the Respondent-Bank filed a Memo of Non- Settlement before DRT thereby informing that no such out-of court settlement had been reached.

(9) Upon S.A. No. 1476 of 2017 being dismissed as withdrawn, the Respondent-Bank confirmed the sale of the scheduled properties in favor of the appellant herein. A Sale Certificate was issued by the Respondent-Bank and the possession of the scheduled properties was accordingly delivered to the appellant Subsequently and the Sale Certificate came to be registered in favor of the appellant herein.

(10) The Borrower preferred M.A. No. 97 of 2020 in S.A. No. 1476 of 2017 before DRT, praying for the restoration of S.A. No. 1476 of 2017 to the file and setting aside the aforesaid order of DRT dated 21st September 2020. However, on 2nd February 2021, DRT passed an order, thereby, dismissing the said M.A. filed by the Borrower.

 

In the above backdrop, the Borrower had filed a writ petition before the High Court. The High Court, by the impugned order, disposed of the said writ petition, thereby setting aside the order of DRT, and further directing it to proceed with S.A. No. 1476 of 2017 in accordance with law. The M.A. No. 97 of 2020 in S.A. No. 1476 of 2017 was thus allowed restoring S.A. No. 1476 of 2017.

The Auction Purchaser, had approached Supreme Court.

 

The Supreme Court has perused and reiterated catena of its own judgments. It is held that, it is a settled proposition in law that when alternate remedy is available writ petition shall generally not lie as is held in the following judgments:

(1) United Bank of India v. Satyawati Tondon and Others 2010) 8 SCC 110 : 2010 INSC 428

(2) Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others (2024) 2 SCC 1 : 2023 INSC 838

(3)  South Indian Bank Limited and Others v. Naveen Mathew Philip and Another  2023 SCC OnLine SC 435 : 2023 INSC 379

 

However, it is also argued to the contrary that the rule is not inflexible, in as much as, non interference under article 226 of Constitution of India is a rule of self-restraint and in deserving cases, the High Court is not precluded from entertaining a petition under Article 226 of the Constitution in order to do justice to the parties as is held in State of U.P. v. Mohammad Nooh AIR 1958 SC 86 : 1957 INSC 81.

The Supreme Court has consistently held that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution, if an effective remedy is available to the aggrieved person. It has been held that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. The Court clearly observed that, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., It is further observed by the Supreme Court that the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves, inasmuch, as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. It has been held that, though the powers of the High Court under Article 226 of the Constitution are of widest amplitude, still the Courts cannot be oblivious of the rules of self-imposed restraint evolved by this Court. The Supreme Court further held that though the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, still it is difficult to fathom any reason as to why the High Court should entertain a petition filed under Article 226 of the Constitution. This is followed in Agarwal Tracom Private` Limited v. Punjab National Bank and Others  (2018) 1 SCC 626 : 2017 INSC 1146.

The Supreme Court has held in PHR INVENT EDUCATIONAL SOCIETY  (Supra) as under:

14. The law with regard to entertaining a petition under Article 226 of the Constitution in case of availability of alternative remedy is well settled. In the case of Satyawati Tondon (supra), this Court observed thus:

“43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc. the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute’.

 

“44. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution”.

The Supreme Court in the case of Authorized Officer, State Bank of Travancore and Another v. Mathew K.C. (2018) 3 SCC 85 : 2018 INSC 71  While considering an appeal against an interim order passed by the High Court in a writ petition under Article 226 of the Constitution, staying further proceedings at the stage of Section 13(4) of the SARFAESI Act. After considering various judgments rendered by the Supreme Court, the Supreme Court observed thus:

“16. The writ petition ought not to have been entertained and the interim order granted for the mere asking without assigning special reasons, and that too without even granting opportunity to the appellant to contest the maintainability of the writ petition and failure to notice the subsequent developments in the interregnum. The opinion of the Division Bench that the counter-affidavit having subsequently been filed, stay/modification could be sought of the interim order cannot be considered sufficient justification to have declined interference.”

 

It will be relevant to refer to the following observations of Supreme Court in the case of Commissioner of Income Tax and Others v. Chhabil Dass Agarwal (2014) 1 SCC 603:

 

15. Thus, while it can be said that this Court has recognised some  exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case [AIR 1964 SC1419] , Titaghur Paper Mills case [Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 : 1983 SCC (Tax) 131] and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.”

 

The Supreme Court, in the case of Dwarika Prasad v. State of Uttar Pradesh and Others (2018) 5 SCC 491 : 2018 INSC 210  has clearly held that the right of redemption stands extinguished on the execution of the registered sale deed and allegation of fraud, if properly dealt with earlier cannot be re-opened.

The Supreme Court, therefore, in PHR INVENT EDUCATIONAL SOCIETY (Supra) has concluded as under:

29. It could thus clearly be seen that the Court has carved out certain exceptions when a petition under Article 226 of the Constitution could be entertained in spite of availability of an alternative remedy. Some of them are thus:

(i) where the statutory authority has not acted in accordance with the provisions of the enactment in question;

(ii) it has acted in defiance of the fundamental principles of judicial procedure;

(iii) it has resorted to invoke the provisions which are repealed; and

(iv) when an order has been passed in total violation of the principles of natural justice.

The appeal was allowed and impugned order passed by the High Court in favour of the borrower was set aside.

The basic rule, according to Supreme Court, therefore, is that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance. According to Supreme Court the High Court ought to have taken into consideration that the confirmed auction sale could have been interfered with only when there was a fraud or collusion. The present case was not a case of fraud or collusion. The effect of the order of the High Court would be again reopening the issues which have achieved finality.

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                                                Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

SECTION 143-A NEGOTIABLE INSTRUMENTS ACT -SCOPE REDEFINED AND SETTLED

 

Section 143-A Negotiable Instruments Act -scope redefined and settled

 

In the backdrop of some ambiguity as regards the ambit of power and the circumstances under which a Metropolitan Magistrate or a judicial Magistrate could direct payment of interim compensation to the extent or upto 20% of cheque amount, the Supreme Court by virtue of a recent judgment captioned as RAKESH RANJAN SHRIVASTAVA Vs  THE STATE OF JHARKHAND & ANR CRIMINAL APPEAL NO. 741 OF 2024 : 2024 INSC 205 has laid down guidelines in this regard in categorical terms. Therefore, it is no longer doubtful if the power under section 143-A of the Negotiable Instruments act ( In short the “Act” or the “said Act”) is mandatory or directory. Though, there has been certain judgments pronounced before, but, yet some sort of ambiguity nevertheless persisted. It is no longer the case now.

In Rakesh Ranjan (Supra) the issues involved in the criminal appeal were as under:

(i)          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; And

(ii)        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 N.I. Act.

Interestingly, in Rakesh Ranjan (Supra). The ld court of Magistrate had allowed the interim compensation of 20% of cheque amount to the complainant and the order was upheld by the ld Sessions Court in revision and it was also confirmed by the Jharkhand High Court. It is in that backdrop that, the matter reached Supreme Court.  

In fact, for many, earlier, the fallacy remained that once an accused plead not guilty, when the notice is framed under section 251 of Cr.P.C by a Magistrate, the payment of interim compensation of 20% of cheque amount is inbuilt and shall be  a necessary consequence for standing in trial.

To begin with and with a view of proper appreciation, the provision of Section 143-A of the said Act, which is inserted by virtue of Negotiable Instruments (Amendment) Act 2018 and w.e.f  01.09.2018. 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 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.”

Though, the object of the insertion of Section 143-A in the said Act was to dissuade unscrupulous drawers of the cheques prolong the proceedings of a complaint under Section 138 by filing appeals and obtaining a stay and also to safeguard and accord sanctity to cheque transactions.

It is relevant to also pin point that by the same Act No.20 of 2018, Section 148 was also brought on the statute book, which stipulates that in an appeal preferred by the drawer against conviction under Section 138, the Appellate Court, may order the appellant to deposit such a sum which shall be a minimum 20 per cent of the fine or compensation awarded by the Trial Court. The proviso to sub-section (1) of Section 148 clarifies that the amount payable under sub-section (1) of Section 148 is in addition to interim compensation paid by the appellant/accused under Section 143A. It is however worth noting that section 148 of the Act relates to appeal filed by a convict, whereas section 143-A of the Act relates to awarding of compensation in the trial proceedings itself.  

         

Whether power u/s 143-A is mandatory or directory?

The Supreme court has observed in Rakesh Ranjan (Supra) that though there is no doubt that the word “may” ordinarily does not mean “must”. Ordinarily, “may” will not be construed as “shall”. But this is not an inflexible rule. The use of the word “may” in certain legislation can be construed as “shall”, and the word “shall” can be construed as “may”. It all depends on the nature of the power conferred by the relevant provision of the statute and the effect of the exercise of the power. The legislative intent also plays a role in the interpretation of such provisions. Even the context in which the word “may” has been used is also relevant.

It is also observed by the Supreme Court that the power under sub-section (1) of Section 143A is to direct the payment of interim compensation in a summary trial or a summons case upon the recording of the plea of the accused that he was not guilty and, in other cases, upon framing of charge. As the maximum punishment under Section 138 of the N.I. Act is of imprisonment up to 2 years, in view of clause (w) read with clause (x) of Section 2 of the Code of Criminal Procedure, 1973 (for short, ‘the Cr.PC’), the cases under Section 138 of the N.I. Act are triable as summons cases. However, when at the commencement of the trial or during the course of a summary trial, it appears to the Court that a sentence of imprisonment for a term exceeding one year may have to be passed or for any other reason it is undesirable to try the case summarily, the case shall be tried in the manner provided by the CrPC. Therefore, the complaint under Section 138 becomes a summons case in such a contingency.

The Supreme Court has further observed in para 14 Rakesh Ranjan (Supra) that in the case of Section 143A, the power can be exercised even before the accused is held guilty. Sub-section (1) of Section 143A provides for passing a drastic order for payment of interim compensation against the accused in a complaint under Section 138, even before any adjudication is made on the guilt of the accused. The power can be exercised at the threshold even before the evidence is recorded. If the word ‘may’ is interpreted as ‘shall’, it will have drastic consequences as in every complaint under Section 138, the accused will have to pay interim compensation up to 20 per cent of the cheque amount. Such an interpretation will be unjust and contrary to the well-settled concept of fairness and justice. If such an interpretation is made, the provision may expose itself to the vice of manifest arbitrariness. The provision can be held to be violative of Article 14 of the Constitution. In a sense, sub section (1) of Section 143A provides for penalising an accused even before his guilt is established. Considering the drastic consequences of exercising the power under Section 143 A and that also before the finding of the 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 not mandatory.

Therefore, it is held 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 held to be discretionary.

The Supreme Court while dealing with sub-section (1) of Section 148 had observed Surinder Singh Deswal v. Virender Gandhi (2019) 11 SCC 341 that the word “may” used therein will have to be generally construed as “rule” or “shall”. It was further observed that when the Appellate Court decides not to direct the deposit by the accused, it must record the reasons. After considering the said decision in the case of Surinder Singh Deswal(Supra) ,the Supreme Court in the case of Jamboo Bhandari v. Madhya Pradesh State Industrial Development Corporation Limited & Ors. (2023) 10 SCC 446, in paragraph 6, held thus:

 

“6. What is held by this Court is that a purposive interpretation should be made of Section 148 NI Act. Hence, normally, the appellate court will be justified in imposing the condition of deposit as provided in Section 148. However, in a case where the appellate court is satisfied that the condition of deposit of 20% will be unjust or imposing such a condition will amount to deprivation of the right of appeal of the appellant, exception can be made for the reasons specifically recorded.”

 

Therefore, as per above, even u/s 148 of the said Act the appellate court shall have discretion in reducing or passing appropriate order as regards the pre-deposit.

The Supreme Court in para no. 19 of Rakesh Ranjan (Supra) has therefore concluded as under:

a. The exercise of power under sub-section (1) of Section 143 A is discretionary. The provision is directory and not mandatory. The word “may” used in the provision cannot be construed as “shall.”

b. While deciding the prayer made under Section 143 A, the Court must record brief reasons indicating consideration of all relevant factors.

c. The broad parameters for exercising the discretion under Section 143 A are as follows:

i. The Court will have to prima facie evaluate the merits of the case made out by the complainant and the merits of the defence pleaded by the accused in the reply to the application. The financial distress of the accused can also be a consideration.

ii. A direction to pay interim compensation can be issued, only if the complainant makes out a prima facie case.

iii. If the defence of the accused is found to be prima facie plausible, the Court may exercise discretion in refusing to grant interim compensation.

iv. If the Court concludes that a case is made out to grant interim compensation, it will also have to apply its mind to the quantum of interim compensation to be granted. While doing so, the Court will have to consider several factors such as the nature of the transaction, the relationship, if any, between the accused and the complainant, etc.

v. There could be several other relevant factors in the peculiar facts of a given case, which cannot be exhaustively stated. The parameters stated above are not exhaustive.

The Supreme Court has therefore settled the aspect with emphasis.

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Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com