During recent years, there has been a significant rise in the number of financial transactions being done digitally, however, for transactions of sizeable amounts, the use of cheques continue to be one of the primary preferences for small to large scale businesses in India.
Under Section 6 of the Negotiable Instruments Act, 1881 (“NI Act”), a cheque is defined as a bill of exchange drawn on a specified banker, not expressed to be payable, otherwise than on demand. In simple terms, a signed and issued cheque is the expression of intent of the drawer directing his bank to make payment to the drawee upon presentation (of the said cheque) by him (the drawee). Often times, unfortunately, the drawer, on the pretence of honoring his liability, unscruplously issues cheque(s) of a bank account, which he knows full well to not hold the sufficient wherewithal to make good the said liability, leading to its dishonor, upon presentation by the drawee. This, more often than usual, leads to filing of criminal complaints (under Section 138 NI Act) before the respective court by the drawee, praying for initiation of criminal proceedings against the said drawer, amongst other reliefs. Though, the NI Act specifically provides for a summary trial in cheque dishonor cases, the process unfortunately proves to be lenghty and distressing for the drawee, adding onto the ever-increasing pendency of cases burdening the courts of the nation. To tackle this situation, Section 143A was introduced in the year 2018, and made effective from September 1, 2018, which gives power to the court to direct interim compensation (not exceeding 20% of the cheque amount). Within the statement of objects and reasons of the said amendment, it was stated that the unscruplous drawers of cheques prolong the proceedings of a complaint under Section 138 NI Act by filing appeals and obtaining a stay, which leads to injustice being caused to the drawee/payee of a dishonored cheque, who has to spend considerable time and resources in court proceedings to realise the value of the cheque. Therefore, to address the issue of undue delay in the final resolution of the cheque dishonor cases, it was proposed to amend the NI Act by introduction of Section 143A.
Since its introduction, as expected, there had been a inflow of numerous applications being filed by litigants under the said provision, praying for interim compensation in view of, inter-alia, their distress. The nature of a complaint under Section 138 NI Act being adverserial, it is common for the drawer of a cheque to plead that the cheque was issued under coercion, or rather not issued by them at all. Since ascertaining the veracity of such facts can only be done at the stage of trial, courts tread slowly in taking cognizance of such issues at a preliminary stage of deciding an application under Section 143A, and usually allow such application(s) and grant interim compensation to the complainant in the prescribed manner. Though, to many, the interim compensation may appear to be a statutory right, specially made to safeguard the rights of the drawee of a cheque, to most, it appears to violate the rights of the accused, as it gives a semblance of holding the drawer of a cheque already guilty of the offence under Section 138 NI Act at such a preliminary stage. Therefore, such decisions are impugned on, inter-alia, grounds of non-application of mind and being allowed in a mechanical manner, whilst the drawee claims that his right to interim compensation, as provided, is a statutory right. Such was a recent case in Rakesh Ranjan Shrivastava v The State of Jharkhand (2024 SCC OnLine SC 309), where the Hon’ble Supreme Court of India (“Apex Court”) adjudicated upon an appeal against an order passed by the High Court affirming the order passed by the court of magistrate allowing the application under Section 143A NI Act, which the appellant impugned as being allowed mechanically.
The complainant (respondent), alleged that the accused (appellant), with whom he had formed various companies with different profit-sharing arrangements, failed to fulfill their promise of sharing profits. After a civil suit was filed and a settlement was reached between the parties, wherein a part of the claimed amount was to be paid through cheques, one of the cheques came to be dishonored. Consequently, the complainant/respondent, during the proceedings of the complaint under Section 138, sought interim compensation by way of an application under Secton 143A before the magistrate, which went on to be granted. The decision was later confirmed by the sessions court in a revision petition, being upheld thereon by the concerned high court. Impugning the same, the accused/appellant filed an appeal before the Apex Court, challenging the decisions of the lower courts. The Apex Court formed two issues: (a) whether the provisions of Section 143A(1) NI Act, which provided for the grant of interim compensation, is directory or mandatory? and (b) what are the factors to be considered while exercising powers under the Section 143A, if the provision is directory in nature?
The Apex Court held that the word “may” if construed as “shall” in this section will have drastic consequences which will cause injustice and unfairness for the accused. The Apex Court explained that the trial court has the power to issue an attachment of property for recovery of interim compensation as a fine; however, if the accused is acquitted, there are no feasible ways of getting the property back. Even after following the methods of recovery of property or compensation from the complainant, the process becomes long-drawn and recovery becomes nearly impossible. Thus, if the provision of interim compensation is considered to be mandatory, it will result in arbitrariness which violates Article 14 of the Indian Constitution.
Whilst partly allowing the appeal, and by remanding the matter back to the trial court for fresh adjudication of the application, the Apex Court laid down parameters for exercising the discretion under Section 143A, as follows, in brief:
By remanding the matter back to the trial court for fresh consideration, the Court underscored the importance of a nuanced and impartial approach, ensuring fairness to both, complainant and accused. This decision not only clarifies the legal landscape surrounding interim compensation but also reaffirms the commitment to upholding constitutional principles of fairness and justice in criminal proceedings.
By - Vaibhav Mehra and Sourika Jana
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