The Supreme Court while adjudicating upon a criminal appeal dealt with the issue as to whether the provision of sub-section (1) of Section 143A of the Negotiable Instruments Act, 1881 (hereinafter referred to as, ‘the N.I. Act’), providing for the grant of interim compensation, is directory or mandatory, and if directory, what are factors to be considered while exercising powers under the said provision.

In the case at hand, Respondent No. 2 filed a Complaint under Section 138 N.I Act in the Court of the Chief Judicial Magistrate at Bokaro against the Appellant, of which the Magistrate took cognizance. The Respondent also filed an application under Section 143A of the N.I. Act seeking direction against the appellant/accused to pay 20 per cent of the cheque amount as compensation. The Application came to be allowed by the Magistrate, directing the appellant to pay an interim compensation of Rs. 10,00,000/- to the respondent within 60 days.

The Appellant assailed the order of Magistrate before the Sessions Court in a Revision Petition, which, however, came to be dismissed, affirming the order of the Judicial Magistrate. The said orders were subjected to a challenge before the Jharkhand High Court; however, the High Court dismissed the petition. It is these orders that came under challenge before the Apex Court. 

While the Appellant agitated before the Supreme Court that the provision [143-A (1) N.I. Act] is discretionary, and the order to pay interim compensation cannot be passed by the Trial Court mechanically. To the contrary, the main thrust of the Respondents’ argument was that considering the very object of Section 138 of the N.I. Act and there being a presumption under Section 139, sub-section (1) of Section 143A will have to be held as mandatory. It was argued that unless it is held that sub-section (1) of Section 143A is mandatory, the very object of the legislature of enacting this provision will be frustrated.

The Supreme Court upon being seized of the matter delved into the object of the legislature behind introducing Section 143A into the N.I. Act, by virtue of Act No. 20 of 2018, and observed, “Therefore, it was proposed to amend the N.I. Act to address the issue of undue delay in the final resolution of the cheque dishonor cases. It was also stated that the proposed amendments would strengthen the credibility of cheques and help trade and commerce.”

However, noting that under Section 143 A (5), the amount of interim compensation can be recovered as if it were a fine under Section 421 of the Cr.PC. and as such, by legal fiction, the interim compensation is treated as a fine for the purposes of its recovery, and the Trial Court can recover the same, or by issuing a warrant to the Collector of the District authorizing him to realize the interim compensation amount as arrears of land revenue from the movable or immovable property, or both, belonging to the accused by issuing a warrant for attachment and sale of the movable property of the accused the Court observed, “Non-payment of interim compensation by the accused does not take away his right to defend the prosecution. The interim compensation amount can be recovered from him treating it as fine.”

The Court further observed that non-payment of interim compensation under Section 143A has drastic consequences, in as much as the accused may be deprived of his immovable and movable property.

The Court also drew a distinction between Section 148 (1), and Section 143A of the N.I. Act, and observed that while under the former, the Appellate Court has the power to direct the appellant/accused to deposit 20 per cent of the compensation amount only after the appellant/accused is convicted after a full trial; in the case of Section 143A, the power can be exercised even before the accused is held guilty. It held that if the word ‘may’ in Section 143A is construed 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.”

The Court, thus, declared, “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”

However, in deciding an Application under Section 143A, the Court held that the Trial Court has to prima facie evaluate the merits of the case of the complainant, and merits of defence pleaded in his reply by the accused, and the presumption under Section 139 of the N.I. Act, by itself, is no ground to direct the payment of interim compensation since the same is rebuttable. 

The Apex Court, ultimately while setting aside the orders of the Sessions Court, as well as the High Court impugned before it, disposed of the case by, inter alia, laying down broad parameters for exercising the discretion under Section 143A:

“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.”