Section 143-A of the Negotiable Instruments Act and Rakesh Ranjan Shrivastava - A missed opportunity?

Introduction

The provisions of the Negotiable Instruments Act, 1881 (“Act”), seek to regulate the privileges provided to certain mercantile instruments and provide the special procedure to be followed in case the obligation under the instrument was not met. [1] While the Act covers a plethora of instruments and situations, this article will restrict itself to Section 143-A of the Act which inter alia deals with the concept of interim compensation.

In essence, Section 143-A of the Act allows the Court trying an offence under Section 138 of the Act (relating to dishonour of cheque) to order the drawer of the cheque to pay interim compensation to the extent of 20% of the cheque amount to the Complainant during the pendency of the trial. The scope of the provision is wide enough to include situations wherein the compensation ordered to be paid may be recovered as a fine under section 421 of the Code of Criminal Procedure or as Compensation under section 357 of the Code of Criminal Procedure as well. Further, in case the drawer is acquitted at trial then the complainant will have to repay the amount with interest as published by the Reserve Bank of India.

However, one of the questions that arise with respect to this provision is the interpretation of the term “may” in sub-section 1 of 143-A of the Act. It begs the question as to whether awarding of interim compensation is at the discretion of the Court or is it mandatory in nature.

A recent opinion of the Supreme Court

The Apex Court had an opportunity to answer this question recently in the case of Rakesh Ranjan Shrivastava vs State of Jharkhand [2] . The Court held that Section 143-A of the Act gives powers to order interim compensation prior to the adjudication of the guilt of the accused i.e., at the threshold itself. The said powers are wide and must be used with caution. If the word “may” be interpreted as “shall” then it will have drastic consequences on cheque transactions. In every cheque bounce case, the accused would need to deposit 20% of the amount upfront. Moreover, the Court also opined that such an interpretation would be unfair, unjust and might be hit by Article 14 of the Constitution as well.

Parameters to be followed while exercising the discretion

The Court in Rakesh Ranjan Shrivastava (supra) has also laid down the broad and non-exhaustive parameters which need to be followed while exercising the discretion.

1. Brief reasoning indicating consideration of all relevant factors must be recorded.

2. There must be prima facie evaluation of the merits of the case as against the merits of the defence. Only if the balance is in favour of the former would interim compensation normally be awarded. Financial distress of the accused must also be investigated.

3. Once prima facie case is proved, the Court will then have to decide on the quantum of compensation based on several factors such as nature of the transaction, relationship between the accused and the complainant, etc.

The Missed Opportunity

Firstly, Section 143A of the Act was added by way of an amendment [3] after the working of the law was seen in the field for several years. The system was being abused by unscrupulous drawers who would protract proceedings by filing an appeal and obtaining a stay. The said amendment was added as a means of solidifying the credibility of cheque transactions and helping trade and commerce. When the very object of the amendment was to protect the “sanctity of cheque transactions”, the law laid down by the Apex Court in Rakesh Ranjan Shrivastava (supra) seems to be flowing in the teeth of this amendment.

Secondly, if the trial Court is required to investigate into the prima facie contentions of both parties while deciding interim compensation, then it is akin to having to decide the matter on merits at the threshold level itself. This is because of the summary nature of trial under Section 138 of the Act. [4]

Thirdly, as a matter of procedure, the accused is not given a right to file counter in the main matter under Section 138 of the Act. Since the application under Section 143-A would need to be decided after giving the accused a chance to defend himself and file counter, it leads to the creation of a new stage in trial itself.

Lastly, when there is a rebuttable presumption in favour of the holder of the cheque under Section 138 of the Act, interim compensation (pending trial) should be a matter of right and not require any prima facie proof.

The Way Around

Recently, the Madhya Pradesh High Court made an interesting observation [5] wherein it held that in an application under Section 143-A if no opposition is recorded then it is not necessary to assign any reasons for grant of the compensation. In a way, the High Court has carved out an exception to the principles of Rakesh Ranjan Shrivastava which directs that the trial Court record the consideration of all relevant factors.

Conclusion

Rakesh Ranjan Shrivastava is the law of the land at the moment and needs to be followed meticulously by all trial courts in deciding applications under Section 143-A. However, given the consequences involved, it will not be a surprise if the question of “discretion” is raised again before a larger bench of the Apex Court in the near future for adjudication.

References:

[1] Shri Ishar Alloy Steels Ltd vs Jayaswals Neco Ltd [AIR 2001 SC 1161]
[2] 2024 SCC OnLine SC 309
[3] The Negotiable Instruments (Amendment) Act, 2018.
[4] Section 143(1) of the Act.
[5] Khuzema Nadir vs Rishabh Kumar Jain [2024 SCC OnLine MP 3418]