Introduction
The Negotiable Instruments Act 1881(“NI Act”) was brought in force to provide for law relating to promissory notes, bills of exchange, cheques, etc. Negotiable instruments have been used in business transactions for quite a long period of time and are a convenient mode for having money transferred.
With flourishing banking system in the country, cheques being in the nature of special kind of negotiable instruments became commonplace for monetary transactions between individuals and also in the commercial world. Upon realizing that issuance of the checks by the drawers without maintaining sufficient funds in the account was becoming prevalent, to promote greater vigilance in financial matters and instil confidence of the creditors in the cheque as a negotiable instrument as well as in the banking system, Sections 138 to 142 of the NI Act were inserted.
The Banking, Public Financial Institutions, and Negotiable Instrument (Amendment) Act, 1988, introduced a new chapter (Chapter XVII) to the Negotiable Instruments Act, providing penalties for the dishonour of cheques due to insufficient funds in the drawer’s account, covering Sections 138 to 142.
Later, the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, was enacted to introduce Sections 143 to 147 and amend the earlier provisions to achieve faster resolution of cases and boost creditors’ confidence in cheque drawers and the banking system in India.
Provisions relating to interim compensation in the case of dishonour of check
While Section 138 of the Negotiable Instruments Act, of 1881 penalizes the dishonour of a check issued by the drawer for payment of a legally enforceable debt, and various provisions have been introduced in the Negotiable Instruments Act for expediting the trial of the cases under section 138 relating to dishonour of checks and also the Supreme Court of India has periodically issued broader directives aimed at the swift resolution of cases under Section 138 of the Negotiable Instruments Act. As of 2018-2019, a significant portion of the criminal cases pending before Indian courts( approximately 3.5 million out of total of about 23 million cases ) related specifically to Section 138 of the Negotiable Instruments Act.
Pendency of huge number of cases under section 138 of the NI Act meant that the creditors had to have a long wait for realizing money in the form of fine that may be imposed upon the accused at the end of trial of s.138 proceedings, even in cases where cheques were given for payment of legitimate dues of creditors. Legislature therefore sought to introduce provisions for interim compensation to creditors in s.138 proceedings as elaborated below.
Introduction of section 143A and section 148 of the NI Act
The Negotiable Instruments (Amendment) Act, of 2018, introduced these provisions into the NI Act. Section 143A empowers the court to order the drawer of the cheque to pay interim compensation to the complainant. This can be done during a summary trial or a summons case if the drawer pleads not guilty to the accusations, or in any other case, upon the framing of charges. Section 143A (2) specifies that this interim compensation shall not exceed 20% of the cheque amount. Additional subsections outline the timelines for payment, procedures for repayment in case of the drawer’s acquittal, and methods for recovering the amount.
Section 148 provides the power to the appellate court to order the drawer in case of an appeal by him against conviction under Section 138, to deposit the sum of the minimum amount of 20% of the fine or compensation awarded by the trial court over and above any amount of interim compensation paid by the appellant under section 143A.
Prospective or Retrospective applicability of provisions of Section 143A and 148 of the NI Act
The Supreme Court of India in the case of G. J. Raja vs Tejraj Surana[i] held that looking at the fact that s.143A empowers the court to order interim compensation to the complainant before the drawer of the cheque is found guilty and also provides for the measure for recovery through coercive action in terms of section 143A (5), said section must be applied prospectively i.e. it must apply for offences committed after the introduction of Section 143A of the NI Act.
In the case of Surinder Singh Deshwal versus Virender Gandhi[ii], the Supreme Court of India held that amendment in section 148 of the NI act did not seek to take away any right already vested in the appellant and in that scenario, so as to ensure that purpose of section 138 was not frustrated owing to dilatory tactics sought to be employed by certain litigants (drawers of the cheque), Section 148 of the NI act should be construed as applying even retrospectively.
Principles concerning the grant of compensation under Section 143A and Section 148
In the case of Surinder Singh Deswal vs. Virender Gandhi[iii], the Supreme Court, after considering the provisions of section 148 held that the word “may” used in the said section will have to be construed as “shall” and also held that if in a given case, the appellate court decides not to direct the deposit by the accused, it must record reasons for the same.
However, in the case of Jamboo Bhandari vs M.P. State Industrial Development[iv], the Supreme Court held that as section 143A can be invoked before the conviction of the accused, the word “may” used therein can not be construed as “shall”. The tests applicable for the exercise of jurisdiction under section 148(1) of the act could not be applied to the exercise of jurisdiction under section 143A (1).
The court held that while dealing with the application under section 143A,
- The court will have to evaluate the merits of the case made out by the complainant and the merits of the defense pleaded by the accused in the reply to an application under section 143A (1).
- If the defense of the accused is found to be prima facie plausible, the court may exercise discretion in refusing to grant interim compensation.
- If the court concludes that a prima facie case is made out to grant interim compensation. It will also have to apply its mind to the quantum of the interim compensation to be granted considering several factors such as the nature of the transaction, the relationship between the accused and the complainant, including any other information such as the financial condition of the concerned Parties.
Conclusion
Thus, it will be seen that the interim compensation prior to conviction under section 143A is discretionary and depends on various factors and parameters; however, interim compensation under Section 148 is normally a matter of rule and in case of deviating from the rule of granting interim compensation at the time of entertaining an appeal against the decision of conviction, the appellate court must record specific reasons for doing so. The above-mentioned judgements and provisions of the NI Act will result in enhancing the efficiency of the system of commercial transactions through cheques, instill confidence in the drawer of the cheque, ensure suitable relief to the aggrieved parties even before the final decision in the case and discourage frivolous litigation.
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[iii] Supra 2