Sc Holds That A Trial Court Can Pass An Order For Interim Compensation Exercising Its Powers Under Section 143a Of The Negotiable Instruments Act

Case title:

Rakesh Ranjan Shrivastava v. The State of Jharkhand & Anr

Date of Order:

15th March 2024

Bench:

Hon’ble Mr. Justice Abhay S. Oka

Hon’ble Mr. Justice Ujjal Bhuyan

Parties:

Appellant: Rakesh Ranjan Shrivastava

Respondent: The State of Jharkhand & Anr

SUBJECT:

The Hon’ble Supreme Court of India (hereinafter referred to as ‘the Supreme Court’ or ‘the Court’) dealt with a matter primarily revolving around the interpretation and application of Section 143A of the Negotiable Instruments Act of 1881 in a case involving dishonour of a cheque. The nature of the provision was disputed by the parties, wherein the Court held that the provision was discretionary and upheld the trial court’s authority to order interim compensation. Additionally, it was highlighted that the discretion under this provision should be exercised specific to each case.

IMPORTANT PROVISIONS:

The Negotiable Instruments Act, 1881 (NI Act):

• Section 143A(1) This section provides that a court may order the drawer of a cheque to
• pay interim compensation.
• Section 138 penalizes the dishonour of any cheque which has been issued in discharge
• of the whole or part of “any debt or other liability”.
• Section 139 as per this section, the presumption is made in favour of the cheque holder,
• unless the contrary is proven.
• Section 148(1) The amendment to this section confers upon the court the power to direct
• the accused to deposit a sum amounting to not less than 20% of the compensation
• amount.

OVERVIEW:

• The appellant (Rakesh Ranjan Shrivastava) entered into several agreements to form companies with profit-sharing purposes. 
• The appellant issued the respondent an appointment letter on 23.09.2011, offering the position of Executive Director in M/s Thermotech Synergy Pvt Ltd and M/s Tech Synergy, at a salary of Rs. 1 Lakh per month. 
• The Appellant formed a partnership with one Rahul Kumar Basu on 01.06.2012, with the respondent being shown as an indirect partner. 
• It was alleged by the respondent that M/s Tech Synergy was merged with another company, namely M/s Megatech Synergy Pvt Ltd, and the respondent was to be paid 50% of the profits, as per an agreement entered into in August of 2012.
• One more partnership involving the appellant, respondent, and Rahul Kumar Basu was entered into on 03.06.2013.
• Respondent claimed that the appellant agreed to give the respondent 50% of the profits of another company called Geotech Synergy Pvt Ltd.
• The appellant failed to pay the respondents the promised amounts, which amounted to Rs. 4,38,80,000/-. 
• The respondent filed a civil suit in Bokaro to recover the said amount. 
• A meeting took place between the parties on 13.07.2018 in Ranchi wherein the appellant agreed to pay the respondent a sum of Rs. 4,25,00,000/- in 2 cheques in the sum of Rs. 2,20,00,000/- and Rs. 2,05,00,000/- on 06.08.2018 and 19.09.2018 respectively. 
• The cheque amounting to Rs. 2,20,00,000/- was dishonored, leading to the respondent filing a complaint under section 138 of the NI Act which deals with dishonour of cheques for insufficiency of funds.  
• The respondent filed an application seeking interim compensation under section 143A of the NI Act in response to the complaint. 
• The sessions court upon consideration, directed the appellant to pay the respondent a sum of Rs. 10,00,000/- within 60 days as interim compensation. 
• The appellant appealed against the order in the Jharkhand High Court. The High Court upheld the order of the Sessions Court. 
• The order has now been challenged before the Supreme Court. 

ISSUES RAISED:

• Whether section 143A of the NI Act is mandatory in nature?
• Whether the Trial Court can pass an order imposing an interim compensation?

ARGUMENTS ADVANCED BY THE APPELLANT:

• The use of the word ‘may’ in section 143A of the NI Act indicates a discretionary, not mandatory, power to direct interim compensation. 
• The Trial Court was erroneous in passing the order for a deposit mechanically without carefully considering the circumstances of the case.
• The trial court should have evaluated whether or not there was a prima facie case against the accused before granting the respondent interim compensation.
• The trial court must assess the merits of both the complainant’s case and the defense presented by the accused before exercising its powers under the section.
• The court should not uniformly grant 20% of the cheque amount in every case, even if it is found that interim compensation is warranted.
• Instead, factors such as the nature of the transaction and the financial capacity of the accused should be assessed for determination of the appropriate amount of interim compensation.

ARGUMENTS ADVANCED BY THE RESPONDENT:

• The provisions of Section 143A(1) have to be considered mandatory as it would be contradictory to the very object of Section 138 of the NI Act.
• The burden of proof shifts to the accused, i.e., the holder of the cheque for discharge, in whole or part, unless the contradiction is proven under the presumption of section 139 of the Act.
• Only after the evidence has been adduced can the obligation of rebuttal to the presumption arise. 
• Therefore, the defense of the accused during the application under section 143A is irrelevant. 
• Unless section 143A(1) is held as mandatory, the legislative intent behind the section stands frustrated.

JUDGEMENT ANALYSIS:

• The Supreme Court opined that issuance of dishonoured cheques was often a way opted by unscrupulous individuals to prolong legal proceedings by way of filing appeals and obtaining stays which results in the payee having to suffer by spending time and resources in recovering the owed amount.
• The amendments in the Negotiable Instruments Act were proposed to resolve such issues and prevent undue delays. It was also mentioned that Section 148 was added through the same Amendment alongside Section 143A, allowing the appellate Court to order the appellant to deposit a sum of typically 20% of the compensation awarded by the trial court in appeals against conviction under Section 138.
• It was noted that although section 148 complements provisions of section 143A, no separate objects or reasons were provided for its addition.
• In the context of the instant case, the inclusion of the word ‘may’ indicated discretionary powers and it was imperative to consider the legislative intent behind section 143A and the nature of the power.
• However, the Supreme Court held that the nature of the powers dealt with in section 143A(1) was discretionary, and not mandatory. This meant that it was within the trial court’s powers to grant interim compensation. 
• The Supreme Court highlighted that this power cannot be used in cases where the accused has pled not guilty. 
• Such cases are typically tried under CrPC since the maximum punishment for offenses under Section 138 is imprisonment up to 2 years.
• Nevertheless, if it appears that a sentence of imprisonment of more than one year might be required for valid reasons, the procedure prescribed by CrPC must be followed even though section 143(1) of the NI Act mandates that the Magistrate should try the complaint using a summary procedure, circumventing specific provisions of CrPC. Such instances occur when a complaint under section 138 transforms into a summons case.
• Recovery of compensation is allowed under section 143A(5) akin to a fine under section 421 of CrPC. 
• The accused’s right to defend himself is not negated by the failure of payment of interim compensation. However, failure to pay the interim compensation may result in adverse consequences such as deprivation of one’s property. The accused cannot reclaim sold property even if he gets acquitted.
• It was held that interim compensation can be imposed prior to the establishment of guilt of the accused, as allowed by Section 143A.
• The interpretation of ‘may’ as ‘shall’ in the context of the provision of section 143A was condemned by the Court as such interpretation would result in every accused having to pay interim compensation regardless of guilt. Consequently leading to potential violation of principles of Article 14 of the Constitution. 
• The Supreme Court held that the deposit of Rs. 10,00,000/- mandated by the trial court lacked thorough consideration of the prima facie case and other pertinent factors in the instant case.
• Even if the ordered compensation amounted to less than 5% of the cheque value, the order was passed without due deliberation. Additionally, the High Court’s assessment also fell short according to the Supreme Court. 
• Thereby the Court instructed the trial court to reevaluate the interim compensation application. Meanwhile, the Trial Court was asked to retain the deposited amount of Rs. 10,00,000/- until the resolution of the case. An appropriate order is to be passed by the Trial Court upon disposal of the case regarding the refund, withdrawal, or further investment of the aforementioned amount.

CONCLUSION:

The Supreme Court held that the powers under section 143A of the NI Act were discretionary, and not mandatory in nature. The Court further provided the grounds to be considered by courts before passing an order for interim compensation. However, the factors and circumstances of each case have to be evaluated individually for exercising powers under this Act despite the parameters being significant. The appeal was thereby partly allowed.