2022 (7) TMI 38 - HC - Indian Laws

Dishonor of cheque - insufficiency of funds - order granting 10% interim compensation in terms of Section 143A of the Act - HELD THAT - On a conjoint reading of the objects and reasons, amendment made, and the purport of the provisions, what would unmistakably emerge is that the learned Magistrate is empowered to exercise his discretion in the grant of interim compensation which would in any given case range from 1% to 20%. Once the discretion by the learned Magistrate happens, the rigour of the statute sets in as the words in the statute depicts that the Court may in a given case grant such compensation and once granted consequences follow. Therefore, the learned Magistrates are required to exercise discretion by recording reasons in writing which would demonstrate application of mind, as application of mind and reasons in an order are inseparable. Application of mind is discernible only when the order reflects adequate reasons being given for exercise of such discretion. There is no reason recorded by the learned Magistrate that the accused in the case at hand has adopted any of the factors as narrated hereinabove that would entail consideration of an application under Section 143A of the Act. With the reason that is rendered by the learned Magistrate as quoted (supra), the order granting 10% compensation, in the case at hand, becomes unsustainable. This Court is flooded with litigation with regard to grant of compensation under Section 143A of the Act by criminal courts. In several cases discretion is exercised for grant of compensation and in several other cases there are no reasons for exercise of such discretion. Therefore, it has become necessary to direct learned Magistrates that while considering applications filed under Section 143A of the Act, to notice at the outset, the conduct of the accused. If the accused has been unnecessarily evading the proceedings by seeking adjournments, consideration of the application would become imperative as the amendment itself is introduced to compensate such payees of delay tactics adopted by unscrupulous drawers of cheques. The amount involved in the transaction is Rs.5,56,71,208/- and 10% of the said amount would mean Rs.55 lakhs. Therefore, it was necessary for the learned Magistrates to apply his mind, record such reasons which would demonstrate application of mind and then allow the application for grant of compensation in terms of the Act - it is deemed appropriate to exercise my discretion under Section 482 of the Cr.P.C., set aside the order impugned and remit the matter back to the hands of the learned Magistrate to pass appropriate orders on the application, bearing in mind the observations made in the course of the order. The Criminal Petition is allowed.

Summary

Issues Involved:
1. Legitimacy of the order granting 10% interim compensation under Section 143A of the Negotiable Instruments Act, 1881.
2. Application of mind and reasoning by the Magistrate in granting interim compensation.
3. Conduct of the accused and its impact on the grant of interim compensation.
4. Legal framework and purpose of Section 143A of the Negotiable Instruments Act.

Issue-wise Detailed Analysis:

1. Legitimacy of the Order Granting 10% Interim Compensation:
The petitioner challenged the order dated 12-10-2021 by the XXVIII Additional Chief Metropolitan Magistrate, Bangalore, which granted 10% interim compensation under Section 143A of the Negotiable Instruments Act, 1881. The petitioner contended that the cheque in question was issued as a security and not towards any liability, and argued that the Magistrate's order lacked application of mind and did not consider the circumstances under which the claim became due.

2. Application of Mind and Reasoning by the Magistrate:
The court emphasized the necessity for the Magistrate to apply his mind and provide cogent reasons when granting interim compensation. The reasoning provided by the Magistrate was found insufficient as it merely stated that the disposal of the case on merits may take considerable time and directed the accused to deposit 10% of the cheque amount. The court noted that the order lacked adequate reasoning and did not demonstrate the application of mind, which is crucial given the penal consequences that could follow.

3. Conduct of the Accused and its Impact on the Grant of Interim Compensation:
The court highlighted that the Magistrate should consider the conduct of the accused when deciding on an application under Section 143A. If the accused is cooperating with the trial and not seeking unnecessary adjournments, the Magistrate should exercise discretion cautiously. Conversely, if the accused is evading proceedings, the application for interim compensation should be considered more stringently. The court found that the Magistrate's order did not take into account the accused's conduct, making the order unsustainable.

4. Legal Framework and Purpose of Section 143A of the Negotiable Instruments Act:
Section 143A was introduced to address delays in cheque dishonor cases and to provide relief to the payees of dishonored cheques. The amendment aimed to discourage frivolous litigation and ensure the credibility of cheque transactions. The court underscored that the Magistrate has the discretion to grant interim compensation ranging from 1% to 20% of the cheque amount, but this discretion must be exercised with proper reasoning and consideration of the accused's conduct.

Conclusion:
The court quashed the impugned order and remitted the matter back to the Magistrate to pass a fresh order on the application filed by the complainant under Section 143A, taking into account the observations made in this judgment. The court stressed the importance of providing adequate reasons and demonstrating the application of mind when granting interim compensation.