2024 (4) TMI 719 - SC - Indian Laws

Dishonour of Cheque - grant of interim compensation - whether the provision of sub-section (1) of Section 143A of the Negotiable Instruments Act, 1881 (for short, the N.I. Act ), which provides for the grant of interim compensation, is directory or mandatory? - factors to be considered while exercising powers under sub-section (1) of Section 143A of the N.I. Act. HELD THAT - In the case of Section 143A, the power can be exercised even before the accused is held guilty. Sub-section (1) of Section 143A provides for passing a drastic order for payment of interim compensation against the accused in a complaint under Section 138, even before any adjudication is made on the guilt of the accused. The power can be exercised at the threshold even before the evidence is recorded. If the word may is interpreted 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 - there are 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. Section 143A can be invoked before the conviction of the accused, and therefore, the word may used therein can never be construed as shall . The tests applicable for the exercise of jurisdiction under sub-section (1) of Section 148 can never apply to the exercise of jurisdiction under subsection (1) of Section 143A of the N.I. Act. Factors to be considered while exercising powers under sub-section (1) of Section 143A of the N.I. Act - HELD THAT - When the court deals with an application under Section 143A of the N.I. Act, 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 under sub-section (1) of Section 143A. The presumption under Section 139 of the N.I. Act, by itself, is no ground to direct the payment of interim compensation. The reason is that the presumption is rebuttable - While deciding the prayer made under Section 143A, the Court must record brief reasons indicating consideration of all the relevant factors. In the present case, the Trial Court has mechanically passed an order of deposit of Rs.10,00,000/- without considering the issue of prima facie case and other relevant factors. It is true that the sum of Rs.10,00,000/- represents less than 5 per cent of the cheque amount, but the direction has been issued to pay the amount without application of mind. Even the High Court has not applied its mind - the Trial Court is directed to consider the application for grant of interim compensation afresh. In the meanwhile, the amount of Rs. 10,00,000/- deposited by the appellant will continue to remain deposited with the Trial Court. The impugned orders are set aside, and the application made by the complainant under Section 143A (1) of the N.I. Act is restored to the file of Judicial Magistrate First Class, Bokaro - appeal allowed in part.

Summary

Issues Involved:
1. Whether the provision of sub-section (1) of Section 143A of the Negotiable Instruments Act, 1881, which provides for the grant of interim compensation, is directory or mandatory.
2. Factors to be considered while exercising powers under sub-section (1) of Section 143A of the N.I. Act.

Summary:

Issue 1: Directory or Mandatory Nature of Section 143A(1)
1. The primary issue was whether sub-section (1) of Section 143A of the N.I. Act, which allows for the grant of interim compensation, is directory or mandatory. The Court noted that the word "may" in the provision indicates discretion rather than obligation. The provision was held to be directory and not mandatory, meaning the power to grant interim compensation is discretionary.

2. The Court emphasized that interpreting "may" as "shall" would have drastic consequences, potentially penalizing an accused before guilt is established, which could be unjust and contrary to fairness and justice. Thus, the word "may" used in Section 143A cannot be construed as "shall."

Issue 2: Factors to be Considered While Exercising Discretion
1. The Court outlined that when dealing with an application under Section 143A, the Court must prima facie evaluate the merits of the complainant's case and the defense pleaded by the accused. The presumption under Section 139 of the N.I. Act is rebuttable and does not justify an automatic grant of interim compensation.

2. Factors such as the financial distress of the accused, the nature of the transaction, the relationship between the accused and the complainant, and the paying capacity of the accused must be considered. If the defense is prima facie plausible, the Court may refuse to grant interim compensation.

3. The Court must record brief reasons indicating consideration of all relevant factors while deciding on the application for interim compensation. The parameters for exercising discretion are not exhaustive, and other relevant factors may also be considered.

Conclusion:
The Court set aside the impugned orders and directed the Trial Court to reconsider the application for interim compensation afresh, taking into account the guidelines provided in the judgment. The amount of Rs. 10,00,000/- already deposited by the appellant shall remain with the Trial Court and be invested in a fixed deposit until the application is disposed of.

Main Conclusions:
a. The exercise of power under sub-section (1) of Section 143A is discretionary and directory, not mandatory.
b. The Court must record brief reasons indicating consideration of all relevant factors while deciding the prayer under Section 143A.
c. Broad parameters for exercising discretion include prima facie evaluation of the complainant's case, financial distress of the accused, and the nature of the transaction, among other factors.

The appeal was partly allowed based on these terms.