Interim Compensation in Cheque Dishonor Cases: Discretion and Due Process, Scope of the word "May"

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Deciphering Legal Judgments: A Comprehensive Analysis of Case Law

Reported as:

2024 (4) TMI 719 - Supreme Court

Introduction

The Supreme Court of India, in a recent judgment, addressed a crucial issue concerning the interpretation and application of Section 143A of the Negotiable Instruments Act, 1881 (NI Act). The case revolved around the question of whether the provision for granting interim compensation u/s 143A(1) is mandatory or directory in nature. The Court also provided guidance on the factors to be considered while exercising the discretionary power under this section.

Arguments Presented

The appellant's counsel contended that the word "may" used in Section 143A(1) indicates that the provision is discretionary. They argued that the trial court cannot mechanically pass an order for interim compensation without considering the prima facie case and other relevant factors. The existence of a prima facie case and consideration of the merits of the complainant's case and the accused's defense were emphasized as essential prerequisites for exercising the power u/s 143A.

Conversely, the respondent's counsel submitted that, considering the object of Section 138 of the NI Act, Section 143A(1) should be interpreted as mandatory. They relied on the presumption u/s 139 of the NI Act, arguing that the question of rebutting this presumption would arise only after the evidence is adduced, rendering the accused's defense irrelevant at the stage of considering an application u/s 143A(1).

Discussions and Findings of the Court

The Supreme Court delved into the object of Section 143A, which was introduced to address the issue of undue delay in the final resolution of cheque dishonor cases and strengthen the credibility of cheque transactions. The Court observed that Section 143A(1) provides for a drastic order of payment of interim compensation against the accused, even before any adjudication on their guilt. Interpreting the word "may" as "shall" would have drastic consequences, potentially exposing the provision to the vice of manifest arbitrariness and violating Article 14 of the Constitution.

The Court held that the word "may" used in Section 143A(1) cannot be construed or interpreted as "shall." Therefore, the power u/s 143A(1) is discretionary and not mandatory. The Court distinguished the tests applicable for exercising jurisdiction u/s 148(1) of the NI Act, which deals with the power of the Appellate Court to order payment pending an appeal against conviction.

Factors to be Considered while Exercising Discretion

The Supreme Court provided guidance on the factors to be considered while exercising discretion u/s 143A(1):

The court must prima facie evaluate the merits of the complainant's case and the accused's defense pleaded in the reply to the application. The presumption u/s 139 alone is not a ground to direct interim compensation payment.
A direction to pay interim compensation can be issued only if the complainant makes out a prima facie case.
If the accused's defense is found to be prima facie plausible, the court may exercise discretion in refusing to grant interim compensation.
If the court concludes that a case is made out for granting interim compensation, it must apply its mind to the quantum of interim compensation to be granted, considering factors such as the nature of the transaction, the relationship between the accused and the complainant, the paying capacity of the accused, and any other relevant factors in the given case.
The court must record brief reasons indicating consideration of all relevant factors while deciding the prayer u/s 143A(1).

Analysis and Decision by the Court

In the present case, the Supreme Court found that the trial court had mechanically passed an order for the deposit of Rs. 10,00,000/- without considering the issue of a prima facie case and other relevant factors. The High Court had also failed to apply its mind. Consequently, the Supreme Court set aside the impugned orders and restored the application made by the complainant u/s 143A(1) to the file of the Judicial Magistrate First Class, Bokaro. The trial court was directed to consider the application for granting interim compensation afresh, following the guidelines provided in the judgment.

"May" versus "Shall"

The judgment highlighted the principles of statutory interpretation, particularly the distinction between the use of the words "may" and "shall" in legislative provisions, and the importance of considering the context, object, and consequences of interpreting a provision in a particular manner.

Comprehensive Summary

The Supreme Court, in this landmark judgment, clarified that the provision for granting interim compensation u/s 143A(1) of the Negotiable Instruments Act is directory and not mandatory. The Court emphasized the need for trial courts to exercise discretion judiciously, considering the prima facie merits of the complainant's case, the accused's defense, and other relevant factors, including the nature of the transaction, the relationship between the parties, and the paying capacity of the accused. The Court provided guidance on the factors to be considered and the requirement to record brief reasons while deciding an application u/s 143A(1). This judgment aims to strike a balance between protecting the interests of the complainant and ensuring fairness and justice for the accused, while upholding the sanctity of cheque transactions.

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2024 (4) TMI 719 - Supreme Court