Section 143A NI Act - Not Mandatory For Magistrate To Order Payment Of Interim Compensation : Karnataka High Court

A single judge bench of Justice M Nagaprasanna said, "The Legislature has cautiously worded sub-section (1) of Section 143A not to make it mandatory in all cases where clauses (a) and (b) of sub-section (1) would empower the learned Magistrate before whom proceedings are pending consideration to award interim compensation. It is the discretion conferred, as the word used is "may"."

It added, "If the order is passed, then the payment is mandatory. Therefore, the learned Magistrate who is hearing the application for interim compensation should apply his mind, record his reasons in exercise of his discretion, as to why 20% of the cheque amount is to be granted, as interim compensation in any given case."

Case Background:

Petitioner Vijaya had approached the court seeking to stay the order dated June 1 2021, allowing the application filed under section 143A of the NI Act directing the petitioner to pay 20 percent interim compensation. Further, he sought to quash the public auction publication issued by the complainant pursuant to the order dated January 10.

It was the case of the complainant (Shekharappa) that the respondent and the petitioner knew each other for close to 20 years. It is claimed that owing to family necessities and for business purposes, the petitioner/accused appears to have approached the complainant on 12.12.2020 for availing a loan of rupees two crores in cash which was acceded.

It was assured to the complainant that the accused would return the money within one month on or before 11.1.2021. In discharge of her liability the accused appears to have issued a cheque dated 11.01.2021 for rupees two crores drawn on Syndicate Bank.

The cheque was presented but dishonoured as funds insufficient. The complainant caused a legal notice on 12.01.2021. The petitioner replied stating that it was false to allege that she had availed rupees two crores hand loan that too in cash.

Following which the complainant registers a complaint under Section 200 of the Cr.P.C. in P.C.R.No.6 of 2021 which is now pending consideration in C.C.No.67 of 2021. In the aforesaid proceedings an application under Section 143A of the Act for grant of interim compensation was filed. By its order dated June 1, 2021 the magistrate court directed the petitioner to pay 20% interim compensation, failing which the complainant was at liberty to take action in terms of Sections 421 and 357 of the Cr.P.C.

The petitioner filed a criminal revision application against the magistrate order which is pending. In the meantime, the complainant initiated a process in which order of attachment of the property of the petitioner was passed and a notice of public auction was also issued to auction the property on 25.01.2022. Thus, the petitioner approached the high court.

Petitioners submissions:

It was submitted that the petitioner is yet to be held guilty and the trial is yet to commence. As an interim measure, 20% of the claim amount is directed to be paid which amounts to Rs.40 lakhs and it is highly improbable that the complainant has dispersed the loan of rupees two crores that too in cash.

Respondent opposed the plea:

The counsel appearing for the respondent (complainant) contended that presumption is operating against the petitioner in terms of provisions of the Act. Since the petitioner has issued the cheque, the liability is admitted and, therefore, the order directing 20% is in tune with law and would seek dismissal of the criminal petition.

Court findings:

The bench referring to section 143A and the order passed by the magistrate court granting interim compensation, said, "The afore-extracted order passed by the Court does not bear reason as to why 20% of the amount is awarded as interim compensation. All that the Court records on going through the entire amended provision is, if the drawer of the cheque has not pleaded guilty, then he shall pay interim compensation at the rate of 20%."

It added, "There is no application of mind as to why the said compensation has to be awarded. Section 143A is completely misread that once the accused does not plead guilty, the complainant becomes automatically entitled to 20% of the cheque amount as interim compensation."

Further the court said, "If the (Interim compensation) order is passed, then the payment is mandatory. Therefore, the learned Magistrate who is hearing the application for interim compensation should apply his mind, record his reasons in exercise of his discretion, as to why 20% of the cheque amount is to be granted, as interim compensation in any given case."

The court also clarified that the discretion available to the Magistrate is that the amount should not exceed 20%. Therefore, it is not that 20% has to be the interim compensation in every case. Here again the discretion is required to be exercised by the Magistrate as the interim compensation can vary from 1% to 20% but shall not exceed 20%."

It said, "The language of Section 143A being couched with such discretion, the discretion if not exercised in a manner known to law, becomes an arbitrary action."

Noting that the consequence of non-payment of interim compensation so awarded is penal, as proceedings can be initiated by the complainant under Sections 357 and 421 of the Cr.P.C., the court observed, "Therefore, the consequences of such an order are grave where the petitioner whose liability is yet to be determined will have to face grave hardship in the event of non-payment. It is therefore imperative for the learned Magistrates to pass appropriate orders which bear application of mind and record reasons as to why interim compensation is to be awarded in a given case."

Following which the court held ,"In the case at hand, there is not even a semblance of application of mind on the part of the learned Magistrate as the learned Magistrate misconstrues the provision that in the event the accused does not plead guilty, he becomes liable to pay 20% as interim compensation. This is not the purport of the Act. But that does not preclude the learned Magistrate to pass appropriate orders of grant of compensation in a given case. What is necessary is only application of mind and recording detailed reasons as to why such compensation is to be awarded in a given case. The learned Magistrate will have to apply his mind and pass appropriate orders basing on the averments in the claim inter alia."

Accordingly, the court allowed the petition and quashed the order dated 10.01.2022 of attachment of property, the public auction notification dated 25.01.2022 in furtherance of the order also was quashed.

The Principal District and Sessions Judge, Koppal is directed to hear the Criminal Revision Petition filed by the petitioner on its merit within an outer limit of four weeks. Strictly bearing in mind the observations made in the course of this order and pass appropriate orders in accordance with law after affording adequate opportunity to the parties to the petition. Till such time, the order dated 1.6.2021 granting 20% of the amount involved as interim compensation shall remain stayed.

Related Reads:

'Interim Compensation Under S.143A Of Negotiable Instruments Act Is Directory Not Discretionary': Chhattisgarh High Court

Deposit Of Minimum 20% Fine/Compensation U/s 148 NI Act Mandatory, Holds Kerala HC

Case Title: Vijaya v Shekharappa

Case No: Criminal Petition No.100261/2022

Citation: 2022 Livelaw (Kar) 82

Date Of Order: 17th Day Of February 2022

Appearance: Advocate V.M.Sheelavant, A/W Advocate Mrutyunjaya S.

Hallikeri, For Petitioner

Advocate B.V.Somapur, For R.1;

Advocate R.K.Kulkarni, For R.2

Click Here To Read/Download Order