Nagpur, September 29, 2023 – The Bombay High Court, in a recent judgment, has ruled that trial courts are not obliged to provide additional reasons for the amount of interim compensation in cheque dishonour cases. This decision comes as long as the conditions specified in Section 143A of the Negotiable Instruments Act, 1881 (NI Act) are met. The judgment, delivered by Justice Anil Pansare of the Nagpur Bench, asserts that satisfaction of Section 143A is sufficient reason for awarding 20 percent interim compensation to the complainant, and imposing the requirement for additional reasons would defeat the very purpose of the section.

In the ruling, Justice Pansare stated,

“To expect the learned Magistrate to assign additional reasons, in a way, will defeat the amendment for the reason that every order passed under Section 143A will then be challenged on the ground that there are no additional reasons assigned by the learned Magistrate and if additional reasons are assigned, the challenge will be that the reasons assigned are not adequate etc., thereby opening floodgates of litigations.” 

However, the court did clarify that if the trial court decides to reduce the interim compensation, additional reasons may be necessary to indicate why such a reduction was made.

Background of the Case

The case in question was filed by Guljama Shah against Shri Sadguru Kaka Stone Crusher. Shah contested an order dated December 20, 2022, passed by the Judicial Magistrate, First Class, Khamgaon. This order mandated Shah to deposit an amount of Rs. 3,09,100 within sixty days, representing 20 percent of the cheque amount of Rs. 15,45,500.

Advocate RD Dhande, representing the petitioner-accused, relied on a previous judgment in the Ashwin Ashokrao Karokarv. Laxmikant Govind Joshi case. Dhande argued that when deciding applications under Section 143A of the NI Act, the court should provide reasons for awarding interim compensation, which can range up to 20 percent of the cheque amount. He contended that the trial court in this case had not provided such reasons.

Dhande also raised concerns about the NI Act’s lack of provisions to address situations where the accused is acquitted after paying interim compensation. The court in the AshwinKarokar case had similarly highlighted this issue, suggesting that legislative amendments might be necessary in the future.

On the opposing side, Advocate Bhavin Suchak, representing the respondent-complainant, argued that the trial court had indeed considered the Ashwin Karokar case while awarding interim compensation. Suchak pointed out that the trial court had cited relevant portions of the judgment, thereby indicating that the requirements for awarding interim compensation were met.

Legal Framework

Section 143A of the NI Act specifies various conditions that must be satisfied for the award of interim compensation. These include verifying whether the requirements of Section 138 (pertaining to dishonour of cheques) are met, examining whether the pleadings show the drawing of a presumption, confirming that the proceedings fall within the limitation period, and ensuring the existence of a prima facie legal debt or liability from the complaint or preceding notice of demand.

Purpose of Section 143A

The court emphasized that the introduction of Section 143A was aimed at curbing delaying tactics employed by unscrupulous individuals who issued dishonoured cheques. The 2018 amendment sought to address the problem of undue delays in resolving such cases, ultimately saving time and resources for the payees.

Court’s Interpretation

The court clarified that interim compensation is awarded at a stage where the accused has pleaded not guilty to the charges. Even when the conditions in Section 143A are met, not awarding interim compensation at the maximum rate of 20 percent would undermine the section’s intended purpose. The court further explained that if there are doubts about the fulfilment of any of these conditions, the magistrate has the discretion to reduce the interim compensation or refrain from granting it altogether.

Justice Pansare stated, 

“Once the factors enumerated in clauses (a) to (d) above are satisfied/ fulfilled, then those are reasons enough, and thus the case for awarding interim compensation exists. In such circumstances, the learned Magistrate will be fully justified in awarding 20% interim compensation.”

Additionally, the court proposed a solution for cases where interim compensation is granted and the accused is subsequently acquitted. It suggested imposing an additional condition requiring the complainant to provide an undertaking to deposit the amount of interim compensation, along with interest at 6 percent per annum, if the accused is acquitted.

In the last, the Bombay High Court’s recent judgment provides clarity on the requirement of providing additional reasons for interim compensation in cheque dishonour cases. While it reinforces the importance of meeting the conditions specified in Section 143A of the NI Act, it also offers a practical solution to address potential issues in cases of acquittal after interim compensation has been paid.