Order granting Interim Compensation under 143-A of NI Act has to be a reasoned decision; J&K High Court

Srinagar Bench of the Jammu and Kashmir High Court has held that, "The word “may” appearing in Section 143-A of the Act gives discretion to the trial court to direct the accused to pay interim compensation to the complainant. As already noted, the exercise of discretion must always be supported by reasons failing which exercise of discretion will become arbitrary."

The Bench comprising of Justice Sanjay Dhar while hearing a Petition titled NAZIR AHMAD CHOPAN VS ABDUL REHMAN CHOPAN against the order dated 30.12.2019 passed by learned Judicial Magistrate, 1st Class (Munsiff), Bandipora, whereby in an application for grant of interim compensation under Section 143-A of the Negotiable Instruments Act (hereinafter referred to as the NI Act), the learned Magistrate has granted interim compensation @20% of the cheque amount i.e., an amount of Rs.13.60 lacs in favour of the respondent against the petitioner.

The Court in Para 10 of the Judgment observed that, "Although no guidelines for grant of interim compensation have been laid down in Section 143-A of the NI Act, yet it is a settled law that whenever a discretionary power is to be exercised by a Court, the same has to be exercised on well-recognized principles supported by reasons. The court has to spell out the reasons for grant of interim compensation in favour of the complainant and it has also to justify in its order with reasons the quantum of interim compensation that is being awarded by him as the said quantum can vary from 1% to 20% of the cheque amount."

The Court further observed that, " 11) It is not that just because the accused has put in his appearance before the Magistrate and has pleaded not guilty to the charges that the Magistrate has to pass an order of interim compensation in a routine and mechanical manner. The word “may” appearing in Section 143-A of the Act gives discretion to the trial court to direct the accused to pay interim compensation to the complainant. As already noted, the exercise of discretion must always be supported by reasons failing which exercise of discretion will become arbitrary. Some of the reasons for granting interim compensation may be that the accused absconds and avoids to appear before the Court despite service or there is overwhelming material on record to show that the accused is liable to pay an enforceable debt or that the accused is guilty of protracting the proceedings by avoiding to cross-examine the witnesses or producing his evidence. There can be so many other reasons for a Magistrate to grant interim compensation in favour of the complainant but these reasons have to be recorded in the order so that the validity of the order is tested by the superior court if and when such an order is challenged."

While dealing with the petition in hand, the Honble Court observed that, 

"12) Coming to the impugned order, a perusal thereof reveals that the learned Magistrate has, after narrating the rival contentions raised by the parties, observed that the object of Section 138 of the NI Act is to infuse credibility to negotiable instruments including cheques and to encourage and promote the use of negotiable instruments in financial transactions. According to the learned Magistrate, once it is shown that the accused has drawn the cheque in question in favour of the complainant, presumption under Section 139 of the NI Act would come into play and the provision of interim compensation to the complainant in terms of Section 143-A of the Act has been made. It is also observed by the learned Magistrate that in order to further the credibility of the negotiable instruments, a breather in the shape of interim compensation in favour of the complainant has been provided for. On this ground, the learned Magistrate has granted interim compensation in favour of the accused.

13) There can be no quarrel with the proposition of law that dishonour of cheques has been made a penal offence with a view to promote the use of cheques in financial transactions. There can also be no dispute with the proposition that once it is shown that the cheque has been drawn by the accused, presumption would arise in favour of holder of the cheque in terms of Section 139 of the NI Act.

14) The question that has not been dealt with and answered by the learned Magistrate is as to why the complainant has been awarded interim compensation @20% of the cheque amount and not anything less than that. As already noted, a Magistrate is empowered to grant interim compensation in favour of a complainant ranging from 1% to 20% of the cheque amount. In the instant case, the trial Magistrate has granted interim compensation in the maximum range without assigning any reason. The order impugned is devoid of any reasons and no discussion is made in the impugned order as to why interim compensation is being awarded. The learned Magistrate has not dealt with the aspect of the matter relating to denial of execution of the cheque by the accused in his statement recorded under Section 251 of the Cr. P. C. Therefore, the said order is not sustainable in law."

While allowing the Petition, the Hon'ble Court held that, "For the foregoing reasons, the petition is allowed and the impugned order dated 30.12.2019 is quashed with a direction to the learned Magistrate to pass a fresh order in the light of the observations made hereinbefore after hearing the parties.

Download Full Judgment Here"