Introduction

The Negotiable Instruments Act, 1881 (“NI Act”) was enacted to regulate the law governing promissory notes, bills of exchange, cheques, and similar negotiable instruments. Over time, these instruments, particularly cheques, have become integral to business transactions, offering a convenient and reliable method for transferring funds. With the growth of the banking system, cheques evolved into an essential tool for monetary exchange, not only between individuals but also in the broader commercial sphere.

However, the widespread use of cheques also led to certain challenges, particularly the practice of dishonouring cheques. This situation became grim when drawers issued cheques without maintaining sufficient funds in their accounts, leading to distrust in the banking system and the negotiable instruments themselves. In response, to safeguard the interests of the creditors and maintain confidence in the banking system, Sections 138 to 142 of the NI Act were introduced.

In 1988, the Banking, Public Financial Institutions, and Negotiable Instruments (Amendment) Act was passed, incorporating Chapter XVII to the NI Act, thereby introducing penalties for the dishonour of cheques. This amendment aimed to address the issue of dishonoured cheques due to insufficient funds, ensuring that creditors could have legal recourse to recover amounts due. This was further strengthened by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, which introduced Sections 143 to 147 to expedite the resolution of such cases and help in boosting the confidence of the creditor.

Issue of prolonged litigation

Despite these legislative provisions, increase in the number of cheque dishonour cases under Section 138 of the NI Act, coupled with the backlog of pending cases, created a significant issue for creditors. As of 2024, approximately 43 Lakh cases related to cheque dishonour under Section 138 were pending in courts, contributing to the huge backlog of criminal cases.

This delay in resolving disputes implied that creditors often had to endure long periods before receiving the fine or compensation imposed upon the accused, even in cases where cheques had been issued in payment of legitimate dues. The legislature, therefore, sought to address this issue by introducing provisions for interim compensation during the pendency of Section 138 proceedings.

Introduction of Sections 143A and 148 of the NI Act

In response to the aforementioned challenges, the Negotiable Instruments (Amendment) Act, 2018 introduced two important provisions:

1. Section 143A: The newly introduced s. 143A empowers courts to order the accused to pay interim compensation, not exceeding 20% of the cheque amount, to the complainant during the pendency trial. This provision applies either during a summary trial or summons case, if the drawer pleads not guilty or upon the framing of charges in other cases. The interim compensation aims to alleviate the financial hardship faced by creditors before the final judgment.

2. Section 148: Section 148 of the NI Act confers authority upon appellate courts to direct the accused, when appealing against a conviction under Section 138, to deposit a minimum of 20% of the fine or compensation imposed by the trial court, over and above any interim compensation paid under Section 143A. This ensures that the appellate process does not become a tool for indefinite delay, allowing creditors to receive interim relief even while an appeal is pending.

Applicability of Sections 143A and 148: Prospective vs Retrospective

The Supreme Court of India has discussed and explained the applicability of these provisions, specifically addressing whether they should apply prospectively or retrospectively.

In G.J. Raja vs. Tejraj Surana, the Court held that Section 143A, due to its provision for interim compensation before the accused is found guilty, should apply prospectively. The Court reasoned that applying it to offences committed before the amendment could unfairly penalize the accused for actions predating the legislative change.

However, in Surinder Singh Deshwal vs. Virender Gandhi, the Supreme Court interpreted Section 148 to be retrospective. The court noted that, unlike Section 143A, which applies at the trial stage, Section 148 applies at the appellate stage after the accused is found guilty under Section 138 of the Act.

Judicial Interpretation of “May” vs “Shall”

The discretionary nature of interim compensation under Section 143A and Section 148 has been a subject of judicial interpretation. In Surinder Singh Deshwal vs. Virender Gandhi (supra), the Supreme Court interpreted the word “may” in Section 148 to mean “shall”, thus making interim compensation mandatory unless specific reasons for non-deposit are recorded by the appellate court.

Conversely, in Jamboo Bhandari vs. M.P. State Industrial Development & Ors , the Supreme Court clarified that Section 143A remained discretionary. Since this provision applies before the conviction of the accused, trial courts must assess the prima facie merits of the complainant’s case, the defence raised by the accused, and factors such as the financial condition of the parties before awarding interim compensation.

Ultimately, the Hon’ble Supreme Court cleared the ambiguity related to the mandatory or discretionary nature of S. 143 in its judgement in the case of Rakesh Ranjan Shrivastava vs. The State of Jharkhand & Anr and held that power to grant interim compensation in cheque bounce cases under sub-section (1) of Section 143A of the Negotiable Instruments Act, 1881 (N.I. Act) is discretionary and not mandatory.

Conclusion

The 2018 amendments to the Negotiable Instruments Act represent a significant shift in the way cheque dishonour cases are handled in India. By introducing provisions for interim compensation under Section 143A and appellate relief under Section 148, the legislature aims to protect creditors from the prolonged delays in judicial proceedings and restore faith in the use of negotiable instruments, especially cheques.

Through these reforms, the NI Act remains a crucial element in fostering a trustworthy, efficient, and secure business environment in India, thereby strengthening the country’s commercial landscape and ensuring that business transactions are fair, transparent, and timely.