Interim Compensation In Cheque Bounce Cases -Discretionary Not Mandatory

Posted On - 28 May, 2024 • By - King Stubb & Kasiva


       [1]In this ruling, The Supreme Court held that the exercise of 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.


The appellant (Rakesh Ranjan Shrivastava) entered into several agreements to form companies with profit-sharing purposes.  The appellant issued the respondent an appointment letter on 23.09.2011, offering the position of Executive Director in M/s Thermotech Synergy Pvt Ltd and M/s Tech Synergy, at a salary of Rs. 1 Lakh per month.  The Appellant formed a partnership with one Rahul Kumar Basu on 01.06.2012, with the respondent being shown as an indirect partner. 

It was alleged by the respondent that M/s Tech Synergy was merged with another company, namely M/s Megatech Synergy Pvt Ltd, and the respondent was to be paid 50% of the profits, as per an agreement entered into in August of 2012. One more partnership involving the appellant, respondent, and Rahul Kumar Basu was entered into on 03.06.2013. Respondent claimed that the appellant agreed to give the respondent 50% of the profits of another company called Geotech Synergy Pvt Ltd. The appellant failed to pay the respondents the promised amounts, which amounted to Rs. 4,38,80,000/-.  The respondent filed a civil suit in Bokaro to recover the said amount. 

 A meeting took place between the parties on 13.07.2018 in Ranchi wherein the appellant agreed to pay the respondent a sum of Rs. 4,25,00,000/- in 2 cheques in the sum of Rs. 2,20,00,000/- and Rs. 2,05,00,000/- on 06.08.2018 and 19.09.2018 respectively.  The cheque amounting to Rs. 2,20,00,000/- was dishonoured, leading to the respondent filing a complaint under section 138 of the NI Act which deals with dishonour of cheques for insufficiency of funds.   The respondent filed an application seeking interim compensation under section 143A of the NI Act in response to the complaint. 

The sessions court upon consideration, directed the appellant to pay the respondent a sum of Rs. 10,00,000/- within 60 days as interim compensation.  The appellant appealed against the order in the Jharkhand High Court. The High Court upheld the order of the Sessions Court.  The order has now been challenged before the Supreme Court. 

Issues raised:

The Hon’ble Court considered the following issues-

  1. Whether section 143A of the NI Act is mandatory in nature?
  2. Whether the Trial Court can pass an order imposing an interim compensation?


The Supreme Court opined that the issuance of dishonoured cheques was often a way opted by unscrupulous individuals to prolong legal proceedings by way of filing appeals and obtaining stays which results in the payee having to suffer by spending time and resources in recovering the owed amount. The amendments in the Negotiable Instruments Act were proposed to resolve such issues and prevent undue delays.

 It was also mentioned that Section 148 was added through the same Amendment alongside Section 143A, allowing the appellate Court to order the appellant to deposit a sum of typically 20% of the compensation awarded by the trial court in appeals against conviction under Section 138. It was noted that although section 148 complements provisions of section 143A, no separate objects or reasons were provided for its addition.

In the context of the instant case, the inclusion of the word ‘may’ indicate discretionary powers and it was imperative to consider the legislative intent behind section 143A and the nature of the power. However, the Supreme Court held that the nature of the powers dealt with in section 143A (1) was discretionary, and not mandatory. This meant that it was within the trial court’s powers to grant interim compensation. 

The Supreme Court highlighted that this power cannot be used in cases where the accused has pled not guilty.  Such cases are typically tried under CrPC since the maximum punishment for offences under Section 138 is imprisonment for up to 2 years. Nevertheless, if it appears that a sentence of imprisonment of more than one year might be required for valid reasons, the procedure prescribed by CrPC must be followed even though section 143(1) of the NI Act mandates that the Magistrate should try the complaint using a summary procedure, circumventing specific provisions of CrPC.

Such instances occur when a complaint under section 138 transforms into a summons case. Recovery of compensation is allowed under section 143A (5) akin to a fine under section 421 of CrPC.  The accused’s right to defend himself is not negated by the failure of payment of interim compensation. However, failure to pay the interim compensation may result in adverse consequences such as deprivation of one’s property. The accused cannot reclaim sold property even if he gets acquitted. It was held that interim compensation can be imposed prior to the establishment of guilt of the accused, as allowed by Section 143A. The interpretation of ‘may’ as ‘shall’ in the context of the provision of section 143A was condemned by the Court as such interpretation would result in every accused having to pay interim compensation regardless of guilt.

Consequently, leading to a potential violation of the principles of Article 14 of the Constitution.  The Supreme Court held that the deposit of Rs. 10,00,000/- mandated by the trial court lacked thorough consideration of the prima facie case and other pertinent factors in the instant case. Even if the ordered compensation amounted to less than 5% of the cheque value, the order was passed without due deliberation. Additionally, the High Court’s assessment also fell short according to the Supreme Court. 

Thereby the Court instructed the trial court to re-evaluate the interim compensation application. Meanwhile, the Trial Court was asked to retain the deposited amount of Rs. 10,00,000/- until the resolution of the case. An appropriate order is to be passed by the Trial Court upon disposal of the case regarding the refund, withdrawal, or further investment of the aforementioned amount.


This Judgement by the Honourable Supreme Court underscores significant aspects of the amendment to the Negotiable Instruments Act, particularly Sections 143A and 148, aimed at curbing delays caused by dishonoured cheque cases. The ruling clarified the discretionary nature of the powers conferred under Section 143A (1) for interim compensation orders, emphasizing that these powers are not mandatory and should not override the accused’s right to defend in cases where guilt is not established. The Court rejected interpreting ‘may’ as ‘shall’ in Section 143A to avoid potential constitutional violations under Article 14. The judgment addressed the need for a reasoned evaluation before imposing substantial interim compensation amounts in alignment with legal principles and the specific case’s circumstances, guiding on the subsequent handling of the deposited sum pending case resolution.





Order dated 15th March 2024