navigation of interim compensation under section 143a of the Negotiable Instrument Act

Civil and Commercial Law General Civil Suits and Litigation

Posted by: Aditya Pratap Law Offices on 2024-07-19

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Section 13 of the Negotiable Instrument Act states that “A Negotiable Instrument means a Promissory Note, Bill of Exchange or Cheque payable either to order or to bearer”. The Negotiable Instrument Act governs the usage of these negotiable instruments between two parties.

Most payments are made in the form of Cheque, especially those of high amounts. Hence, the act of Dishonor of Cheque was common before 1988 when there was no law against it. The 1988 amendment of the Negotiable Instrument Act helped to control the Dishonoring of Cheque by specifying it as a criminal activity.

However, even after this first amendment, there were many loopholes in the act which led to different interpretations of the act by various high courts. To close these loopholes, the Negotiable Instrument Act was amended again in 2002 by inserting five new sections of the act. The new amendment came into force from the year 2003.

A complainant filed an application under Section 143A (Power given to the Courts to direct interim compensation to the Complainant) of the Negotiable Instrument Act, requesting the Hon’ble Court to direct the accused to pay 20% of the Cheque amount as interim compensation. This application was intertwined with an ongoing complaint under Section 138 Dishonour of cheque for insufficiency, etc., of funds in the account : 

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offense and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless--

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the Cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the Cheque, [within thirty days] of the receipt of information by him from the bank regarding the return of the Cheque as unpaid; and

(c) the drawer of such Cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice of the N.I. ACT for Cheque dishonor. 

Contention of the Complainant:

The Complainant asserted that because of the accused’s evasive behavior and due to miscommunication between both of them he has suffered significant mental distress and financial losses and has suffered a lot. The Default amount along with the interest remains unpaid causing him financial strain.

He also mentioned that as per the latest amendments in the said Act, the Court is empowered to direct the accused to deposit the interim compensation.

Defense by Accused:

The accused opposed the application given by the Complainant and said that the allegations made by the Complainant were false and defamatory.

He admitted taking a friendly loan with no interest of   Rs.55,00,000 in two installments and partially repaid it. According to the accused, the Complainant deposited a Cheque of Rs. 25,00,000 without considering repayments made and issued false notice. Also, he filed a civil suit against the Accused for the loan amount and interest.

Legal Arguments of Parties:

The Complainant denied the claims made by the Accused of the repayment claims stating that the loan carries an interest of 1% per month and the payments made by the Accused are for interest and not for the principal amount. Section 143A of the Negotiable Instrument Act provides power to the court to direct interim compensation to the complainant.

The Accused reiterated the stance and questioned the complainant’s money lending license and the legality of the notice. He also mentioned that Section 143A of the Act is discretionary and seeking both civil and criminal remedies simultaneously was improper. 

The court acknowledged the following key points:

1. The accused did not dispute the issuance of the Cheque or its dishonor due to insufficient funds.

2. The accused admitted to receiving a loan but claimed it was interest-free and partly repaid.

3. The complainant maintained that the loan was interest-bearing, and no repayment towards the principal was made.

Considering the prima facie under Section 138 it does not put on a bar to go for the criminal proceedings.

After considering all the facts presented by both parties the Court directed the accused to pay 10% of the Cheque amount as Interim Compensation to the complainant within 60 days.

It provides financial relief to the Complainant who often faces prolonged litigation and financial distress due to the dishonor of the Cheque.

The order given by the Court in the given case shows a balanced approach by ensuring justice, preventing undue hardship to the Complainant and providing timely relief to the parties.