Section 143A NI Act not mandatory, interim compensation requires judicial discretion not automatic grant

Delhi HC held that Section 143A of the NI Act is not mandatory and interim compensation cannot be automatically granted. The trial court erred in ordering interim compensation without considering that respondent held security in form of flats and company's undertaking not to dispose property. HC ruled that Section 143A empowers courts to direct interim compensation only against the cheque drawer, not against company directors arrayed under Section 141. The impugned orders were set aside for incorrect legal appreciation and ignoring relevant considerations. Petition allowed.

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Issues Involved:

1. Applicability and interpretation of Section 143A of the Negotiable Instruments Act, 1881.
2. Whether the order directing interim compensation under Section 143A can be issued against persons other than the drawer of the cheque.

Summary:

Issue 1: Applicability and Interpretation of Section 143A of the NI Act

The petitions challenge orders directing interim compensation under Section 143A of the NI Act. The petitioners argue that Section 143A is discretionary, not mandatory, and the trial court must consider the facts of each case. They contend that the respondent already holds sufficient security in the form of flats and that the trial court should have stayed proceedings against them in the absence of the company, the prime accused.

The respondent argues that Section 143A should be treated as mandatory, citing various judgments. They claim the petitioners have been abusing the court process by not complying with the Consent Terms.

The court held that Section 143A is discretionary, not mandatory, as clarified by the Supreme Court in Rakesh Ranjan Shrivastava v. State of Jharkhand & Anr., 2024 SCC OnLine SC 309. The court must prima facie evaluate the merits of the case and the defense, considering factors like financial distress and the nature of the transaction. The trial court's orders did not reflect such consideration and were based on an incorrect interpretation of the law.

Issue 2: Interim Compensation Against Non-Drawers

The court noted that Section 143A empowers the court to direct interim compensation only against the "drawer of the cheque." In this case, the drawer is the company, not the petitioners, who are accused under Section 141 of the NI Act. Section 141 contains a deeming provision making certain persons liable for the company's offense but does not make them the drawer of the cheque.

The trial court's reliance on Section 141 to direct interim compensation against the petitioners was incorrect. The court cited Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1, and N. Harihara Krishna v. J. Thomans, (2018) 13 SCC 663, which clarify that only the drawer of the cheque is the offender under Section 138, and other persons are deemed guilty due to Section 141.

The court concluded that the trial court's orders were based on an incorrect appreciation of law and ignored relevant considerations. Therefore, the orders directing interim compensation against the petitioners were set aside.

Conclusion:

The petitions are allowed, and the impugned orders directing interim compensation under Section 143A of the NI Act are set aside. The court emphasized that Section 143A is discretionary and cannot be applied to persons other than the drawer of the cheque.

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