Negotiable Instruments Act cases: A further tilt towards the ‘civil sheep’

Given the fact that a S.138 proceeding is in the nature of a civil proceeding, should not the principles of civil jurisprudence apply, particularly for payment of interim compensation?
Cheque book
Cheque book

In 2018, Parliament amended the Negotiable Instruments Act, 1881 (NI Act) to insert Section 143A, which empowers the magistrate to order interim compensation in favour of the complainant who would have approached the magistrate complaining of cheque dishonour under Section 138 of the said Act.

Sub-section (1) of Section 143A stipulates that the magistrate trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant, where he pleads not guilty to the accusation made in the complaint. Sub-section (2) prescribes that the interim compensation shall not exceed 20% of the amount of the cheque. The amount of interim compensation can be recovered as if it were a fine under Section 421 of the Code of Criminal Procedure, as per sub-section (5) of Section 143A.

What prompted the Parliament to insert S.143A - as can be found in the Statement of Object and Reasons to the Amendment Act, 2018 - is the undue delay in the resolution of cheque dishonour cases. In order to address the injustice caused to the payee by the delay in realizing the value of the cheque, Parliament thought it fit to empower the magistrate to grant interim compensation of up to 20% of the value of the cheque.  

S.143A does not provide any guidelines on how the magistrate could exercise his discretion. Practice has shown that in the absence of any guidelines on exercise of discretion, magistrates ordered interim compensation on the mere ground of the accused pleading not guilty. On the quantum of compensation too, there was no clarity on whether the magistrate has any discretion to order interim compensation lesser than 20% of the cheque amount. In interpreting whether the grant of interim compensation under S.143A was discretionary or mandatory, the opinion of High Courts has been varied.

While the Chhattisgarh High Court held in Rajesh Soni v. Mukesh Verma that the provision is mandatory in nature, the Delhi High Court in JSB Cargo & Freight Forwarding Pvt Ltd v. State held that S.143A is not mandatory, but directory in nature. Earlier, the Madras High Court had held in LGR Enterprises v. P Anbazhagan that the magistrate has to record reasons for exercising jurisdiction under S.143A.

The vacuum in judicial pronouncements on how the magistrate should exercise his discretion was ended by a pathbreaking judgment of the Karnataka High Court in the case of Krishnamurthy v. Dairy Classic Ice Creams. Taking a cue from the Statement of Objects and Reasons of the amending Act, the Karnataka High Court laid down a two-fold test for the exercise of discretion by the magistrate. At the first fold, it was held that the magistrate should find out if the accused has caused any delay in the proceedings and then decide if at all it is necessary to exercise the discretion. Once the magistrate decides to exercise his discretion, then, the second fold kicks in; and in determining the quantum of the compensation the magistrate has to take into account the conduct of the accused.

While the Karnataka High Court laudably examined the contours of S.143A in the light of the Statement of Objects and Reasons of the amending Act, there is yet another angle of examination from the perspective of enforcement of a civil right, and that is what this article aims to do.

In P Mohan Raj v. Shah Brother Ispat Pvt Ltd, the Supreme Court examined the nature of proceedings under Chapter XVII of the NI Act. Referring to the deeming provision in S.138, the Court noted that the legislature is cognizant of the fact that what is otherwise a civil liability is deemed to be an offence, and that the transaction spoken about is a ‘commercial transaction’, which involves payment of money for a debt or liability. Referring to the presumption in S.139, the Court held that the presumption could be rebutted by adducing facts on the preponderance of probabilities (and not beyond reasonable doubt). The Court also noted that mens rea is not an ingredient of the offence and that the expression ‘cause of action’ is used in S.142, although it is a foreigner to criminal jurisprudence. 

After identifying various ‘civil jurisprudence’ elements, the Court eventually held that a S.138 proceeding can be said to be a ‘civil sheep’ in a ‘criminal wolf’s’ clothing. With the said disposition of law by the Supreme Court, there can be no doubt that a S.138 proceeding is fundamentally a civil proceeding, conducted by a Magistrate in a criminal proceeding.

Given the fact that a S.138 proceeding is in the nature of a civil proceeding, meant primarily for enforcement of a civil right, should not the principles of civil jurisprudence apply, particularly when dealing with payment of interim compensation under S.143A, which is a recompense for loss in a commercial transaction? If the answer is in the affirmative, which it should be, that would lead us to the next logical question – what are the civil jurisprudence principles that the magistrate should follow in exercise of the discretion for ordering interim compensation?  That question is best answered by raising another hypothetical question: if, in a suit for money recovery, the plaintiff was to make an application for a direction to the defendant to deposit a part of the claim amount, how would the civil court exercise its discretion? The settled position is that the civil court would have to find out if the plaintiff has made out a prima facie case of the liability. An evaluation of the documents produced by the plaintiff in support of his case would enable the court to make out if he has made out a prima facie case or not.

Applying the said time-tested and well-settled principle, in considering an application for grant of interim compensation, the magistrate could well examine the documents produced by the complainant in support of his case of the debt/liability and satisfy himself that a prima facie case of (i) the transaction between the complainant and accused and (ii) the corresponding liability of the accused arising from such transaction (through the cheque) is made out. Such an exercise can be done summarily without needing to conduct a mini or a regular trial.

In the absence of the 'prima facie case' test, the discretionary power in the hands of the magistrate can be exercised in an unbridled way. Considering that the amount of interim compensation can be recovered as if it were a fine, and that the non-payment can also lead to imprisonment, a time-tested principle like the ‘prima facie case’ test is essential to prevent incorrect use of the discretion, and thus prevent travesty of justice.

What lies beneath the criminal wolf’s clothing is a civil sheep, as has been held by the Supreme Court. Civil jurisprudence should apply to the civil sheep. The law developed thus far on Chapter XVII of the NI Act has tilted towards application of principles of civil jurisprudence to S.138 proceedings, which is best demonstrated by the Supreme Court’s observation in P Mohanraj that the principle of proof would be of ‘preponderance of probabilities’ and not ‘beyond reasonable doubt’.  Prescription of the ‘prima facie case’ test for exercise of discretion in ordering interim compensation under S.143A would, precisely, be in that direction.

Arvind Kamath is a Senior Advocate practising at the Karnataka High Court.

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