15 March 2024 Negotiable Instruments Act >> Criminal Law  

The Indian courts recently interpreted the scope of a provision within the Negotiable Instruments Act (Section 143A(1)) that authorizes courts to grant interim compensation to complainants in dishonored cheque cases. Lower courts, in a series of cases, adopted a formulaic approach, ordering defendants to pay a predetermined sum as interim compensation without conducting a nuanced examination of the underlying claim's merits or the defendant's financial circumstances.

The Supreme Court intervened to rectify this misinterpretation. The court emphasized the discretionary nature of Section 143A(1), highlighting the use of the term "may" as indicative of judicial choice, not a mandatory directive. Furthermore, the court established a framework for exercising this discretion. Key factors to be considered include:

· An evaluation of the underlying claim's merits, balancing the strength of the complainant's case against the defendant's defense.

· The potential financial hardship an interim compensation order might impose on the defendant.

· The establishment of a prima facie case by the complainant, justifying the need for interim compensation.

· The plausibility of the defense presented by the defendant, which could serve as a basis for denying interim compensation.

· Determination of the quantum of compensation (if granted), considering factors like the nature of the underlying transaction and the relationship between the parties. Consideration of any other relevant aspects specific to the unique circumstances of each case.

  Negotiable Instruments Act, 1881