Whether provisions of Section 143A of NIA, 1881 is prospective or retrospective

SURINDER SINGH DESWAL @ COL S S & ORS VS VIRENDER GANDHI (2020)
Criminal Appeal No. 1936-1963 of 2019
The Supreme Court of India

As you are aware the Negotiable Instruments Act,1881 is an Act to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques.

"PROMISSORY NOTE." - A "Promissory note" is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.

"CHEQUE". - A "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

It means a negotiable instrument is a piece of paper that entitles a person to pay a sum of money that is transferable from one person to another by endorsement and delivery. The main objective before introducing the Negotiable Instrument Act, 1881 is to legalize the system under which these instruments can deliver from one person to another the same as that of ordinary goods.

These instruments help in avoiding the carriage of hefty amounts and reduce the risk of theft or robbery. The Negotiable Instrument Act was amended and introduced two new provisions, Section 143A and Section 148 to deal with the delay tactics of drawers of dishonored cheque due to easy filing of the appeal and obtaining stay on the proceedings which leads to the enforcement of Section 138 of the Act.

The amendment came into force on 1st September 2018.

Section 143A and Section 148 are discussed in detail. 

OVERVIEW OF THE ACT

The Negotiable Instrument Act, 1881 came into existence to define and amend the laws related to the promissory notes, bills of exchange, and cheques. In India, there is always a problem of pending cases in the court and almost 20% of cases are related to the cheque dishonor dispute under Section 138 of the Negotiable Instrument Act, 1881.

The Central government through the Negotiable Instrument (Amendment) Act of 2018 has inserted several new provisions. The amendment of the Act helps in addressing the issues of undue delay, efficacy, and efficiency in the case related to the dishonor of cheques.

From Section 143A and 148 of the Act, the court has the power to direct the drawer to provide interim compensation during the pendency of criminal complaints and civil appeals. The recovery of fine shall be the same as under Section 421 of the Code of Criminal Procedure, 1973, and in case of acquittal court is empowered to direct the complainant to repay the amount as per the interest rate prescribed by the Reserve Bank of India (RBI) .

SECTION 143A OF NIA,1881

Power to direct interim compensation-

(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the Court trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant-

(a) in a summary trial or summon case, where the drawer pleads not guilty to the accusation made in the complaint; and

(b) in any other case, upon framing charges.

(2) The interim compensation under sub-section (1) shall not exceed twenty per cent of the amount of the cheque.

(3) The interim compensation shall be pad within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque.

(4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial years, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.

(5) The interim compensation payable under this section may be recovered as if it were a find under section 421 of the Code of Criminal Procedure, 1973 (2 of 1974). (6) The amount of fine imposed under section 138 or the amount of compensation awarded under section 357 of the Code of Criminal Procedure, 1973 (2 of 1974).

SECTION 148 OF ACT

This Section talks about the interim compensation at the appellant stage. As per Section 148, the appellate court may direct the drawer in an appeal against conviction under Section 138 to deposit before the appellate court a part of fine or compensation as an award by the trial court which shall be a minimum of 20% of the fine or compensation within 60 days from the date of order passed by the appellant court or further within the period of not exceeding 30 days directed by the appellant on showing sufficient cause by the drawer. It provides the deposit of sum which shall be a minimum of 20% of fine or compensation awarded by the trial court has retrospective effect.

ISSUES

1. Whether the Sessions Court was justified to direct the appellants to deposit Rs.9,40,24,999/- under Section 148 NI Act?
2. Do Sections 143A and 148 of the NI Act have a retrospective effect?

BRIEF FACTS

1. Appellants no.1 and 2 along with the respondent were partners of a firm called GLM Infratech Pvt. Ltd.
2. A cheque was issued by the appellants to the respondent on 31.03.2014, amounting to Rs. 45,84,915/- as a part payment on his retirement dues.
3.  Similarly, 63 other cheques were also issued for the same transaction mentioned above in favour of the respondent.
4. However, on 06.04.2015, when the respondent deposited the cheque, it was dishonored along with the other 63 cheques on account of insufficient funds.
5. Subsequently, the respondent filed a complaint under Section 138 of the Negotiable Instrument Act, 1881 (NI Act) before the Judicial Magistrate of the First Class.
6. 28 complaints were filed in total against the two appellants.
7. On 13.11.2018, both the appellants were found guilty under Section 138 NI Act and sentenced to 2 years of imprisonment.
8. The Magistrate also directed the appellants to pay the entire amount involved in the case of dishonor of total 64 cheques and plus 1% of the entire amount as interest and litigation expenses.
9. The appellants, aggrieved by this, appealed to the Sessions Court under Section 389 CrPC for suspension of the sentence.
10. The Sessions Court agreed to suspend their sentence till the pendency of the appeal, on a condition that they furnish a bail bond and surety bond of Rs.50,000/- and also deposit Rs.9,40,24,999/- (i.e., 25% of compensation amount decided by the trial court) that is to be paid to the complainant, before 28.01.2019.
11. In response, the appellants approached before the High Court of Punjab and Haryana under Section 482 CrPC against the order of Sessions Court to deposit Rs.9,40,24,999/-. Nevertheless, the appeal was dismissed.
12. Hence, the appellants, invoking Article 136, moved to the Supreme Court of India.

ARE SECTIONS 143 A AND 148 RETROSPECTIVE OR PROSPECTIVE 

The first case to discuss this issue is Ginni Garments & another v. Sethi Garments (2019), the Punjab and Haryana High Court held that Section 143A of the Negotiable Instrument Act has prospective effect whereas Section 148 has retrospective effect and will apply to the pending appeals on the date of enforcement of the provision.

The reason was given by the Court to hold Section 143A as prospective were

• The amended provision provides for enforcement of recovery of interim compensation by way of the coercive procedure and creates the obligation of the accused. 
• By virtue of interim compensation if a person is not having the means to pay such a hefty amount the consequences under this Section will be devastating, irrevocable, and irreparable.

That's why this Section should be prospective as it aware the accused of such consequences in advance and it cannot be applied to the cases where the trial is going on when this provision is not existing.

Section 148 is retrospective and the reason given by the Court is

• The provision of recovery of fine or compensation from the appellant already exists in the existing procedure relating to recovery therefore the Section 148 of the Act has to be treated purely as a procedural which is also beneficial for the appellant. 
• Therefore, the provision of this Section shall govern all the appeals pending on the date of enforcement of Section 148 of the Act.

JUDGEMENT

1. The learned counsel for the appellant challenged the order of the lower court directing them to pay 25% of the compensation amount. He said that the order of the lower court is invalid because the cheque was dishonored in the year 2015 and Section 143A and 148 NI Act were inserted into the Act by an amendment in the year 2018 and they have a prospective effect only.

2. To prove his point he relied upon G.J. Raja vs. Tejraj Surana (2019).

The Hon'ble Supreme Court in G. J. Raja Vs. Tejraj Surana, has examined the amended Section 143A of the Act, 1881 and held that it is prospective effect and not retrospective effect. The relevant para of the judgment is reproduced below: -

"19. It must be stated that prior to the insertion of Section 143-A in the Act there was no provision on the statute book whereunder even before the pronouncement of the guilt of an accused, or even before his conviction for the offence in question, he could be made to pay or deposit interim compensation. The imposition and consequential recovery of fine or compensation either through the modality of Section 421 of the Code or Section 357 of the code could also arise only after the person was found guilty of an offence.

That was the status of law which was sought to be changed by the introduction of Section 143A in the Act. It now imposes a liability that even before the pronouncement of his guilt or order of conviction, the accused may, with the aid of State machinery for recovery of the money as arrears of land revenue, be forced to pay interim compensation. The person would, therefore, be subjected to a new disability or obligation. The situation is thus completely different from the one which arose for consideration in ESI Corpn. v. Dwarka Nath Bhargwa, (1997) 7 SCC 131.

23. In the ultimate analysis, we hold Section 143A to be prospective in operation and that the provisions of said Section 143A can be applied or invoked only in cases where the offence under Section 138 of the Act was committed after the introduction of said Section 143A in the statute book. Consequently, the orders passed by the Trial Court as well as the High Court are required to be set aside. The money deposited by the Appellant, pursuant to the interim direction passed by this Court, shall be returned to the Appellant along with interest accrued thereon within two weeks from the date of this order."

Therefore, the word "may" be treated as "shall" and is not discretionary, but of directory in nature, therefore, the learned Judicial Magistrate First Class has rightly passed the interim compensation in favour of the complainant.

3. He further contended that failure to deposit 25% of the amount of compensation will not lead to the end of the order suspending the sentence. On the other hand, he said the respondents have an open option to recover the amount according to the provision prescribed in Section 421 of CrPC.

4. After going through the facts of the case and listening to both the parties, the Supreme Court rejected all the contentions of the appellants. Based on the 'statements of object and reasons' of the NI Act, it was quite evident that a purposive interpretation of this Section was required, otherwise, it would defeat its object and purpose. It held that the object of the legislation was to give Section 148 a retrospective effect. It also said that the case of G.J. Raja does not help the appellants.

5. Apart from this, Section 143A makes a provision for interim compensation. It said that it applies at the trial stage that is even before the pronouncement of guilt or order of conviction.

6. Hence, if the accused is found innocent, the drawer has to pay back the interim compensation he has received.

7. The Apex Court held that this provision was made with the intention to have a prospective effect. On the second contention, the Supreme Court upheld the order of the High Court and clearly stated that if the appellant fails to deposit 25% of the amount of compensation to the complainant, then the order of suspension of sentence shall be deemed to have been vacated.

8. Hence, a legal proposition was established that when a suspension of sentence is granted by a trial court on a condition, then non-compliance with that condition will result in the suspension of the sentence.

POWER TO GIVE INTERIM COMPENSATION OR RELIEF IS DIRECTORY AND NOT DISCRETIONARY

PLEASE NOTE THAT: The Hon'ble High Court in (Rajesh Soni Vs Mukesh Verma (Chhattisgarh High Court) present facts of the case after interpreting the word 'may' have held that granting of 20% compensation under Section 143A of the Negotiable Instruments Act, 1881 is totally valid as the said provision is not discretionary in nature.

THE COURT WHILE DECIDING ABOVE CASE CONSIDERED BELOW MENTIONED CASES

1. As held by Hon'ble Madras High Court in G.R. Enterprises & another Vs. P. Anbazhagan, and drew attention of this Court towards para 18 of the judgment, which reads as under: -

"18. A careful reading of the order passed by the Court below shows that the Court below has focused more on the issue of the prospective / retrospective operation of the amendment. The Court has not given any reason as to why it is directing the accused persons to pay an interim compensation of 20% to the complainant. As held by this Court, the discretionary power that is vested with the trial Court in ordering for interim compensation must be supported by reasons and unfortunately in this case, it is not supported by reasons. The attempt made by the learned counsel for the respondent to read certain reasons into the order, cannot be done by this Court, since this Court is testing the application of mind of the Court below while passing the impugned order by exercising its discretion and this Court cannot attempt to supplement it with the reasons argued by the learned counsel for the respondent."

2. The Hon'ble Supreme Court, while examining 'may' used (in Section 143A) 'shall' and have effect of directory in nature in case of Bachahan Devi & another Vs. Nagar Nigam, Gorakhpur & another, which reads as under: -

"18. It is well-settled that the use of word "may" in a statutory provision would not by itself show that the provision is directory in nature. In some cases, the legislature may use the word 'may' as a matter of pure conventional courtesy and yet intend a mandatory force. In order, therefore, to interpret the legal import of the word "may", the court has to consider various factors, namely, the object and the scheme of the Act, the context and the background against which the words have been used, the purpose and the advantages sought to be achieved by the use of this word, and the like. It is equally well-settled that where the word 'may' involve a discretion coupled with an obligation or where it confers a positive benefit to a general class of subjects in a utility Act, or where the court advances a remedy and suppresses the mischief, or where giving the words directory significance would defeat the very object of the Act, the word 'may' should be interpreted to convey a mandatory force. As a general rule, the word "may" be permissive and operative to confer discretion and especially so, where it is used in juxtaposition to the word "shall", which ordinarily is imperative as it imposes a duty. Cases however, are not wanting where the words "may" "shall", and "must" are used interchangeably. In order to find out whether these words are being used in a directory or in a mandatory sense, the intent of the legislature should be looked into along with the pertinent circumstances.

19. The distinction of mandatory compliance or directory effect of the language depends upon the language couched in the statute under consideration and its object, purpose and effect. The distinction reflected in the use of the word `shall' or 'may' depends on conferment of power. Depending upon the context, 'may' does not always mean may. 'May' is a must for enabling compliance of provision but there are cases in which, for various reasons, as soon as a person who is within the statute is entrusted with the power, it becomes [his] duty to exercise [that power]. Where the language of statute creates a duty, the special remedy is prescribed for non-performance of the duty."

20. If it appears to be the settled intention of the legislature to convey the sense of compulsion, as where an obligation is created, the use of the word "may" will not prevent the court from giving it the effect of Compulsion or obligation. Where the statute was passed purely in public interest and that rights of private citizens have been considerably modified and curtailed in the interests of the general development of an area or in the interests or removal of slums and unsanitary areas. Though the power is conferred upon the statutory body by the use of the word "may" that power must be construed as a statutory duty. Conversely, the use of the term 'shall' may indicate the use in optional or permissive sense. Although in general sense 'may' is enabling or discretional and "shall is obligatory, the connotation is not inelastic and inviolate." Where to interpret the word "may" as directory would render the very object of the Act as nugatory, the word "may must mean 'shall'.

21. The ultimate rule in construing auxiliary verbs like "may and "shall" is to discover the legislative intent; and the use of words `may' and 'shall' is not decisive of its discretion or mandates. The use of the words "may" and `shall' may help the courts in ascertaining the legislative intent without giving to either a controlling or a determinating effect. The courts have further to consider the subject matter, the purpose of the provisions, the object intended to be secured by the statute which is of prime importance, as also the actual words employed."

CONCLUSION

From above discussion and judgements of various High Courts it is clear that the provisions of Section 143A of the NIA,1881 will be applicable prospectively and provisions of Section 148 are applicable retrospectively. It is important to note that the power given to the court to award Interim Compensation to the applicant is Directory and not Discretionary. Since NIA,1881 had been implemented to create a culture of trust and honesty in business transactions while using negotiable instruments by the parties. Any act which falls under provisions of Section 138 of NIA ,1881 is a criminal offence and culprit may be punishable with an imprisonment of two years or double the amount of cheque involved or with both.

DISCLAIMER:  The case law produced above is only for information and knowledge of readers. The views expressed here are the personal views of the author and same should not be considered as professional advice. In case of necessity do consult with consultants.