Interim Compensation U/S 143A NI Act Discretionary; Cannot Be Granted Mechanically: J&K&L High Court

The Court was hearing a petition challenging an order passed by the Trial Court directing payment of interim compensation at the rate of 10% of the cheque amount in proceedings under Section 138 of the Negotiable Instruments Act.

Justice Wasim Sadiq Nargal observed: “A plain reading of Section 143A of the Negotiable Instruments Act, 1881 makes it clear that the legislature has empowered the Court trying an offence under Section 138 of the Negotiable Instruments Act to award interim compensation to the complainant at a preliminary stage of the proceedings”.

While further stating that “the use of the expression 'may' in sub-section (1) confers a discretionary power upon the Court, meaning thereby that the grant of interim compensation is not automatic or mandatory in every case”, the Bench held that “the Court is required to exercise such discretion judiciously, upon consideration of the facts and circumstances of each case, and not in a mechanical manner”.

The respondent had instituted a complaint under Sections 138 and 142 of the Negotiable Instruments Act alleging dishonour of multiple cheques purportedly issued by the petitioner. Upon being summoned, the petitioner appeared before the Trial Court and denied the issuance of the cheques, specifically disputing the signatures and seeking forensic examination.

During the pendency of the proceedings, the respondent filed an application under Section 143A of the Act seeking interim compensation. The Trial Court allowed the application and directed payment of 10% of the cheque amount.

Aggrieved by the said order, the petitioner approached the High Court, contending that the order was passed mechanically without considering the defence raised and without recording reasons.

The High Court undertook a detailed examination of the scheme and scope of Section 143A of the Negotiable Instruments Act, 1881, and noted that the provision empowers the Court to grant interim compensation at a preliminary stage of proceedings in cases under Section 138.

It was further observed that “such power can be exercised in a summary trial or summons case when the accused pleads not guilty, and in any other case upon the framing of charge”, and that “the provision thus contemplates grant of compensation even before the conclusion of trial, with a view to address delay and provide immediate relief”.

The Court, however, emphasised that the provision is not mandatory in nature and vests discretion in the Court.

The Court further noted that a holistic reading of the provision reveals that while it aims to provide interim relief to the complainant, it simultaneously incorporates safeguards to prevent undue prejudice to the accused.

The Court clarified that “the scheme of Section 143A… mandates that before directing payment of interim compensation, the Court must prima facie evaluate the case set up by the complainant as well as the defense raised by the accused…”

The Court underscored that a direction to pay interim compensation cannot be issued as a matter of course and must be based on prima facie satisfaction that the complainant has made out a case warranting such relief.

The Court then examined the impugned order and found that the Trial Court had failed to undertake any such prima facie evaluation and had not recorded any reasons while directing payment of interim compensation. It noted that the order merely reproduced the statutory provision without reflecting any independent application of mind to the facts of the case.

The Court also observed that the Trial Court had failed to consider the defence raised by the petitioner, including the denial of signatures on the cheques, which constituted a relevant factor for the exercise of discretion.

Further, the Court examined the issue of quantum of interim compensation and held that the statute permits a range up to 20% of the cheque amount, thereby requiring the Court to justify the specific percentage awarded in a given case. It was observed that where a particular percentage, such as 10%, is awarded, the same must be supported by clear reasoning, failing which the order would be unsustainable.

The Court relied upon the decision of the Supreme Court in Rakesh Ranjan Shrivastava v. State of Jharkhand (2024) and reiterated that the exercise of power under Section 143A requires recording of reasons and consideration of relevant factors, including the merits of the case and the defence of the accused.

The Court also relied upon its earlier decision in Nazir Ahmad Chopan vs Abdul Rehman Chopan (2020) holding that “the discretionary power under Section 143A must be exercised on well-recognized principles and duly supported by reasons and Court has to spell out the reasons for grant of interim compensation in favour of the complainant and it has also to justify in its order with reasons the quantum of interim compensation that is being awarded by it, as the said quantum can vary from 1% to 20% of the cheque amount”.

On a cumulative assessment, the High Court held that the grant of interim compensation under Section 143A of the Negotiable Instruments Act must be based on a prima facie evaluation of the case and supported by reasons, and cannot be made in a routine or mechanical manner.

Accordingly, the Court quashed the impugned order and directed the Trial Court to pass a fresh order in accordance with law, after considering all relevant factors and recording reasons.

Case Title: Nargees Javaid v. Ghulam Jeelani Nengroo

Citation: 2026 LiveLaw (JKL)

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