Section 148 of Negotiable Instruments Act, 1881 providing to deposit such sum which shall be a minimum of twenty per cent of the fine or compensation awarded by the trial Court Has Retrospective Effect.
The Negotiable Instruments Act, 1881 came into being as an Act to define and
amend the law relating to promissory notes, bill of exchange and cheques. The
main object behind Negotiable Instruments Act, 1881 was to legalise the system
under which Negotiable Instruments pass from one hand to other in negotiations
like ordinary goods. Mostly the English law is followed in case of the
Negotiable Instruments Act, 1881 except in the area where it was required in
Indian context to change the applicability. It has also been said that the law
of Negotiable Instruments is not the law of a single country but of the whole of
the commercial world and except for certain differences depending on
peculiarities existing in each country the general rules of the law is on the
same pattern in all the countries.
The earliest attempt to codify a law relating to mercantile uses was made in
France as early as in the year 1818 and the French Commercial Code was later
adopted as a model by many other countries. In England, the movement for such a
codification of law relating to mercantile uses materialized only in 1880 with
Bills of Exchange Act, 1882 and in India it came into existence in 1881. The law
in its more than 135 years of existence has been subjected to as many as 27
amendments and the most relevant one in present context being The Banking,
Public Financial Institutions and Negotiable Instrument Laws (Amending) Act,
1988 and the subsequent the Negotiable Instruments (Amendment and Miscellaneous
Provisions)Act, 2002 and the last one being Negotiable Instruments (Amendment)
Act, 2015 with retrospective effect from 15/6/2015.
Out of the three specific type of instruments referred in the Negotiable
Instruments Act namely the promissory note bill of exchange and cheques it was
only the Cheques which became one of the most common instruments for trade and
commerce because of certainty and convenience.
Negotiable Instruments (Amendment) Bill of 2017
With the objective of reducing delay in proceedings pertaining to dishonour of
cheques and to provide interim relief to the payee in such cases, the Negotiable
Instruments (Amendment) Bill of 2017 was tabled before the Lok Sabha on Tuesday.
The Central Government has been receiving several representations from the
public, including the trading community, relating to the pendency of cheque
bounce cases. The same may be imputed to the delay tactics adopted by
unscrupulous drawers of dishonoured cheques on account of the ease of filing of
appeals and obtaining stay on proceedings. As a result of this, injustice is
caused to the payee of a dishonoured cheque who has to spend considerable time
and resources in court proceedings to realise the value of the cheque. Such
delays compromise the sanctity of cheque transactions.
As per the Statement of Objects and Reasons of the Bill of 2017, the Negotiable
Instruments Act of 1881 is proposed to be amended with a view to address the
issue of undue delay in final resolution of cheque dishonour cases so as to
provide relief to payees of dishonoured cheques and to discourage frivolous and
unnecessary litigation which would save time and money”. Further, it is expected
that “the proposed amendments will strengthen the credibility of cheques and
help trade and commerce in general by allowing lending institutions, including
banks, to continue to extend financing to the productive sectors of the economy.
The Amendment Bill inserts a new Section 143-A in the Act of 1881, making
provision for the payment by the drawer of the dishonoured cheque to the payee
thereof of interim compensation of an amount not exceeding 20% of the value of
the instrument during the pendency of proceedings for the offence of dishonour
under Section 138 of the Act (a) in a summary trial or a summons case, where the
drawer pleads not guilty to the accusation made in the complaint; and (b) in any
other case, upon framing of charge.
The said interim compensation has to be paid within a period of 60 days from the
date on which the order to that effect is made. The interim compensation so
recovered shall be deductible from the amount of fine imposed under Section 138
by the Magistrate upon conviction of the drawer or any compensation directed to
be paid under Section 357 of the Cr. P. C. Section 138 of the Act of 1881
provides for imposition of a sentence of imprisonment not exceeding a period of
2 years or fine extending to twice the amount of the dishonoured cheque or both.
The said amount of interim compensation may be recovered in the manner provided
under section 421 of Cr. P. C – by way of attachment and sale of any movable
property of the drawer or a warrant to the Collector of the concerned district
to recover the same as arrears of land revenue from the movable or immovable
property of the drawer.
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 year. Further, the Bill provides for the insertion of Section
148 in the Act of 1881 where under, in an appeal by the drawer against
conviction under Section 138, the appellate court is empowered to order the
appellant to deposit such sum which shall be a minimum of 20% of the fine or
compensation awarded by the trial court. The amount so payable shall be in
addition to any interim compensation paid by the appellant under Section 143A.
Also, the same has to be deposited within a period of 60 days from the date of
order in this behalf.
Indian courts are riddled with the humongous problem of pending cases. As per
the 213th Report of the Law Commission almost 20% of the pending litigation
pertains only to cheque dishonor disputes under Section 138 of the Negotiable
Instruments Act, 1881.
The prosecution and recovery mechanism under Sections 138 to 142 of the Act was
introduced by the 1988 Amendment with the objective of deterrence for enhancing
credibility of cheque issuances in business transactions. The intent of the
Legislature was to deter dishonest Drawers with the consequences of criminal
trial if they were to issue cheques with the intention to defraud. Over time,
the complex judicial procedures have been manipulated by unscrupulous Drawers to
their advantage which has severely marred this objective, although, apparently
there has been constant judicial effort to iron out the irregularities as
evident from various judgements of the Hon'ble Supreme Court of India.
In the wake of current scenario, The Negotiable Instruments (Amendment) Act,
2018 passed by both the Houses (Lok Sabha on July 23, 2018; Rajya Sabha on July
26, 2018; and notified on August 02, 2018) has come as a breather for the
aggrieved Drawees. Non-payment because of cheque dishonor contribute majorly
towards business inconsistencies leading not only to an cash flow, but also
chain of inconveniences/incalculable losses forced upon them involuntarily.
Further, delayed justice owing to lengthy court procedures add to the woes.
Therefore, the Amendment Act aims to give potency in enforcing quick relief and
to act as a deterrent for future cases by enhancing credibility of cheques as a
negotiable instrument. Briefly, following are the key features of the latest
2018 amendment vide the added Sections 143-A and 148:
* Interim compensation to Drawee up to 20% of the cheque amount in case of
either summary trial or summons case where the Drawer pleads not guilty;
* In addition to the above amount, if the Drawer appeals against the
compensation awarded by the trial court to the Drawee, the appellate court can
further order minimum of 20% of the awarded amount to be deposited/released to
the Drawee; and
* In both (1) and (2), the amount is to be deposited within 60 days of the
courts order, extendable by another 30 days subject to courts satisfaction.
A very pertinent feature of this interim compensation is that at the courts
discretion it may be also recovered as if it were a fine under Section 421 of
the Code of Criminal Procedure, 1973 implying that the courts have the power to
issue a warrant for attachment and sale of any moveable property belonging to
the offender (Drawer); or issue a warrant to the District Collector to realise
the amount as arrears of land revenue from the moveable/immoveable property of
the defaulter (Drawer).
Unquestionably, the added clauses, that is, Sections 143-A and 148 give teeth to
the existing scheme of Sections 143 to 147, which in effect is a departure from
the provisions of the Code of Criminal Procedure, 1973 and the Indian Evidence
Act, 1872. Currently, the courts are empowered to try the cheque dishonour cases
as a Summary Trail (i.e. to be tried by a Judicial Magistrate of the First Class
or Metropolitan Magistrate and empowered to sentence imprisonment for a term not
exceeding one year and an amount of fine not exceeding Rs 5000).
This is except where the Magistrate believes that owing to the nature of the
case, sentence of imprisonment for a term exceeding one year may have to be
passed. Even then the Magistrate can still choose to continue the trial, but as
a regular Summons Case (that is, those bearing sentence imprisonment up to two
years) under the Criminal Procedure Code.
Further, in either of the cases the courts are mandated to conduct the trail on
day to day basis until conclusion and which must be endeavoured to be concluded
within six months from the date of filing of the complaint.
The combined effect of Sections 143 and 143-A would mean that, not only the
Drawee can impress and urge upon the trial court to expect a speedy trial but
also to grant an interim compensation of 20% of amount of cheque as a partial
recovery. Later, if the Drawer goes for appeal, the appellate court under
Section 148, can further order minimum of 20% of the awarded amount to be
deposited/released to the Drawee.
Thus, the Drawer of the cheque is made liable to prosecution and partial payment
upon dishonour of the cheque implying that the provisions are punitive as well
as compensatory, that is, the punitive aspect leading to compensation. It can be
ascertained that the Legislature has made a remarkable move by bringing this
amendment in the interest of speedy justice.
In an important Judgment passed by Hon'ble Supreme Court of India in Criminal
Appeal Nos. 914-944 of 2019 (arising out of SLP (Criminal) Nos. 4948-4975 of
2019 titled Surinder Singh Deswal @ Col. S. S. Deswal Vs Virender Gandhi, held
that Section 148 of the Negotiable Instruments Act, 1881 as amended, shall be
applicable in respect of the appeals against the order of conviction and
sentence for the offence under Section 138 of the Negotiable Instruments Act,
1881even in a case where the criminal complaints for the offence under Section
138 of the Negotiable Instruments Act, 1881were filed prior to 2018 Amendment
Act i.e prior to 01.09.2018. The Bench comprising Hon'ble Mr. Justice M. R. Shah
& Hon'ble Mr. Justice A. S. Bopanna upheld First Appellate Court Judgment that
had directed the appellants - convicts to deposit 25% of the amount of
fine/compensation awarded by Trial Court. (This First Appellate Court order was
later on confirmed by Punjab & Haryana High Court.) Section 148 of the
Negotiable Instruments Act, 1881introduced Vide amendment in 2018to direct the
accused/appellant to deposit minimum of 20% of fine or compensation awarded by
the Trial Court.
In Surinder Singh Deswal @ Col. S. S. Deswal Vs Virender Gandhi, the
issue considered by Hon'ble Supreme Court was whether the First Appellate Court
was justified in directing the appellants - original accused, who have been
convicted for offence under Section 138 of the Negotiable Instruments Act, 1881
to deposit 25% of the amount of fine/compensation awarded by Learned Trial
Court, pending appeals challenging the order of conviction and sentence and
while suspending the sentence under Section 389 of the Criminal Procedure Code,
considering the Section 148 of the Negotiable Instruments Act, 1881 amended?
Explaining the object of 2018 amendment, the Bench said that it is because of
delaying tactics of unscrupulous drawers of dishonoured cheques due to easy
filing of appeals and obtaining stay on proceedings, the Parliament thought it
fit to amend Section 148 of the Negotiable Instruments Act, 1881. The Hon'ble
Bench added that by amendment, it cannot be said that any vested right of the
appeal of the accused - appellant has been taken away and/or affected. It
Therefore, considering the Statement of Objects and Reasons of the amendment in
Section 148 of the N.I. Act stated hereinabove, on purposive interpretation of
Section 148 of the N.I. Act as amended, we are of the opinion that Section 148
of the N.I. Act as amended, shall be applicable in respect of the appeals
against the order of conviction and sentence for the offence under Section 138
of the N.I. Act, even in a case where the criminal complaints for the offence
under Section 138 of the N.I. Act were filed prior to amendment Act No. 20/2018
i.e., prior to 01.09.2018. If such a purposive interpretation is not adopted, in
that case, the object and purpose of amendment in Section 148 of the N.I. Act
would be frustrated. Therefore, as such, no error has been committed by the
learned first appellate court directing the appellants to deposit 25% of the
amount of fine/compensation as imposed by the learned trial Court considering
Section 148 of the N.I. Act, as amended.
Appellate Court Has Power to Direct Deposit of Minimum of 20% Fine/Compensation
Awarded by The Trial Court.
Another contention made before the bench was that, as per Section 357 (2) of the
Cr. P. C., no such fine is payable till the decision of the appeal and therefore
the first appellate Court ought not to have passed any order directing the
appellants to deposit 25% of the amount of fine/compensation, pending appeal/s.
Reliance was placed on the judgment in Dilip S. Dhanukar Vs Kotak Mahindra
Bank, rejecting this plea, the Bench said:
The opening word of amended Section 148 of the N.I. Act is that
notwithstanding anything contained in the Code of Criminal Procedure…...
Therefore irrespective of the provisions of Section 357(2) of the Cr. P. C.,
pending appeal before the first appellate court, challenging the order of
conviction and sentence under Section 138 of the N.I. Act, the appellate court
is conferred with the power to direct the appellant to deposit such sum pending
appeal which shall be a minimum of 20% of the fine or compensation awarded by
the trial Court.
Not To Direct To Deposit By The Appellate Court Is An Exception For Which
Special Reasons Are To Be Assigned;
Yet another contention raised in this case was based on the word may used in
Section 148 of the N.I. Act. The provisions states that the appellate Court may
order the appellant to deposit such sum which shall be a minimum of 20% of the
fine or compensation awarded by the trial Court. It was contended that since the
word used is not shall, the discretion is vested with the first appellate
court to direct the appellant – accused to deposit such sum and the appellate
court has construed it as mandatory, would be contrary to the provisions of
Section 148 of the N.I. Act as amended. The bench observed:
Considering the amended Section 148 of the Negotiable Instruments Act, as a
whole to be read with the Statement of Objections and Reasons of the amending
Section 148 of the Negotiable Instruments Act, though it is true that in amended
Section 148 of the Negotiable Instruments Act, the word used is may, it is
generally to be construed as a rule or shall and not to direct to deposit by the
appellate court is an exception for which special reasons are to be assigned.
The Court further observed:
Therefore amended Section 148 of the Negotiable Instruments Act confers upon the
Appellate Court to pass an order pending appeal to direct the Appellant-Accused
to deposit the sum which shall not be less than 20% of the fine or compensation
either on an application filed by the original complainant or even on the
application filed by the Appellant-Accused under Section 389 of the Cr. P. C to
suspend the sentence. The aforesaid is required to be construed considering the
fact that as per the amended Section 148 of the Negotiable Instruments Act, a
minimum of 20% of the fine or compensation awarded by the trial court is
directed to be deposited and that such amount is to be deposited within a period
of 60 days from the date of the order, or within such further period not
exceeding 30 days as may be directed by the appellate court for sufficient cause
shown by the appellant. Therefore, if amended Section 148 of the Negotiable
Instruments Act, 1881 is purposively interpreted in such a manner, it would
serve the Objects and Reasons of not only amendment in Section 148 of the
Negotiable Instruments Act, 1881 but also Section 138 of the Negotiable
Instruments Act, 1881. The Negotiable Instruments Act, 1881 has been amended
from time to time so as to provide, inter alia, speedy disposal of cases
relating to the offence of the dishonour of cheques. So as to see that due to
delay tactics by the unscrupulous drawers of the dishonoured cheques due to easy
filing of the appeals and obtaining stay in the proceedings, an injustice was
caused to the payee of a dishonoured cheque who has to spend considerable time
and resources in the court proceedings to realize the value of the cheque and
having observed that such delay has compromised the sanctity of the cheque
transactions, the Parliament has thought it fit to amend Section 148 of the
Negotiable Instruments Act, 1881. Therefore, such a purposive interpretation
would be in furtherance of the Objects and Reasons of the amendment in Section
148 of the Negotiable Instruments Act, 1881 and also Section 138 of the
Negotiable Instruments Act, 1881.
Is Section 143-A of the Negotiable Instruments Act, 1881 Retrospective?
Though the Punjab & Haryana High Court had held that the Section 143-A of the
Negotiable Instruments Act has no retrospective effect, whereas, the Section 148
will apply to the appeals pending on date of enforcement of this provision, the
seminal issue as to Whether Section 143-A introduced by the Amendment Act of
2018 in the Negotiable Instruments Act, 1881 has retrospective application or
not?, is pending consideration before the Hon'ble Supreme Court of India in
Special Leave to Appeal (Crl.) No.3342/2019 (arising out of impugned final
judgment and order dated 08-02-2019 in CRLOP No.3406/2019 passed by the High
Court Of Judicature At Madras) in G. J. Raja Vs Tejraj Surana, wherein,
the Bench comprising Hon'ble Mr. Justice Uday Umesh Lalit & Hon'ble Ms. Justice
Indu Malhotra issued notices to State of Tamil Nadu on April 15, 2019.
Though insertion of the penal provisions have helped to curtail the issuance of
cheques light heartedly or in a playful manner or with a dishonest intention and
the trading community now feels more secured in receiving the payment through
cheques. After going through the above discussions it is amply clear that it is
not the case that there is no provision for recovery of the amount covered under
the dishonoured cheque, in a case where accused is convicted under Section 138
and the accused has served the sentence but, unable to deposit amount of fine,
it is also not the case that the only option left with the complainant is to
file civil suit. The provisions of the Act do not prohibit any other alternative
method of realization of the amount due to the complainant on the cheque being
dishonored for the reasons of insufficient fund in the drawer’s account
but the provisions of law as discussed in Meters & Instruments Private
Limited & Another Vs. Kanchan Mehta, (2018) 1 SCC 560 and Dayawati Vs
Yogesh Kumar Gosain, 2017 SCC Online Delhi 11032 show that the criminal
courts are empowered to get even the amount awarded as compensation recovered.
The proper course to be adopted by the complainant in such a situation should be
by filing an application before the same court for recovery of fine under
Section 412 or 431 Cr. P. C. as the case may be but filing of suit before the
competent civil court, for realization/ recovery of the amount due to him for
the reason of dishonoured cheque may not be required.
Written by: Dinesh Singh Chauhan, Advocate - J&K High Court of
Email: [email protected], [email protected]
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