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, 1881except 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 Negotiable Instruments Act, 1881in 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

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 Code of Criminal Procedure, 1973. 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.

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 Honble 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.

In an important Judgment passed by Honble Supreme Court of India in Criminal Appeal No. 1160 of 2019 @ SLP (Crl.) No. 3342 of 2019 titled G. J. Raja Vs Tejraj Surana:
Held that Section 143-A of the Negotiable Instruments Act, 1881 to be prospective in operation and that the provisions of said Section 143-A 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 143-A in the statute book.

Going by the facts as laid down in Criminal Appeal No. 1160 of 2019 @ SLP (Crl.) No. 3342 of 2019 titled G. J. Raja Vs Tejraj Surana, a Complaint under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the Act) being C. C.No.7171 of 2018 is presently pending against the Appellant before the IInd Fast Track Court - Metropolitan Magistrate, Egmore, Chennai. According to the complaint, two cheques issued by the Appellant in the sums of Rs.20,00,000/- and Rs.15,00,000/- in favour of the Respondent-Complainant were dishonoured on account of insufficiency of funds. The Complaint was lodged on 04.11.2016. With effect from 01.09.2018, Section 143-A of the Negotiable Instruments Act, 1881 was inserted in the Act by Amendment 20 of 2018.

Soon thereafter, the Trial Court ordered that 20% of the cheque amount be made over by the Appellant to the Respondent as interim compensation in accordance with the provisions of Section 143-A of the Act. Thus, the Appellant was directed to pay to the Respondent a sum of Rs.7,00,000/-. The Appellant being aggrieved, filed Criminal O. P. No. 3406 of 2019 before the High Court of Judicature at Madras. By its order dated 08.02.2019, the High Court found no illegality or infirmity in the order awarding interim compensation under Section 143-A of the Act but reduced the percentage from 20% of the cheque amount to 15% of the cheque amount.

The order of the High Court of Judicature at Madras was put to challenge in Criminal Appeal No. 1160 of 2019 @ SLP (Crl.) No. 3342 of 2019 titled G. J. Raja Vs Tejraj Surana, wherein, the Honble Supreme Court while issuing notice the Appellant directed him to deposit the sum so ordered by the High Court in the Trial Court. It was further directed that upon deposit, Court should invest the money in Fixed Deposit and that the money would not be made over to the Respondent till further orders.

Since the Respondent, despite having been served with the notice, had not entered appearance, the Honble Supreme Court by its Order dated 01.07.2019 requested Mr. Vinay Navare, Learned Senior Advocate to assist the Honble Supreme Court as Amicus Curiae.
Is Section 143-A of the Negotiable Instruments Act, 1881 Retrospective?

Retrospective laws are those in which the date of commencement is earlier than the enactment or which validates some invalid law. Corpus Juris defines it thus; Literally defined, a retrospective law is a law that looks backward or on things that are past; and a retroactive law is one that acts on things that are past. In common use, as applied to statutes, the two words are synonymous, and in this connection may be broadly defined as having reference to state of things existing before the act in question. A retrospective law in legal sense is one that takes away or impairs vested rights acquired under the existing laws or creates a new obligation, imposes a new duty or attaches a new disability in respect to transactions or considerations already past.

A reading of Section 143-A shows:
(i) interim compensation must not exceed 20% of the amount of the cheque;
(ii) it must be paid within the time stipulated under Sub-Section (3);
(iii) if the accused is acquitted, the complainant shall be directed to pay to the accused the amount of interim compensation with interest at the bank rate;
(iv) the interim compensation payable under said Section can be recovered as if it were a fine under Section 421 of the Code of Criminal Procedure, 1973 (‘the Code’, for short); and (v) if the accused were to be convicted, the amount of fine to be imposed under Section 138 of the Act or the amount of compensation to be awarded under Section 357 of the Code would stand reduced by the amount paid or recovered as interim compensation.

Since Sub-Section (5) of Section 143-A stipulates that the interim compensation could be recovered as if it were a fine under Section 421 of the Code, said Section 421 also needs to be considered at this stage.

Section 421 appears in Chapter XXXII of the Code which Chapter deals with Execution, Suspension, Remission and Commutation of Sentences. By very context and the language of the provisions contained in the Chapter, they apply in cases where the guilt of an accused is determined and he is convicted of an offence punishable with sentence and/or fine. Part-C of the Chapter deals with ‘Levy of Fine’ and Section 421 appearing in said Part-C is to the following effect:
421. Warrant for levy of fine.-
(1) When an offender has been sentenced to pay a fine, the Court passing the sentence may take action for the recovery of the fine in either or both of the following ways, that is to say, it may
(a) issue a warrant for the levy of the amount by attachment and sale of any movable property belonging to the offender;
(b) issue a warrant to the Collector of the district, authorizing him to realize the amount as arrears of land revenue from the movable or immovable property, or both, of the defaulter.

Provided that, if the sentence directs that in default of payment of the fine, the offender shall be imprisoned, and if such offender has undergone the whole of such imprisonment in default, no Court shall issue such warrant unless, for special reasons to be recorded in writing, it considers it necessary so to do, or unless it has made an order for the payment of expenses or compensation out of the fine under Section 357 (2) of the Code of Criminal Procedure, 1973.

The State Government may make rules regulating the manner in which warrants under clause (a) of sub- section (1) are to be executed, and for the summary determination of any claims made by any person other than the offender in respect of any property attached in execution of such warrant.

(3) Where the Court issues a warrant to the Collector under clause (b) of sub-section (1), the Collector shall realise the amount in accordance with the law relating to recovery of arrears of land revenue, as if such warrant were a certificate issued under such law: Provided that no such warrant shall be executed by the arrest or detention in prison of the offender.

According to Section 421 of the Code, fine could be recovered either by warrant of attachment or sale of movable property belonging to the offender or by issuance of warrant to the Collector authorising him to realise the amount as arrears of land revenue from the movable or immovable property or both of the defaulter.

It is thus clear that in case an accused, against whom an order to pay interim compensation under Section 143-A of the Act is passed, fails or is unable to pay the amount of interim compensation, the process under Section 421 can be taken resort to which may inter alia result in coercive action of recovery of the amount of interim compensation as if the amount represented the arrears of land revenue. The extent and rigor of the
procedure prescribed for such recovery may vary from State to State but invariably, such procedure may visit the person concerned with coercive methods.

For instance, by virtue of Section 183 of the Maharashtra Land Revenue Code, 1966, in case there be a default in payment of land revenue, the person concerned could be arrested and detained in custody for 10 days in the office of the Collector or of a Tehsildar unless the arrears of revenue which were due, were paid along with the penalty or interest and the cost of arrest and of the notice of demand as also the cost of his subsistence during detention.

Since the Complaint was lodged in the year 2016 that is to say, the act constituting an offence had occurred by 2016 whereas, the concerned provision viz. Section 143-A of the Act was inserted in the statute book with effect from 01.09.2018. The question that arises therefore is whether Section 143-A of the Act is retrospective in operation and can be invoked in cases where the offences punishable under Section 138 of the Act were committed much prior to the introduction of Section 143-A.

The Honble Supreme Court while dealing with issue regarding applicability of said Section 143-A to offences under Section 138 of the Negotiable Instruments Act, 1881 committed before the insertion of said Section 143-A held as under;

15. While considering general principles concerning ‘retrospectivity of legislation’ in the context of Section 158-EE inserted in the Income Tax Act, 1961, it was observed by this Court in Commissioner of Income Tax (Central) - I, New Delhi Vs Vatika Township Private Limited as under:
28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past.

If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset.

This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre 2, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.

16. Similarly, while considering the effect of modified application of the provisions of the Code, as a result of Section 20 (4)(bb) of the Terrorist 1 (2015) 1 SCC 12 (1870) LR 6 QB 1 and Disruptive Activities (Prevention) Act, 1987, whereunder the period for filing challan or charge-sheet could get extended, this Court considered the issue about the retrospective operation of the concerned provisions in Hitender Vishnu Thakur & Ors. Vs State of Maharashtra & Ors. as under:

26. The Designated Court has held that the amendment would operate retrospectively and would apply to the pending cases in which investigation was not complete on the date on which the Amendment came into force and the challan had not till then been filed in the court. From the law settled by this Court in various cases the illustrative though not exhaustive principles which emerge with regard to the ambit and scope of an Amending Act and its retrospective operation may be culled out as follows:
(i) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits.

(ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature.

(iii) Every litigant has a vested right in substantive law but no such right exists in procedural law. [3 (1994) 4 SCC 602]

(iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.

(v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.

17. The fourth and the fifth principle as culled out by this Court in Hitendra Vishnu Thakur are apposite to the present fact situation.
The provisions contained in Section 143-A of the Negotiable Instruments Act, 1881 have two dimensions.

First, the Section creates a liability in that an accused can be ordered to pay over upto 20% of the cheque amount to the complainant. Such an order can be passed while the complaint is not yet adjudicated upon and the guilt of the accused has not yet been determined.

Secondly, it makes available the machinery for recovery, as if the interim compensation were arrears of land revenue. Thus, it not only creates a new disability or an obligation but also exposes the accused to coercive methods of recovery of such interim compensation through the machinery of the State as if the interim compensation represented arrears of land revenue.

The Honble Supreme Court of India adverting to the arguments that coercive methods could also, as is evident from provision like Section 183 of the Maharashtra Land Revenue Code, in some cases result in arrest and detention of the accused observed as under;

19. We must at this stage, refer to a decision of this Court in Employees’ State Insurance Corporation Vs Dwarka Nath Bhargwa where provisions of Section 45-B where provisions of Section 45-B, which was inserted in Employees State Insurance Act, 1948 with effect from 28.01.1968 was held to be procedural and that it could have retrospective application. Said Section 45-B is as under:

45B. Recovery of contributions:

Any contribution payable under this Act may be recovered as an arrear of land revenue. The issue was whether the modality of recovery so prescribed in said Section 45-B could be invoked in respect of amounts which had become payable on 27.01.1967 and 24.01.1968, i.e. before said Section 45-B was inserted in the statute book. While holding that the arrears could be recovered as arrears of land revenue, it was observed, It is not in dispute and cannot be disputed that the contributions in question had remained payable all throughout and were not paid by the respondent.

20. 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 4 (1997) 7 SCC 131
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 143-A 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 Employees’ State Insurance Corporation4 case.

21. Though arising in somewhat different context, proviso to Section 142 (b) which was inserted in the Act by Amendment Act 55 of 2002, under which cognizance could now be taken even in respect of a complaint filed beyond the period prescribed under Section 142 (b) of the Act. was held to be prospective by this Court in Anil Kumar Goel Vs Kishan Chand Kaura, it observed;

There is nothing in the amendment made to Section 142 (b) by Act 55 of 2002 that the same was intended to operate retrospectively. In fact that was not even the stand of the respondent. Obviously, when the complaint was filed on 28-11- 1998, the Respondent could not have foreseen that in future any amendment providing for extending the period of limitation on sufficient cause being shown would be enacted.

22. In our view, the applicability of Section 143-A of the Act must, therefore, be held to be prospective in nature and confined to cases where offences were committed after the introduction of Section 143-A, in order to force an accused to pay such interim compensation.

The Honble Supreme Court in Surinder Singh Deswal & Ors. Vs Virender Gandhi, where Section 148 of the Negotiable Instruments Act, 1881 which was also introduced by the same Amendment Act 20 of 2018 from 01.09.2018 was held by Honble Supreme Court to be retrospective in operation. As against Section 148 of the Negotiable Instruments Act, 1881 which applies at the trial stage that is even before the pronouncement of guilt or order of conviction, Section 148 of the Act applies at the appellate stage where the accused is already found guilty of the offence under Section 138 of the Act. It may be stated that there is no provision in Section 148 of the Act which is similar to sub-section (5) of Section 143-A of the Act.

However, as a matter of fact, no such provision akin to sub-section (5) of Section 143-A was required as Section 421 and 357 of the Code, which apply post-conviction, are adequate to take care of such requirements. In that sense said Section 148 depends upon the existing machinery and principles already in existence and does not create any fresh disability of the nature similar to that created by Section 143-A of the Act. Therefore, the decision of Honble Supreme Court in Surinder Singh Deswal & Ors. Vs Virender Gandhi, stands on a different footing.

Written by: Dinesh Singh Chauhan, Advocate
J&K High Court of Judicature, Jammu.
Email: [email protected], [email protected]