The Allahabad High Court has affirmed that interim compensation under Section 143A of the Negotiable Instruments Act may be ordered even when the accused claims the cheque was issued as security, provided the trial court applies the statutory criteria and exercises judicial discretion. This ruling reinforces the procedural balance between complainant relief and accused protection during pendency of Section 138 proceedings.
Background & Facts
The Dispute
The applicant, M/s N.Y. Traders, is accused of dishonouring a cheque of Rs. 5,00,000 issued to M/s Preet Enterprises, the complainant in Complaint Case No. 25927 of 2023, under Section 138 of the Negotiable Instruments Act. The applicant contends that the cheque was not issued in discharge of a legally enforceable debt or liability, but as a security for an anticipated transaction.
Key Facts
- The cheque of Rs. 5,00,000 was presented for payment on 15.07.2023 and returned unpaid on 18.07.2023
- Legal notice under Section 138 was issued on 25.07.2023 and received by the applicant on 28.07.2023
- The applicant filed a written statement before the Additional Chief Judicial Magistrate, Agra, asserting the cheque was issued as security and not for discharge of debt
- The complainant filed an application under Section 143A NI Act seeking interim compensation on 10.08.2023
- The applicant’s statement under Section 251 Cr.P.C. recorded on 20.08.2023 admitted issuance and endorsement of the cheque
- The trial court passed an order on 03.09.2025 allowing interim compensation of Rs. 50,000 (10% of cheque amount)
- The applicant filed Criminal Revision No. 834 of 2025 before the Sessions Judge, Agra, challenging the interim compensation order
- The Sessions Judge dismissed the revision on 05.02.2026, upholding the Magistrate’s order
- The applicant now seeks quashing of both orders via Application U/s 528 BNSS No. 17463 of 2026
Procedural History
- 15.07.2023: Cheque presented for payment
- 18.07.2023: Cheque returned unpaid
- 25.07.2023: Legal notice issued
- 28.07.2023: Notice received by applicant
- 10.08.2023: Complainant filed application under Section 143A NI Act for interim compensation
- 20.08.2023: Applicant’s statement recorded under Section 251 Cr.P.C.
- 03.09.2025: Additional Chief Judicial Magistrate allowed interim compensation of Rs. 50,000
- 10.09.2025: Applicant filed Criminal Revision No. 834 of 2025
- 05.02.2026: Sessions Judge dismissed revision
- 29.03.2026: Application U/s 528 BNSS filed before Allahabad High Court
- 29.04.2026: Judgment delivered
Relief Sought
The applicant seeks quashing of the order dated 03.09.2025 and the revisional order dated 05.02.2026, arguing that interim compensation was erroneously granted despite the cheque being issued as security, and that the trial court failed to apply the principles laid down in Rakesh Ranjan Shrivastava v. State of Jharkhand.
The Legal Issue
Can a trial court grant interim compensation under Section 143A of the Negotiable Instruments Act when the accused asserts that the cheque was issued as security and not for discharge of a legally enforceable debt, and whether such an order constitutes an abuse of process?
Arguments Presented
For the Appellant/Petitioner
The applicant’s counsel relied on Rakesh Ranjan Shrivastava v. State of Jharkhand (2024 SCC 229) to argue that interim compensation under Section 143A is permissible only when there is a prima facie case of dishonour for discharge of a debt or liability. The applicant contended that since the cheque was issued as security, no enforceable debt existed at the time of issuance, and therefore the Magistrate erred in granting compensation. It was further submitted that the trial court failed to consider the applicant’s statement under Section 251 Cr.P.C. in its entirety and acted mechanically, thereby violating the principles of natural justice and constituting an abuse of process.
For the Respondent/State
The Additional Government Advocate argued that the Magistrate properly considered the applicant’s admission in the Section 251 statement regarding issuance and endorsement of the cheque. The State emphasized that Section 143A is a procedural safeguard to prevent harassment of complainants during prolonged litigation, and that the trial court’s discretion to award interim compensation is not contingent on final determination of the nature of the cheque’s issuance. The State further cited Section 143A(4), which provides for repayment of compensation upon acquittal, as a built-in safeguard for the accused.
The Court's Analysis
The Court examined the scope of Section 143A of the Negotiable Instruments Act and the ratio in Rakesh Ranjan Shrivastava v. State of Jharkhand. It noted that while the Apex Court held that interim compensation cannot be granted without prima facie satisfaction of the ingredients of Section 138, it did not preclude such compensation where the accused admits issuance of the cheque and the complainant demonstrates financial hardship.
"The trial court has to examine the evidence produced by the parties. The submission raised by counsel for the applicant cannot be examined at this stage."
The Court observed that the Magistrate had not assumed guilt but had acted within the statutory framework, considering the complainant’s stated need for funds and the applicant’s own admission in the Section 251 statement. The Court emphasized that Section 143A(4) explicitly provides for recovery of the interim compensation if the accused is acquitted, thereby balancing the rights of both parties.
The Court further held that the Sessions Judge, in dismissing the revision, correctly applied the principles of judicial restraint. Interim compensation under Section 143A is a discretionary order, and appellate courts must not interfere unless there is a clear perversity or violation of statutory mandate. The applicant’s claim that the cheque was issued as security remains a matter for final adjudication at trial, and cannot be used to pre-empt the statutory remedy under Section 143A.
The Verdict
The application under Section 528 BNSS was dismissed. The Court upheld the orders dated 03.09.2025 and 05.02.2026, confirming the interim compensation of Rs. 50,000 payable to the complainant. The Court reiterated that if the applicant is acquitted, the complainant shall repay the amount with interest at the bank rate as published by the Reserve Bank of India, within sixty days as mandated under Section 143A(4).
What This Means For Similar Cases
Interim Compensation Is Not Dependent on Final Determination of Debt
- Practitioners must now argue that the existence of a legally enforceable debt is not a precondition for invoking Section 143A; admission of cheque issuance and complainant’s financial need suffice
- The burden to prove the cheque was issued as security remains with the accused and must be established at trial, not at the interim stage
- Courts may grant interim compensation even if the accused raises a plausible defence, provided the statutory conditions under Section 143A(1) are met
Section 143A(4) Is a Critical Safeguard for the Accused
- Accused must be advised to preserve all evidence supporting the security nature of the cheque, as it will determine repayment liability under Section 143A(4)
- Failure to claim repayment after acquittal may result in loss of the statutory right to recover the amount
- Legal notices and representations made prior to trial should explicitly state the security nature of the instrument to preserve this defence
Judicial Discretion Under Section 143A Is Broad but Not Unfettered
- Courts must record reasons for granting or denying interim compensation, even if brief
- Arbitrary or mechanical orders without reference to complainant’s need or accused’s admission will be vulnerable to challenge
- Revisional courts must not substitute their discretion for that of the trial court unless the order is manifestly illegal or perverse
