Grant of Interim Compensation Under Section 143-A NI Act Requires Recorded Reasons and Judicial Application of Mind

The petitioner challenged an order dated 16.03.2026 passed by the Special Mobile Magistrate, Pulwama, which directed the petitioner to pay 10% of the total cheque amount as interim compensation

The respondent had filed a complaint under Section 138 of the Negotiable Instruments (NI) Act involving eleven cheques totaling several lakhs

Upon appearing, the petitioner pleaded not guilty and specifically denied her signatures on the cheques, requesting forensic examination

During the proceedings, the Trial Court allowed the respondent’s application for interim compensation under Section 143-A of the NI Act without addressing the petitioner's specific defense or providing a detailed rationale for the 10% quantum

1. Whether the power to grant interim compensation under Section 143-A of the Negotiable Instruments Act, 1881, is mandatory or discretionary

2. Whether the Trial Court's order was legally sustainable given the lack of recorded reasons for the grant and the specific quantum of compensation

Section 143-A of the Negotiable Instruments Act, 1881, which empowers courts to order interim compensation not exceeding 20% of the cheque amount

Supreme Court's interpretation in Rakesh Ranjan Shrivastava v. State of Jharkhand (2024), establishing that the word "may" in Section 143-A makes the power discretionary and directory, requiring courts to record brief reasons following a prima facie evaluation of both the complainant's merit and the accused's defense

Nazir Ahmad Chopan v. Abdul Rehman Chopan (2022), which mandates that the court must justify the specific percentage (1% to 20%) awarded through reasoned analysis

The High Court observed that the Trial Court exercised its power in a "mechanical" and "routine" manner

It noted that the Magistrate failed to perform a prima facie evaluation of the petitioner’s specific defense regarding the denial of signatures, which is crucial since the presumption under Section 139 is rebuttable

The Court found that the impugned order merely reiterated the statutory provision without explaining why 10% was the appropriate quantum in this specific case

Since Section 143-A allows a range of compensation, the failure to provide "cogent reasons" for selecting a specific figure rendered the order arbitrary and "in the teeth of the settled position of law"

The Court allowed the petition, quashed the order dated 16.03.2026, and remanded the matter to the Special Mobile Magistrate, Pulwama

The Trial Court was directed to pass a fresh order expeditiously, ensuring that if it grants interim compensation, it must record reasons considering all relevant factors and the specific defenses raised by the petitioner

The parties were directed to appear before the Trial Court on 27.04.2026