Interim compensation under Section 143-A NI Act is discretionary and requires hearing the accused.

The respondent/complainant filed a complaint under Section 138 of the Negotiable Instruments Act ("NI Act") alleging that the petitioner/accused issued a cheque for Rs. 12,00,000/- which was dishonoured due to insufficient funds

During the trial, the accused moved an application under Section 145(2) of the NI Act to cross-examine the complainant.

On 04.06.2024, the Judicial Magistrate First Class ("JMFC"), while allowing the cross-examination, simultaneously invoked Section 143-A of the NI Act and directed the accused to pay 20% of the cheque amount as interim compensation within 60 days

Upon failure to comply, the JMFC passed a subsequent order on 18.06.2025 directing recovery under Section 421 of the Cr.P.C.

The petitioner challenged these orders, contending that they were passed without an application by the complainant, without affording an opportunity to file a reply, and without considering the merits of the defense

1. Whether the power to direct interim compensation under Section 143-A of the NI Act is mandatory or discretionary.

2. Whether the Trial Court is required to afford the accused an opportunity of being heard and record reasons regarding the merits of the case before passing an order under Section 143-A.

Section 143-A of the NI Act, which stipulates that a court "may" order the drawer of a cheque to pay interim compensation not exceeding 20% of the cheque amount

The Supreme Court precedent in Rakesh Ranjan Shrivastava v. State of Jharkhand & Anr. (2024), which established that the word "may" in Section 143-A is discretionary, not mandatory, and that treating it as "shall" would lead to drastic and unjust consequences

coordinate bench decision in Mukesh Kumar v. Raman (2023), holding that such power must be exercised after considering attending parameters and the defense of the accused

The Court reasoned that the use of the word "may" in Section 143-A grants the Trial Court discretion rather than a mandate to award interim compensation

It observed that since the compensation can range from 1% to 20%, the Court must apply its mind to determine the appropriate percentage by evaluating the prima facie merits of the complainant’s case and the plausibility of the accused’s defense

The Court noted that the presumption under Section 139 of the NI Act is rebuttable and cannot be the sole basis for an interim compensation order

In the present case, the JMFC passed the order mechanically without an application from the complainant, without allowing the accused to file a reply, and without providing reasons for selecting the maximum cap of 20%

The Court concluded that such a summary procedure, conducted without hearing the accused or evaluating the financial capacity and nature of the transaction, violated the principles of natural justice and the scheme of the Act

It held that the Trial Court had acted mechanically and failed to exercise its discretion judicially

The matter was remanded to the Trial Court to decide the issue of interim compensation afresh, after providing the parties an opportunity to be heard and considering the observations regarding the discretionary nature of Section 143-A