[NI Act] Kar HC decides contours of law in a classic case where cash of Rs 2 crore was borrowed as hand loan and a cheque obtained for the repayment of the same got dishonoured

Karnataka High Court: M. Nagaprasanna, J. allowed the petition and quashed the impugned order regarding attachment of property and auction notification.

The facts of the case is such that the complainant claims to have lent to the accused a sum of rupees two crores by cash in two thousand rupees denomination and the cheque alleged to have issued by the accused is dishonoured. In respect of rupees two crores transaction in cash, the trial Court invoking Section 143-A of the Negotiable Instruments Act, 1881 (‘the Act’ for short) grants interim compensation of Rupees forty lakhs to be paid by the accused to the complainant. In the meantime the complainant exercising the liberty that was granted by the order impugned, initiated process in which order of attachment of the property of the petitioner was passed and a notice of public auction was also issued to auction the property on 25-01-2022. Aggrieved, an instant petition was filed challenging the said order.

Counsel for petitioner Mr. V M Sheelavant and Mr. Mrutyunjaya Halliker submitted that the petitioner is yet to be held guilty and the trial is yet to commence. As an interim measure, 20% of the claim amount is directed to be paid which amounts to Rs.40 lakhs and it is highly improbable that the complainant has dispersed the loan of rupees two crores that too in cash. It is a subject matter of trial.

Counsel for respondents Mr. B V Somapur and Mr. R K Kulkarni submitted that that presumption is operating against the petitioner in terms of provisions of the Act. Since the petitioner has issued the cheque, the liability is admitted and, therefore, the order directing 20% is in tune with law and would seek dismissal of the criminal petition.

The Court observed that the Act was amended by the Amendment Act of 2018 and Section 143A came to be inserted. The purport of the amendment is that the Court may in certain circumstances award interim compensation which shall not exceed 20% of the amount of the cheque and such interim compensation can be permitted to be withdrawn in terms of the said amendment.

The Court further observed that the impugned order does not bear reason as to why 20% of the amount is awarded as interim compensation. There is no application of mind as to why the said compensation has to be awarded. Section 143A is completely misread that once the accused does not plead guilty, the complainant becomes automatically entitled to 20% of the cheque amount as interim compensation.

The Court remarked that, the Legislature has cautiously worded sub-section (1) of Section 143A not to make it mandatory in all cases. It is the discretion conferred, as the word used is “may”. Application of mind in exercise of discretion is discernible only in an order that contains reasons, and reasons can be found only if they are recorded in writing, and if reasons are recorded in writing, it is only then the order will be within the counters of law.

The Court further stated that the impugned action now alleged is that in terms of the order passed by the competent Court, the proceedings for attachment of the property are initiated by the complainant and the property of the petitioner is put to auction. Therefore, the consequences of such order are grave where the petitioner whose liability is yet to be determined will have to face grave hardship in the event of non-payment. It is therefore imperative for the learned Magistrates to pass appropriate orders which bear application of mind and record reasons as to why interim compensation is to be awarded in a given case.

The Court thus in the case at hand observed that there is not even a semblance of application of mind on the part of the Magistrate of Trial Court as the provision was misconstrued that in the event the accused does not plead guilty he becomes liable to pay 20% as interim compensation. This is not the purport of the Act.  What is the necessary is only application of mind and recording detailed reasons as to why such compensation is to be awarded in a given case.

The Court thus held “the order dated 10.01.2022 of attachment of property in Criminal Miscellaneous No.313 of 2021 stands quashed. Public auction notification dated 25.01.2022 in furtherance of the order dated 10.01.2022 also stands quashed.”

[Vijaya v. Shekharappa, 2022 SCC OnLine Kar 515, decided on 17-02-2022]

Arunima Bose, Editorial Assistant has reported this brief.

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