India: Negotiable Instruments (Amendment) Act, 2018- Retrospective Or Not ?

Last Updated: 11 June 2019
Article by Ashima Obhan and Shubhangi Agarwal

In one of our Articles published in September-Amendments to the Negotiable Instruments Act, we discussed the amendments that were brought to the Negotiable Instruments Act, 1881 ("Act") with an intention of amending the law related to promissory notes, bills of exchange and cheques. The Act has been amended time and again to ensure and enhance trust in negotiable instruments. With an aim to further streamline the Act, the Central Government incorporated Sections 143-A and 148 vide Negotiable Instruments (Amendment) Act, 2018 ("Amended Act"). These new sets of provisions have been effective since 1st September 2018.

Section 143A of the Amended Act

Section 143-A of the Amended Act empowers any court while trying an offence for dishonour of a cheque to direct the drawer, who is the issuer of the cheque, to pay interim compensation to the complainant. The amount of compensation payable cannot exceed 20% of the amount as stated in the cheque. This amount has to be paid within a stipulated time period of 60 days from the date of the order passed by the court, or further within the extended period of 30 days, as may be directed by the court on showing sufficient cause for the delay caused.

Section 148 of the Amended Act

According to the Amended Act, Section 148 states that in the event of the conviction of the drawer of the cheque, if the drawer proceeds to file an appeal, the appellant court has the power to order the drawer of a cheque to deposit an amount. This deposited amount in such case has to be a minimum of 20% of the fine or compensation awarded by the Magistrate Court in the appeal preferred against his/her conviction. However, if the appellant is acquitted, then the Court shall direct the complainant to repay to the appellant the amount so released, with interest.

Decision passed by the Supreme Court in view of Section 148

In one of its recent judgments, the Supreme Court held that Section 148 of the Amended Act, shall have a retrospective effect (applicable to complaints which were filed prior to 1st September 2018) in respect of the appeals against the order of conviction and sentence for the offence under Section 138 of the Act.

In Surinder Singh Deswal @ Col. S.S. Deswal vs. Virender Gandhi1, criminal complaints were field against the appellants (herein – original accused)for the offences committed under section 138 of the Act prior to 2nd September 2018. The trial court had convicted the appellants. Further when an appeal was filed, the first appellate court, considering the provisions of the Section 148 of the Amended Act directed the appellants to deposit 25% of the amount/compensation awarded by the trial court. A further appeal was raised, wherein the High Court of Punjab and Haryana dismissing the appeal confirmed the order that was passed by the appellant court and the additional sessions judge.

Aggrieved by the dismissal of the application and the confirmation of the order, the appellants challenged the same before the Apex court and contended that Section 148 of the Amended Act should not be applicable with respect to criminal proceedings already initiated prior to the enforcing of the Amended Act.

Explaining the objective of the amendment, the Supreme Court was of the view that the Amended Act has been enforced with a view to address the issue of undue delay in final resolution of cheque dishonour cases so as to provide relief to the payees of dishonoured cheques, to discourage frivolous and unnecessary litigation which would save time and money. The amendments have been made to help 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.

Another contention was raised regarding Section 357(2) of the Criminal Procedure Code, 1973. This Section states that once an appeal against the order of the conviction is preferred, fine is not recoverable till the decision of the appeal.The appellants quoting this Section, were of the view that the first appellate Court did not have the onus to pass an order directing the appellants to deposit 25% of the amount. However,the bench of the Apex Court observed that, "The opening word of amended Section 148 of the N.I. Act is that "notwithstanding anything contained in the Code of Criminal Procedure....". Therefore, irrespective of the provisions of Section 357(2) of the Code of Criminal Procedure, pending appeal before the first appellate court, challenging the order of conviction and sentence Under Section 138 of the N.I. Act, the appellate court is conferred with the power to direct the Appellant to deposit such sum pending appeal which shall be a minimum of 20% of the fine or compensation awarded by the trial Court."

Further, question was also raised regarding the usage of the word "may" in Section 148 of the Amended Act. The Supreme Court on this contention was of the view that, "Considering the amended Section 148 of the N.I. Act as a whole to be read with the Statement of Objects and Reasons of the amending Section 148 of the N.I. Act, though it is true that in amended Section 148 of the N.I. Act, the word used is "may", it is generally to be construed as a "rule" or "shall" and not to direct to deposit by the appellate court is an exception for which special reasons are to be assigned."

The Supreme Court had accordingly dismissed the appeal and upheld the judgments of the lower courts.

Decision passed by the High Court of Bombay

The High Court of Bombay in its judgement, Ajay Vinodchandra Shah vs. The State of Maharashtra & Anr.2, has held that Sections 143-A and 148 of the Amended Act are applicable to the cases pending in trial as well as in appeal, which have been filed prior to 1st September 2018.

In the instant case, the petitioner had filed writ petitions challenging the legality and constitutionality of the order passed by the learned sessions court. The sessions court directed the petitioner to deposit 25% of the amount of the compensation as a condition precedent to maintain the order of the bail or to entertain the appeal preferred by the petitioner.

The first issue, in the present case was whether the provisions of the Amended Act can apply only to those complaints which are filed after 1st September 2018 or to the complaints or appeals which are already pending wherein the court scan pass the orders only after 1st September 2018. The second issue was whether these provisions are ultra vires the Constitution of India.

The High Court of Bombay held that, "The word 'retrospective' is to be understood or read with meaningful, purposive interpretation. It is incorrect to accept that it is to be made not applicable to the cases which are filed only after 1.9.2018 and not applicable to the cases pending earlier in the trial as well as appellate Court. Huge number of cases under section 138 of the Act are pending in the Courts. In these cases, if the plea is recorded or charge is not framed, then, the trial Court can invoke its powers under section 143A after 1.9.2018 and can impose interim compensation which shall not exceed 20% of the amount of cheque. Same is the case in appeals. If the appeals are pending, the Court can pass interim orders under section 148...".

The High Court of Bombay on comparing Sections 143-A and 148 of the Amended Act quoted the difference between the two provisions and observed that under Section 143A, the accused is yet to face a trial. Under subsection (2) thereof, the interim compensation under sub-section (1) shall not exceed 20% of the amount of the cheque. However, under Section 148, the High Court of Bombay may order the appellant to deposit such sum which a minimum of shall be 20% of the fine. The High Court of Bombay said that this reflects the intention of the Legislature that a person at the stage of trial is always considered innocent till he is found guilty and, therefore, the ceiling of 20% compensation is mentioned. However, in the appeal, after the first Court holds the accused guilty, then the appellate Court is given the power to pass order directing the accused to deposit the amount which shall be a minimum of 20% of the fine or compensation awarded by the trial Court. It is further stated in section 148 of the Amended Act that the amount payable under this subsection shall be in addition to any interim compensation paid by the appellant under section 143A of the Amended Act. Though the granting of interim relief is a common thread running through both the sections, they are unidentical.

It was further observed that the criminal trial court under Section 357 of the Criminal Procedure Code,1973 has power to grant compensation to the complainant, making it evident that the power to give compensation has been in existence with the criminal court before the Amended Act also. And thus, by virtue of this amendment, at what stage the amount of compensation can be granted has been given more clarity.

The High Court of Bombay further held that Sections 143A and 148 of the Amended Act are not ultra vires and that the right to be on bail and enjoy liberty should not be taken away in case of bailable offences unless some special ground is made out.

Thus, the High Court of Bombay had allowed the writ petitions partly by imposing a condition on the accused to deposit 20% of the total amount of the compensation. Further, the stipulated time of 60 days to deposit the said amount was extended till 90 days, till the pendency of the litigation. The orders of putting conditions of cancellation of bail or suspension of sentence in the event of non-payment were additionally set aside.

Decision passed by the High Court of Punjab and Haryana

The Punjab and Haryana High Court ("High Court") through its judgement, Ginni Garments & Anr vs. Sethi Garment & Anr[3had a different interpretation of the law and has held that the Section 143-A of the Amended Act has no retrospective effect whereas the Section 148 of the Amended Act will apply to the pending appeals pending on date of enforcement of this provision.

The High Court, through this judgement disposed off a bunch of 14 petitions challenging the orders passed by the trial courts under Section 138 of the Act. The sole argument in all these petitions was that under Section 143-A and Section 148 of the Amended Act, the courts below cannot be deemed to have any retrospective authority,to pass the order imposing the liability of payment of the amounts, mentioned in the impugned orders, in the pending trial or in the pending appeals.

The High Court observed that Section 143-A of the Amended Act casts a substantive obligation upon the accused.The High Court observed that, "Since the amended provision provides for enforcement of recovery of interim compensation by way of coercive procedure, it is nothing but an obligation imposed upon the accused. Section 3 of the Specific Relief Act has clarified the meaning of term 'obligation' by defining that any duty enforceable under law is an obligation. As per General Clauses Act, this definition has to be read in all Central Acts unless defined otherwise in the relevant Act. Such an 'obligation' having consequences qua the property rights of the accused cannot; but be treated; as substantive provision effecting his substantive right by casting a substantive obligation upon him, to make the payment of money; and if not paid, making him subject to legal deprivement/disability qua his properties. Therefore, it has to be held that Section 143-A of the Act cast a substantive obligation upon the accused and thereby effect the substantive right of the accused. Since the Amendment Act has not made the provision applicable retrospectively, specifically, to pending cases, hence, it cannot be applied retrospectively, to pending cases; which arose from the default of the accused which has taken place before coming into force of this provision." The High Court was of the view that Section 143-A of the Amended Act is not shown to be a step in furtherance to the procedure of the trial authorizing the trial court to pass any order, having consequences against the accused qua the steps of the trial;in case of non-payment of interim compensation.

Regarding Section 148 of the Amended Act, the High Court was of the view that the situation under Section 148 is drastically different. Section 148 of the Amended Act provides that in case the accused/appellant is acquitted by an appellate court, then an amount awarded by the such court which is an interim compensation, shall be returned to him by the complainant, along-with interest and that no other disqualification is to be inflicted upon the accused/applicant qua defense or prosecution of appeal by him.Further, the procedure of recovery of fine/ compensation from a convict-appellant of a pending appeal has pre-existed in the Criminal Procedure Code making it clear that no new aspect of fine or compensation from the appellant is being created through this amended provision.

The High Court stated that, "Since the provisions for recovery of fine or compensation from the appellant/convict already existed in the existing procedure relating to the recovery, therefore, the provision introduced vide Section 148 of the Act; which relates only to recovery of amount partly, as interim measure, has to be treated purely procedural only, which is otherwise also beneficial for the appellant as compared to the pre-existing provisions. Hence it has to be held that provision of Section 148 of the Act shall govern all the appeals pending on date of enforcement of this provision or filed thereafter."

The High Court thus dismissed the petitions which were challenging the order of the appellate Court, directing the appellant to deposit 20% or more of the amount of fine or compensation as awarded by the trial Court.

Footnotes

1. Criminal Appeal Nos. 917-944 of 2019

2. Criminal Writ Petition Nos. 258, 259 and 260 of 2019

3. MANU/PH/0330/2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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