Awarding compensation in section 138 NI ACT cases

Introduction:
In general sense, a cheque means, it is an acknowledged bill of exchange that is readily accepted in lieu of payment of money and it is negotiable. So much so, that at present a disproportionately large number of cases involving the dishonour of cheques is choking our criminal justice system, especially at the level of Magistrates’ Courts . Cheques have been used in commercial world for a long period of time as one of the convenient modes of transferring money. Though a complaint under section 138 of the Act is in regard to criminal liability for the offence of dishonouring the cheque and not for the recovery of the cheque amount, (which strictly speaking, has to be enforced by a civil suit), in practice once the criminal complaint is lodged under section 138 of the Act, a civil suit is seldom filed to recover the amount of the cheque. This is because of the provision enabling the court to levy a fine linked to the cheque amount and the usual direction in such cases is for payment as compensation, the cheque amount, as loss incurred by the complainant on account of dishonour of cheque, under section 357 (1) (b) of the Code and the provision for compounding the offences under section 138 of the Act.

Section 357 relates to Order to pay compensation. Sub-section (3) of section 357, is categorical that the compensation can be awarded only where fine does not form part of the sentence. Section 357(3) has been the subject-matter of judicial interpretation by the Hon’ble Supreme Court in several decisions. In State of Punjab vs. Gurmej , the Apex Court held:
“A reading of sub-section (3) of Section 357 would show that the question of award of compensation would arise where the court imposes a sentence of which fine does not form a part.” The Apex Court also held that section 357(3) will not apply where a sentence of fine has been imposed.

In Sivasuriyan versus Thangavelu , the Hon’ble Supreme Court held :
“In view of the submissions made, the only question that arises for consideration is whether the court can direct payment of compensation in exercise of power under sub- section (3) of Section 357 in a case where fine already forms a part of the sentence. Apart from sub-section (3) of Section 357 there is no other provision under the Code whereunder the court can exercise such power:”
After extracting section 357(3) of the Code, the Court proceeded to hold thus:
“On a plain reading of the aforesaid provision, it is crystal clear that the power can be exercised only when the court imposes sentence by which fine does not form a part. In the case in hand, a court having sentenced to imprisonment, as also fine, the power under sub-section (3) of Section 357 could not have been exercised. In that view of the matter, the impugned direction of the High Court directing payment of compensation to the tune of Rs. one lakh by the appellant is set aside.”

If compensation could be paid from out of the fine, there is no need to award separate compensation:-
A significant point here is such that if compensation could be paid from out of the fine, there is no need to award separate compensation. Only where the sentence does not include fine but only imprisonment and the court finds that the person who has suffered any loss or injury by reason of the act of the accused person, requires to be compensated, it is permitted to award compensation under compensation under section 357(3).

However, in two circumstances, some difficulty will be arisen. If fine levied is only Rs.2000/-, when the compensation required to cover the loss/injury on account of the dishonour of the cheque is Rs.20,000/-. Then, it is impermissible to levy any compensation having regard to section 357(3) of Cr.P.C. Now, the question is whether the fine can be increased to cover the sum of Rs. 20,000/- which was the loss suffered by the complainant, so that the said amount could be paid as compensation under section 357(1)(b) of the Code. It is now well-settled law that section 138 of the Act authorizes the Magistrate to impose by way of fine, an amount which may extend to twice the amount of the cheque, with or without imprisonment. Section 29 of the Code deals with the sentences which Magistrates may pass. The Chief Judicial Magistrate is empowered to pass any sentence authorized by law (except sentence of death or imprisonment for life or imprisonment for a term exceeding seven years). On the other hand, sub-section (2) of Section 29 empowers a court of a Magistrate of First Class to pass a sentence of imprisonment for a term not exceeding three years or fine not exceeding Rs.10,000/- or of both . Prior to 23-06-2006, (at the relevant point of time), the maximum fine that the First Class Magistrate could impose was Rs.5,000/-. Therefore, it is also not possible to increase the fine to Rs.22,000/- so that Rs.20,000/- could be awarded as compensation, from the amount recovered as fine.

The difficulty caused by the ceiling imposed by section 29(2) of the Code has been subsequently solved by insertion of section 143 in the Act (by Amendment Act No.55 of 2002) with effect from 6.2.2003. Section 143(1) provides that notwithstanding anything contained in the Code, all offences under Chapter XVII of the Act should be tried by a Judicial Magistrate of the First Class or by a Metropolitan Magistrate and the provisions of sections 262 to 265 of the Code (relating to summary trials) shall, as far as may be, apply to such trials. The proviso thereto provides that it shall be lawful for the Magistrate to pass a sentence of imprisonment for a term extending one year and an amount of fine exceeding Rs.5,000/- (now, Rs.10,000/-), in case of conviction in a summary trial under that section. In view of conferment of such special power and jurisdiction upon the First Class Magistrate, the ceiling as to the amount of fine stipulated in section 29(2) of the Code is removed. Consequently, in regard to any prosecution for offences punishable under section 138 of the Act, a First Class Magistrate may impose a fine exceeding Rs.5000/- (now, Rs.10,000/-), the ceiling being twice the amount of the cheque.

Guidelines proposing levy of `a graded scale of fine’ to encourage compounding at earlier stages of the case:

All the while, a three Judge Bench of the Hon’ble Apex Court in Damodar S.Prabhu vs Sayed Babalal H , 2010 (5) SCC 663, addressed the question of reluctance of offenders to compound the cases at earlier stages of the case prosecution leading to a huge pendency of cheque dishonour cases, and issued the following guidelines proposing levy of `a graded scale of fine’ to encourage compounding at earlier stages of the case. It is curious to note that despite the imposition of costs by the competent court is a matter of discretion, the scale of costs has been suggested in the interest of uniformity. Further, the competent Court can reduce the costs with regard to the specific facts and circumstances of a case, while recording reasons in writing for such variance. In addition to that bona fide litigants should of course contest the proceedings to their logical end.

As was observed in R. Vijayan’s case, an aspect of the cases under section 138 of the Act, which is not dealt with in Damodar S. Prabhu. It is sometimes said that cases arising under section 138 of the Act are really civil cases masquerading as criminal cases. The avowed object of Chapter XVII of the Act is to “encourage the culture of use of cheques and enhance the credibility of the instrument”. In effect, its object appears to be both punitive as also compensatory and restitutive, in regard to cheque dishonour cases.

In R. Vijayan vs Baby & Anr , the Hon’ble Supreme Court observed as follows (Para 17) :
‘We are conscious of the fact that proceedings under section 138 of the Act cannot be treated as civil suits for recovery of the cheque amount with interest. We are also conscious of the fact that compensation awarded under section 357(1)(b) is not intended to be an elaborate exercise taking note of interest etc. Our observations are necessitated due to the need to have uniformity and consistency in decision making. In same type of cheque dishonour cases, after convicting the accused, if some courts grant compensation and if some other courts do not grant compensation, the inconsistency, though perfectly acceptable in the eye of law, will give rise to certain amount of uncertainty in the minds of litigants about the functioning of courts. Citizens will not be able to arrange or regulate their affairs in a proper manner as they will not know whether they should simultaneously file a civil suit or not. The problem is aggravated having regard to the fact that in spite of section 143(3) of the Act requiring the complaints in regard to cheque dishonour cases under section 138 of the Act to be concluded within six months from the date of the filing of the complaint, such cases seldom reach finality before three or four years let alone six months. These cases give rise to complications where civil suits have not been filed within three years on account of the pendency of the criminal cases. While it is not the duty of criminal courts to ensure that successful complainants get the cheque amount also, it is their duty to have uniformity and consistency, with other courts dealing with similar cases’’.

As was held by the Hon’ble Apex court in R.Vijayan’s case, (i) the provision for levy of fine which is linked to the cheque amount and may extend to twice the amount of the cheque ( section 138) thereby rendering section 357 (3) virtually infructuous in so far as cheque dishonour cases.
(ii) The provision enabling a First Class Magistrate to levy fine exceeding Rs.5,000/- ( section 143) notwithstanding the ceiling to the fine, as Rs.5,000/- imposed by section 29(2) of the Code;
(iii) The provision relating to mode of service of summons ( section 144) as contrasted from the mode prescribed for criminal cases in section 62 of the Code;
(iv) The provision for taking evidence of the complainant by affidavit ( section 145) which is more prevalent in civil proceedings, as contrasted from the procedure for recording evidence in the Code;
(v) The provision making all offences punishable under section 138 of the Act compoundable.

Conclusion:
As was held by the Hon’ble Supreme Court in R. Vijayan vs Baby & Anr CRIMINAL APPEAL NO. 1902 OF 2011,(Arising out of SLP (Crl.) No.2586 of 2007), one other solution is a further amendment to the provision of Chapter XVII so that in all cases where there is a conviction, there should be a consequential levy of fine of an amount sufficient to cover the cheque amount and interest thereon at a fixed rate of 9% per annum interest, followed by award of such sum as compensation from the fine amount. This would lead to uniformity in decisions, avoid multiplicity of proceedings (one for enforcing civil liability and another for enforcing criminal liability) and achieve the object of Chapter XVII of the Act, which is to increase the credibility of the instrument. This is however a matter for the Law Commission of India to consider.

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