Case at a Glance
A partnership firm’s cheque for ₹58,88,876 issued to a supplier under a distributor agreement was returned with ‘Payment stopped by drawer’. The trial court ordered the accused to pay 20% of the cheque amount as interim compensation under Section 143A of the Negotiable Instruments Act, and the Sessions Court upheld it. The Delhi High Court refused to interfere, finding no perversity even though the 20% figure was not separately explained, but clarified that interim compensation is legally recoverable only from the drawer — the firm — and the order cannot create an independent liability on co-accused who did not draw or sign the cheque.
The respondent, Jaina India Pvt. Ltd., supplied products at Gorakhpur under a Distributor Agreement dated 1 February 2018. Cheque No. 000708 dated 16 November 2021 for ₹58,88,876, drawn on HDFC Bank by petitioner No. 1, the partnership firm Karan Distributors, was returned unpaid on 19 November 2021 with the remark “Payment stopped by drawer”. After a demand notice of 24 December 2021, a complaint under Sections 138 and 142 was filed on 9 February 2022. The petitioners’ defence was that the cheque was a blank security cheque that had been misused; the complainant said it was issued against an outstanding liability. Notice was framed on 6 July 2024 and the accused pleaded not guilty.
On 9 July 2025 the Digital Court at Saket allowed the complainant’s application under Section 143A and directed payment of 20% of the cheque amount within 60 days. On 7 August 2026 the Sessions Court dismissed the revision. The petitioners then invoked Section 528 of the BNSS, arguing that the discretion was exercised mechanically, that admitted signatures are rebuttable, that petitioners Nos. 3 and 4 were neither drawers nor signatories, and that the complainant’s failure to attend mediation was ignored.
The Key Question Before the Court
Should the High Court interfere with a Section 143A interim compensation order already upheld in revision, and can such compensation be recovered from co-accused who neither drew nor signed the cheque?
Discretion, Reasons and the Drawer-Only Limit
Justice Madhu Jain held that the inherent jurisdiction is not excluded by an earlier revision, but it is not a second round of scrutiny: interference requires “manifest illegality, perversity, abuse of process or failure of justice.” Section 143A is discretionary — “the mere fact that the accused has pleaded not guilty does not make an order for interim compensation automatic” — and the court must weigh the prima facie case and the defence, as explained in Rakesh Ranjan Shrivastava v. State of Jharkhand, (2024) 03 SC CK 0033, relied on by the petitioners. Here the trial court had considered the supply claim, the ledger balance, the security-cheque defence and the fact that more than three years had passed. Admitted signatures were one factor, not the sole basis. Although a fuller explanation would have been preferable, “the absence of a separate paragraph explaining why the figure was fixed at 20%” did not make the order perverse.
On the co-accused, the petitioners cited Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh, (2024) 07 SC CK 0058. The Court noted it was not in dispute that interim compensation is recoverable only from the drawer. “The cheque in the present case was issued from the account of petitioner No.1, Karan Distributors, a partnership firm.” The direction therefore “cannot be construed as creating an independent liability under Section 143A” on persons arrayed only under Section 141, and the words ‘accused persons’ in the order “cannot enlarge the class of persons from whom interim compensation is legally recoverable.” That, however, was no ground to set aside the direction against the firm.
What the Court Actually Held
- A petition under Section 528 BNSS against a Section 143A order already affirmed in revision lies only for manifest illegality, perversity, abuse of process or failure of justice.
- Interim compensation is not automatic on a plea of not guilty, but an order that weighs the claim and the defence is not perverse merely because the 20% figure is not separately explained.
- Interim compensation under Section 143A is recoverable only from the drawer — here the partnership firm; it cannot create independent liability on co-accused who are not drawers merely because they are arrayed under Section 141.
- The petition was dismissed; the Court’s observations are not a view on the merits, and the trial will proceed uninfluenced by them.
Why This Judgment Matters
- It confirms a valuable protection for partners, directors and other co-accused who never drew the cheque: they cannot be made to deposit interim compensation.
- It signals that trial-court discretion under Section 143A will rarely be disturbed in a second challenge if the order engages with the defence.
- It gives complainants confidence that reasonable 20% orders will stand, even without elaborate reasons for the exact percentage.
What Should Advocates Take Away From the Judgment?
For Complainants
- Seek interim compensation early; delay in the trial was one factor supporting the order here.
- Frame the Section 143A application against the drawer — the firm or company whose account the cheque was drawn on.
- Place ledger balances and supply records on record to show a prima facie case.
For Counsel for the Accused
- Non-drawer partners or directors should insist that any Section 143A direction be confined to the drawer.
- Argue lack of reasons at the trial stage and in revision; a further petition under Section 528 BNSS is a narrow remedy.
- Security-cheque and no-liability defences remain open at trial; they are rarely decided at the interim stage.
Key Takeaways
- Section 143A interim compensation is discretionary, not automatic.
- It can be recovered only from the drawer of the cheque.
- Co-accused under Section 141 do not incur independent Section 143A liability.
- A second challenge after revision succeeds only on manifest illegality or perversity.
Frequently Asked Questions
Who has to pay interim compensation under Section 143A?
According to this judgment, interim compensation is legally recoverable only from the drawer of the cheque. Where the cheque is drawn on a partnership firm’s account, the direction operates against the firm, not independently against co-accused arrayed under Section 141.
Is interim compensation automatic once the accused pleads not guilty?
No. The Court said a plea of not guilty does not make the order automatic; the court must consider the prima facie case and the defence before exercising its discretion.
Must the court explain why it chose 20%?
A fuller explanation is preferable, but the Delhi High Court held that the absence of a separate paragraph justifying the 20% figure did not make an otherwise reasoned order perverse.
Conclusion
Karan Distributors v. Jaina India balances the two goals of Section 143A: quick interim relief for payees and fairness to accused persons. The firm that drew the cheque must pay the 20%, but non-drawer co-accused cannot be made to answer for it.
Practical takeaway: When a Section 143A order names all ‘accused persons’, partners or directors who did not draw the cheque should seek clarification that recovery lies only against the drawer.
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