Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(All) 465

IN THE HIGH COURT OF JUDICATURE AT ALLAHABAD
JAI KRISHNA UPADHYAY, J.
Rahul Yadav – Appellant
versus
State of U.P. and Another – Respondent
APPLICATION U/S 528 BNSS No. - 22924 of 2026
Decided on : 02-06-2026

Advocates Appeared:
For the Appellant : Shubham Kumar Yadav, Shubhendu Mishra

The authority to grant interim compensation for dishonoured instruments is discretionary, not mandatory. Courts must prima facie evaluate the complaint's merits and the plausibility of the defense, ensuring that orders are not passed mechanically while leaving deeper evidentiary disputes for the substantive trial.

Headnote:(A) Negotiable Instruments Act, 1881 - Section 138 - Section 143-A - Power to direct interim compensation - Provision is discretionary and directory in nature, not mandatory - Court must record reasons after evaluating prima facie merits of complaint and defence - Presumptions under Sections 118 and 139 continue to operate unless rebutted during trial. (Paras 3, 6, 7, 8)

(B) Prima facie standard - Requires initial, reliable impression rather than proof beyond reasonable doubt - Judge must avoid conducting 'mini-trial' at preliminary stage while ensuring facts disclose genuine offence - Defense regarding misuse of instruments is a matter to be adjudicated during trial. (Paras 9, 10, 11)

Facts of the case:
The applicant challenged orders directing the payment of 20% of the cheque amount as interim compensation. The complainant alleged that the accused had issued cheques to discharge a business liability, which were subsequently dishonored due to insufficient funds. The applicant contended that the transaction was unverified, no debt existed, and the instruments were stolen or misused. The lower courts upheld the order for interim compensation.

Findings of Court:
The courts found that the lower authorities correctly exercised discretion by considering the existence of the complaint, the nature of the allegations, and the admitted signatures on the instruments. The court held that a defense of misuse does not automatically exclude the grant of interim compensation, as this defense requires full evidence during the trial phase.

Issues: Whether the appellate court and lower court properly exercised discretion under the statutory provisions for interim compensation, and whether the requirement to evaluate the prima facie merits of the case had been satisfied.

Ratio Decidendi: Power under the relevant section is discretionary and not mandatory; therefore, courts must perform a prima facie assessment of the complaint and the plausibility of the defense. When the complaint sufficiently discloses the nature of the liability and the signatures on the instrument are admitted, the court is justified in awarding interim compensation without conducting a mini-trial on factual defenses.

Result: Application dismissed.

Table of Content
1. factual procedural history of the complaint and section 143-a application. (Para 1 , 2 , 5)
2. parties' contentions regarding the discretionary nature of interim compensation under section 143-a. (Para 3 , 4)
3. statutory framework and supreme court guidelines on discretionary interim compensation. (Para 6 , 7)
4. application of the 'prima facie' standard to section 143-a ni act proceedings. (Para 8 , 9 , 10 , 11)
5. final judicial assessment and dismissal of the application. (Para 12 , 13 , 14 , 15 , 16)

JUDGMENT :

JAI KRISHNA UPADHYAY, J.

1. Heard Sri Subham Kumar Yadav alongwith Shubhendu Mishra, learned counsel for the applicant, Sri Vishwa Deepak Mishra, learned AGA-I for the State and perused the record.

2. This application under Section 528 BNSS has been filed by the applicant for quashing the order dated 14.05.2026 passed by the Court of learned Sessions Judge, Gautam Buddh Nagar in Criminal Revision No. 36 of 2026 (Rahul Yadav vs. Rohit Singh) as well as the order dated 20.11.2025 passed by the learned Special Court, 138 N.I. Act, Gautam Buddh Nagar arising out of Complaint Case No. 9574 of 2024, under Section 138 of N.I. Act, 1881 (Rohit Singh Vs. Rahul Yadav), P.S. Sector 39, District Gautam Buddh Nagar whereby the application under Section 143-A N.I. Act moved on behalf of opposite party no.2 has been allowed.

3. Learned counsel for the applicant submitted that the alleged transaction was found upon unverified and disputed cash payments allegedly made over a prolonged period without any independent documentary proof, receipt, banking transaction, income tax disclosure, or legally admissible evidence establishing the existence of a legally enforceable debt or liability. It is furher submitted that impugned order dated 20.11.2025 allowing the application under Section 143-A of N.I. Act, is illegal, arbitrary, perverse and contrary to the settled principle of law. It was further submitted that trial Courts while passing the impugned orders dated 20.11.2025 and 14.05.2026, failed to appreciate that the provision under Section 143-A N.I. Act is directory and discretionary in nature and not mandatory as has been held by Hon'ble Apex Court in Rakesh Ranjan Shrivastava vs. The State of Jharkhand & Anr. (2024) 4 SCC 419. He further submitted that learned Trial Court failed to prima facie evaluate the merits of the complaint as well as the plausible defence raised by the applicant that no legally enforceable debt or liability existed between the parties, no business transaction or settlement of account ever took place and the aforesaid cheques were allegedly misused from the vehicle of the petitioner.

4.Per contra, learned AGA-I argued that the impugned order is well- reasoned and passed strictly in accordance with the law. It was submitted that the cheques admittedly belong to the accused and bear his signatures; therefore, the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act operate against the accused. It was further argued that Section 143-A was enacted specifically to strengthen the credibility of cheque transactions and prevent unnecessary delays in the disposal of cases under Section 138 N.I. Act.

5. After perusal of the record, it transpires that the complainant filed a complaint under Section 138 Negotiable Instrument Act on 30.07.2024 alleging that the accused-applicant, engaged in the real estate business, had a liability of Rs. 10,00,000/- towards the complainant. To discharge this liability, three cheques were issued (amounting to Rs. 3,00,000/-, Rs. 6,00,000/-, and Rs. 1,00,000/-), which were dishonoured upon presentation with the remarks "Funds Insufficient" and "Account Inoperative". Following this an application under Section 143-A of Negotiable Instrument Act was filed by the complainant seeking interim relief as per the said provision of law. The Learned Trial Court, after hearing both the parties and perusing the material available on the record, vide order dated