Can Appellate Deposit U/S.148 NI Act Be Directed Against Convicted Director Of Company?: Supreme Court Refers Issue To Larger Bench

The Supreme Court has referred the question to a Larger Bench regarding: Whether, upon a conviction under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (NI Act), the appellate deposit contemplated by Section 148 may be directed against a convicted director/authorized signatory, or whether such deposit is confined to the juristic “drawer/company” alone in all scenarios?

The Court was hearing a Criminal Appeal filed by an accused against the Judgment of the Rajasthan High Court, by which his Petition was dismissed on the ground that, under Section 141 of the NI Act, directors in charge of the company at the relevant time can be held vicariously liable.

The two-Judge Bench of Justice Aravind Kumar and Justice N.V. Anjaria observed, “We consider it necessary to clarify that our observations are confined solely to the outcome of those decisions insofar as they adopt a strict interpretation of the provisions, which has the effect of granting a blanket exemption from the deposit contemplated under Section 148 to the category of persons referred to in Section 141 of the Act in situations where the company cannot be prosecuted. We have not, even for a moment, expressed any disagreement with the settled principles reaffirmed in those decisions such as the doctrine of corporate separateness or the proposition that an authorised signatory of a company cannot be equated with the ‘drawer’ of the cheque for the purposes of prosecution. … In our considered view, the issue identified herein requires an authoritative pronouncement by a Larger Bench of this Court”

The Court remarked that as a Bench of co-equal strength, it is bound by the principles of judicial discipline and, therefore, cannot take a different view on its own.

Senior Advocate Raghnenth Basant appeared on behalf of the Appellant, while Senior Advocate Nagamuthu appeared on behalf of the Respondents.

Brief Facts

The Respondent-Steel Authority of India Limited (SAIL) had entered into a Memorandum of Understanding (MOU) with Shiv Mahima Ispat Private Limited (accused company) for the supply of Steel. During the financial year 2012–13, the accused company ordered 208.01 metric tonnes of HR (Hot Rolled) coils, which were dispatched from the Complainant’s Bokaro Steel Plant to Kanakpura Railway Siding, Jaipur District through multiple invoices. The accused company issued a cheque to the Complainant company, which was signed by the Appellant-accused who was the accused company’s director. However, on depositing the cheque amount before the concerned bank, the cheque was returned with an endorsement “Exceeds Arrangement”. Resultantly, a Complaint was before the Trial Court against the accused company arraying the Appellant. In the meanwhile, a Company Petition was also filed before the High Court, seeking winding up of the accused company.

The Trial Court took cognizance and summoned the accused persons. This was challenged via Revision Petition and the Sessions Court partly allowed the same by quashing the summons against the accused nos. 3-6, but allowed the prosecution to continue against the accused company and the Appellant. The Complainant lodged an FIR under Sections 420, 406, and 120B of the Indian Penal Code, 1860 (IPC) but the Investigating Officer (IO) concluded that there was no sufficient evidence to support the criminal allegations. Thereafter, the High Court ordered that the accused company be wound up. The Trial Court convicted the Appellant under Section 138 of NI Act and sentenced him to undergo two years’ simple imprisonment. The Appellant Court suspended the sentence but required 20% deposit under Section 148 NI Act. As the High Court dismissed the Appellant’s Petition, he was before the Apex Court.

Court’s Observations

The Supreme Court in view of the above facts, reiterated, “… where a company commits an offence under Section 138 read with Section 141 of the Negotiable Instruments Act, the persons who were in charge of and responsible for the conduct of its affairs at the relevant time may also be held vicariously liable along with the company.”

The Court was of the view that the “category of persons” referred to in Section 141 of the Act cannot be prosecuted in a complaint under Section 138 read with Section 141 unless the company is also arrayed as an accused.

“The only exception arises where, due to a legal impediment, the company cannot be prosecuted, in such circumstances, the prosecution may proceed solely against the ‘category of persons’. … Where a complaint has been properly filed against both the company and the ‘category of persons’, but during the pendency of the proceedings the company goes into liquidation, winding-up, or faces any other legal snag, the prosecution will continue only against the ‘category of persons’ and not against the company”, it added.

The Court said that when a prosecution proceeded just against the managerial persons or the category of persons and not against the company because of some legal snag, as is in the present case, such managerial persons can be convicted of the offences under Section 138 r/w Section 141 and a person who has been convicted can maintain an Appeal against his conviction.

“… in the present case, while examining whether the appellant may be exempted from the deposit contemplated under Section 148 of the Act, the foremost question that arises is whether the appellate court indeed possesses the discretion to grant such exemption. It is only upon affirming the existence of such discretion that the applicability of the same to the facts of the present case can be assessed”, it noted.

The Court emphasised that Section 148 must be read harmoniously with the broader legislative scheme introduced in 2018, which sought to foreground restitutionary justice as a central feature of cheque dishonour cases.

“The mischief targeted by the amendment was not merely the delay in trial, but the erosion of confidence in the cheque as a reliable negotiable instrument of commerce. By obligating the Appellate Court to consider a pre-deposit, the Legislature sought to infuse financial discipline and ensure that convictions under Section 138 attain practical efficacy, rather than remain symbolic judicial declarations”, it remarked.

The Court further observed that Section 148 does not interfere with or dilute the Appellate Court’s authority to independently assess the merits of the conviction and that the requirement of a pre-deposit does not create a presumption against the Appellant, nor does it shift the burden of proof; rather, it operates within the realm of procedural regulation and is intended to maintain the integrity of the proceedings without impinging upon substantive rights.

“The appellate adjudication remains fully insulated from the interim financial arrangement mandated by Section 148. … Thus, in conclusion, this Court in Bijay Agarwal held that the interpretation of the expression ‘drawer’ as elucidated in Gurudatta for the purposes of Section 143A is equally applicable to the same expression occurring in Section 148 of the NI Act”, it enunciated.

The Court also said that in cases where there is no legal impediment in prosecuting a company, or where the prosecution is directed against a natural person, the statutory requirement to make payment under Sections 143A and 148 applies without exception.

“To then completely exempt an accused person of a company that is shielded by a legal snag from the obligation to make such payment despite standing on the same footing as those who are otherwise are required to comply with the deposits would create an artificial and unwarranted distinction. Such a differential treatment between two categories of accused persons, similarly situated in all material respects, runs contrary to the very purpose for which the legislature introduced the amendment”, it added.

Moreover, the Court emphasised that while interpreting Sections 143A and 148 of the Act, due regard must be had to the legislative intent underlying their enactment.

“The object behind the introduction of these provisions was to address the problem of undue delay in the final resolution of cheque dishonour cases, to provide meaningful interim relief to the payees of dishonoured cheques, and to discourage frivolous and vexatious defences, thereby conserving judicial time and resources. The amendments were enacted with the larger purpose of strengthening the credibility of cheque transactions and promoting trade and commerce, by ensuring that lending institutions and banks retain the confidence to extend financial assistance to productive sectors of the economy”, it noted.

Conclusion

The Court was of the view that to deny the Complainant the benefit of these amendments merely because the criminal proceedings are instituted against the directors of a non-existent company, and not against the company itself owing to a legal impossibility or impediment, would be to deprive lenders and payees of the very relief that the amendment sought to secure and such an interpretation would run counter to the legislative intent and would effectively defeat the purpose of the amendment.

“Therefore, in order to answer the question formulated in Paragraph 8, we are of the considered view that a director of a company cannot be granted a blanket exemption from the deposit contemplated under Section 148 of the Act, as suggested in Bijay Agarwal. Whether such exemption is warranted must necessarily depend upon the factual matrix of each individual case”, it said.

The Court observed that the case would require to be considered by a Larger Bench and clarified that its observations are confined solely to the outcome of those decisions insofar as they adopt a strict interpretation of the provisions, which has the effect of granting a blanket exemption from the deposit contemplated under Section 148 to the category of persons referred to in Section 141 of the Act in situations where the company cannot be prosecuted.

“We have not, even for a moment, expressed any disagreement with the settled principles reaffirmed in those decisions such as the doctrine of corporate separateness or the proposition that an authorised signatory of a company cannot be equated with the ‘drawer’ of the cheque for the purposes of prosecution. … we direct that the papers be placed before Hon’ble the Chief Justice for constitution of a Larger Bench to resolve the interpretative conflict”, it directed and concluded.

Accordingly, the Apex Court referred the issue to a Larger Bench.

Cause Title- Bharat Mittal v. State of Rajasthan and Ors. (Neutral Citation: 2025 INSC 1459)

Appearance:

Appellant: Senior Advocate Raghnenth Basant, AOR Satya Kam Sharma, Advocates Manisha Kaushik, Yashpriya Sahran, and Hima Bharatwaj.

Respondents: Senior Advocate Nagamuthu, AOR Anand Varma, and Advocate Ayush Gupta.

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