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INTRODUCTION
In instances of dishonour of cheques where the issuer of cheque is a corporate entity, Section 141 of the Negotiable Instrument Act, 1881 ("Act") attributes vicarious liability to individuals such as directors/authorised signatories who were responsible for the conduct of the company's business at the time the offence was committed. Further, Section 143A of the Act empowers the court to direct the accused to pay up 20% of the cheque amount as interim compensation to the complainant during the pendency of a cheque-bounce case. Correspondingly and during prosecution under Section 138 read with Section 141 of the Act, Section 148 of the Act confers upon the appellate courts is empowered to require the deposit of a portion of the compensation awarded as a requisite condition for entertaining an appeal against a conviction under Section 138 (Dishonour of Cheques).
Under this statutory backdrop, the Hon'ble Supreme Court ("Court") in the case of Bharat Mittal v. State of Rajasthan and others1 ("Bharat Mittal") identified a critical conflict in sections of the Act and accordingly referred the matter to a larger Bench. The reference was made regarding whether the appellate stage deposit contemplated under Section 148 of the Act may be validly imposed on individuals held vicariously liable under Section 141 of the Act,or whether such a requirement is confined exclusively to the juristic drawer, the company itself.
At the core of the reference, two issues arise; firstly, whether in appeals against convictions under Section 138 read with Section 141 of the Act, an appellate Court can require a convicted director or authorised signatory to deposit money under Section 148 of the Act when the company issuing the cheque cannot be prosecuted because of a legal obstacle, such as winding up. In simpler terms, the question is whether the expression "drawer"2 in Section 148 of the Act must always be understood as referring only to the company, or whether it can also include individuals held vicariously liable in certain situations. Secondly, whether appellate courts retain discretion to exempt an appellant from the deposit, particularly where the appellant is not the "drawer." While the Court has acknowledged the stricter interpretation of the expression "drawer" in Section 148 of the Act in previous decisions like Gurudatta Sugars and Bijay Agarwal, in the present case it's of the view that such interpretation is not consistent with the legislative intent and a purposive approach is required to give effect to the intent of the legislature.
Thus, the Court's referral of this question to a larger Bench under scores that the courts must consider a purposive approach, particularly because Section 148 of the Act empowers appellate courts to order a convicted appellant to deposit a minimum of 20% of the compensation awarded by the trial court. The Court indicated that purposive approach is necessary to determine when such a deposit may appropriately be directed against individuals, thereby clarifying how this remedy operates within the framework of corporate separateness.
FACTS OF THE CASE
The Respondent, Steel Authority of India Limited ("SAIL") entered into a Memorandum of Understanding ("MoU") dated 17.04.2012 with M/s Shiv Mahima Ispat Private Limited for supply of steel. A cheque dated 03.01.2013 was issued by the SAIL, which was signed by its Director, the Appellant, Bharat Mittal.
The cheque was dishonoured with the endorsement "Exceeds Arrangement," leading to a complaint under Section 138 of the Act in February 2013 against the company, the Appellant and other directors. The Sessions Court allowed prosecution to continue against the company and the appellant. At the same time, SAIL initiated company winding-up proceedings which resulted in formal winding up on 01.12.2016. Thereafter, only the appellant remained available for prosecution in a case under Section 138 of the Act.
The Trial Court convicted the appellant under Section 138 of the Act, imposing two years'simple imprisonment and compensation of Rs. 8.10 crore under Section 357(3) CrPC, with default imprisonment. On appeal, the Appellate Court suspended the sentence subject to a deposit of 20% of the compensation under Section 148 NI Act. However,a non- bailable warrant issued upon non- compliance and the appellant's application for exemption from deposit was rejected, leading to a challenge before the High Court under Section 528 of Bharatiya Nagarik Suraksha Sanhita, 2023("BNSS") that ensures that the High Court always retains the power to intervene in exceptional situation, which was dismissed with costs and ancillary restraints.
In Bharat Mittal, the appellant was convicted as a director who was the authorised signatory after the company was wound up and could not be prosecuted. The Appellate Court suspended the sentence on the condition that the appellant deposit 20% of the compensation as per Section 148 of the Act. The appellant, relying on Gurudatta Sugars andBijay Agarwal, argued that the appellant was not the "drawer" of the cheque, that the company was already in liquidation with partial recoveries made, and that his financial condition and overall equities justified dispensing with the deposit. The High Court refused to intervene and held that the appellant's vicarious liability was enough not only to sustain his conviction but also to justify the deposit requirement.
On appeal, the Court reaffirmed the established legal framework i.e. vicarious liability of the director under Section 141 of the Act arises only when the company is arranged as an accused unless a legal impediment prevents the same.The Court then compared the strict, "drawer-only" reasoning used in Gurudatta Sugars and Bijay Agarwal with a more purposive interpretation. It also clarified that while Section 148 of the Act generally makes the deposit mandatory, appellate courts retain a narrow discretion to waive it in exceptional cases.
COURT'S REASONING
In confronting the issue, the Hon'ble Supreme Court frames the core question as whether the expression "drawer" in Section 148 of the Act has to be understood as referring to the company and if that is the case then, will all the cases involving vicarious convictions be treated as "exceptional" in order to exempt the appellant from making the deposit. The judgement reaffirms the statutory and precedential context, that the vicarious liability under section 141 of the Act may proceed without the company only in cases of legal impediment such as winding up, liquidation etc., and appellate courts possess limited discretion to exempt deposit under section 148 of the Actin exceptional cases.
INTERPRETATION OF DRAWER IN SECTION 148
The Court acknowledged the literal interpretation of "drawer" adopted in cases such as Shri Gurudatta Sugars Marketing Private Limited v. Prithviraj Sayajirao Deshmukh3, where the Court held that the "drawer" is the person/entity whose account is the source of funds. This means that the authorised signatory doesn't become the drawer by signing for the company and interim compensation under Section 143A of the Act cannot be imposed on such signatories. Similarly, in Bijay Agarwal v. Medilines4, the Court held that both Sections 143A and 148 of the Act operate only against the drawer, and an authorised signatory cannot be directed to deposit under Section 148 of the Act unless he is a drawer.
However, this Court observed that the literal interpretation of "drawer" in Gurudatta Sugars and Bijay Agarwal does not adequately accommodate the remedial object of the 2018 Amendment when the corporate entity is shielded by a legal impediment. The Court observed that the reasoning adopted in aforementioned cases is premised on the fact that proceedings under Section 138 of the Act are quasi-criminal with predominantly compensatory orientation. This Court was of the view that a harmonious construction of these provisions is required, indicating that a purposive interpretation aligning with legislative intent should be preferred over a stricter approach that would unduly narrow the remedial boundaries.
The Court does not overrule Gurudatta Sugars or Bijay Agarwal, but it disagrees with the outcomes to the extent that they produce a blanket exemption from Section 148 of the Act deposits for individuals in all "legal snag" cases and refers the broader interpretative conflict to a Larger Bench.
Thus, while the judgment strongly signals a purposive approach that could, in principle, permit directing a deposit under Section 148 of the Act against convicted individuals in "legal snag" scenarios, it recognises the need for authoritative resolution by a Larger Bench.
POWER TO WAIVE DEPOSIT UNDER SECTION 148
Courts in some cases have read the word "may" in Section 148 of the Act interchangeable as the meaning of the word "shall". However, the Court clarified that this 20% deposit is not an absolute rule. In Surinder Singh Deswal v. Virender Gandhi5, the Court held that the expression "may" is to be construed as "shall", thereby rendering the provision mandatory in nature. The same question arose in cases such as Jamboo Bhandariv. M.P. SIDC Ltd6 and Muskan Enterprises v. State of Punjab7, where the Court held that while Section 148 is generally mandatory, the Appellate Courts can waive the deposit in rare cases so that the right to appeal does not become meaningless. Further, Bijay Agarwal clarifies that if the appellant is not the cheque's"drawer", it can be considered a valid exceptional reason to waive the deposit, and the Appellate Court need not to permit the deposit requirement.
Additionally, the Court reaffirms the framework laid down in the case of Aneeta Hada v. Godfather Travels & Tours (P) Ltd.8, where it was held that, "for maintaining the prosecution under Section 141 of the Act, arranging of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself."
Thus, the Court is of the considered view that the Appellate Court does possess a limited discretion which can be exercised in exceptional circumstances to exempt an appellant from making the deposit contemplated under Section 148 of the Act.
Conclusion
In the present case, the Court rejected a blanket exemption for directors/authorised signatories from deposit obligations whenever the company cannot be prosecuted, holding that such exemption depends on the specific facts and should not be automatic merely because of the "legal snag". Nonetheless, the Court,as a coordinate bench, declined to provide a final substantive judgement on its own authority and referred the interpretative conflict to a Larger Bench. The Court expressly limited its disagreement to the outcomes of those decisions insofar as they create a blanket exemption for individuals from deposits under Section 148 of the Act when the company is non-prosecutable, without disturbing other settled principles (e.g., the corporate separateness doctrine and that authorized signatories are not"drawers"for purposes of prosecution).
Therefore, until the Larger Bench delivers its final substantive ruling, appellate courts may continue to apply Jamboo Bhandari and Muskan Enterprises to evaluate exceptional circumstances on a case-by-case basis, avoiding mechanical imposition of deposits as far as applicable in light of the 2018 Amendment.
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