Mandatory Appellate Deposit Under Section 148 Can Be Imposed On Convicted Directors When Company Cannot Be Prosecuted Due To Legal Impediment, Supreme Court Holds

The Supreme Court has clarified that appellate courts are empowered to direct a convicted director or authorised signatory to deposit the statutory minimum amount under Section 148 of the Negotiable Instruments Act, 1881, even where the company itself could not be convicted due to a legal impediment such as winding up or liquidation. The Court held that such cases do not automatically qualify as “exceptional circumstances” warranting exemption from the deposit requirement and reaffirmed the compensatory and deterrent purpose underlying the 2018 amendments to the Act.

Case Background

The dispute arose out of a commercial arrangement between Steel Authority of India Limited and Shiv Mahima Ispat Private Limited for the supply of steel products. During the financial year 2012–13, the accused company placed substantial orders for hot rolled coils, which were supplied under multiple invoices. Payment was contractually required upon receipt of goods.

In discharge of the liability, a cheque amounting to over ₹4.8 crores was issued on behalf of the company and signed by Bharat Mittal, who was a director of the company at the relevant time. Upon presentation, the cheque was dishonoured with the endorsement “Exceeds Arrangement”. Statutory notice under the Negotiable Instruments Act followed, culminating in the filing of a complaint under Section 138 against the company and its directors.

While the criminal proceedings were pending, the complainant also initiated winding-up proceedings against the company. Eventually, the company was ordered to be wound up, and liquidation proceedings commenced. As a consequence, the prosecution could not continue against the company, leaving the director as the sole accused in the cheque dishonour case.

What The Lower Authorities Held

The trial court convicted the appellant for the offence under Section 138 of the Negotiable Instruments Act and sentenced him to imprisonment along with compensation exceeding ₹8 crores. The conviction was sustained solely against the director because the company stood wound up pursuant to orders of the High Court.

In appeal, while suspending the sentence under Section 389 of the Code of Criminal Procedure, the appellate court imposed a condition requiring the appellant to deposit 20% of the compensation amount, invoking Section 148 of the Negotiable Instruments Act. Upon failure to deposit the amount, coercive steps were initiated.

The appellant challenged the deposit condition before the High Court, contending that since the company—the drawer of the cheque—was not convicted, Section 148 could not be invoked against him personally. The High Court rejected this contention, upheld the deposit requirement, and imposed costs, prompting the present appeal before the Supreme Court.

The Court’s Reasoning

Vicarious Liability Under Section 141

The Supreme Court began its analysis by reiterating settled principles governing vicarious liability under Section 141 of the Negotiable Instruments Act. While criminal liability is ordinarily personal, Section 141 creates a statutory exception by extending liability to persons who were in charge of and responsible for the conduct of the company’s business at the time of the offence.

The Court emphasised that such liability does not arise merely from designation but must be founded on responsibility and control over the company’s affairs. However, once such liability is established and a conviction follows, the convicted person stands on a different footing from an accused facing trial.

Prosecution Without The Company Due To Legal Snag

Relying on the doctrine laid down in earlier decisions, the Court reiterated that ordinarily a prosecution under Section 138 read with Section 141 cannot proceed without arraigning the company. The only recognised exception is where the company cannot be prosecuted due to a legal impediment such as liquidation or winding up.

In such cases, proceedings can validly continue against directors or responsible officers. The Court noted that once conviction is recorded in such circumstances, the individual cannot later claim immunity from the statutory consequences merely because the company was not convicted.

Scope And Purpose Of Section 148

Turning to Section 148, the Court traced the legislative intent behind its introduction in 2018. The provision was enacted to address systemic delays and abuse of appellate remedies in cheque dishonour cases, where convicted persons frequently stalled recovery by filing appeals.

Section 148 empowers appellate courts to order deposit of a minimum of 20% of the fine or compensation awarded, thereby ensuring that the complainant is not left remediless during prolonged appellate proceedings. The Court reaffirmed that the provision is generally mandatory, subject only to limited discretion in exceptional cases.

Meaning Of “Drawer” In Section 148

The appellant argued that Section 148 applies only to the “drawer” of the cheque, and since the company was the drawer, the provision could not be enforced against him personally. The Court rejected this absolutist interpretation.

While acknowledging earlier rulings that an authorised signatory is not the drawer in the strict sense, the Court clarified that Section 148 cannot be read in isolation. Where a director is convicted due to the company being legally unavailable for prosecution, the statutory objective of Section 148 would be defeated if such persons were automatically exempted.

Exceptional Circumstances Are Not Automatic

The Court firmly rejected the proposition that all cases involving vicarious liability automatically qualify as exceptional circumstances. Exemption from deposit requires a fact-specific analysis and recorded reasons demonstrating why imposition would be unjust or would render the right of appeal illusory.

Mere financial hardship, pendency of liquidation proceedings, or partial recovery through other mechanisms cannot, by themselves, justify exemption. To hold otherwise would undermine the legislative purpose of deterring frivolous appeals.

Statutory Interpretation

The Court undertook a detailed interpretation of Sections 138, 141, 143A, and 148 of the Negotiable Instruments Act. Section 138 criminalises dishonour of cheques issued for legally enforceable debt. Section 141 extends liability to persons responsible for the company’s conduct.

Section 143A empowers trial courts to grant interim compensation, while Section 148 operates at the appellate stage post-conviction. The Court held that these provisions form a cohesive statutory framework aimed at strengthening the credibility of cheque transactions.

Interpreting Section 148 purposively, the Court held that its application cannot be nullified merely because the company could not be prosecuted due to a legal snag. The statute does not envisage a vacuum where convicted individuals escape statutory obligations due to corporate insolvency.

Why This Judgment Matters

This decision brings much-needed clarity to appellate practice in cheque dishonour cases involving corporate insolvency. It prevents convicted directors from using liquidation as a shield to evade statutory deposit requirements.

For trial and appellate courts, the ruling reinforces that Section 148 is the rule and exemption is the exception. For complainants, it strengthens the enforceability of compensation orders and discourages dilatory appeals.

The judgment also harmonises earlier precedents by balancing strict statutory interpretation with legislative purpose, ensuring that the remedial objectives of the Negotiable Instruments Act are not frustrated by procedural technicalities.

Final Outcome

The Supreme Court dismissed the appeal and upheld the orders of the appellate court and the High Court. It held that the appellant was not entitled to automatic exemption from the deposit requirement under Section 148 and that no exceptional circumstances were made out.

The direction requiring deposit of 20% of the compensation amount as a condition for suspension of sentence was affirmed.

Case Details

• Case Title: Bharat Mittal v. State of Rajasthan & Ors.
• Citation: 2025 INSC 1459
• Court & Bench: Supreme Court of India; Justice Aravind Kumar
• Date of Judgment: 19 December 2025