Re‑examining “Drawer” Under Sections 143A & 148 NI Act: The Supreme Court’s Reference in Bharat Mittal v. State of Rajasthan

Re‑examining “Drawer” Under Sections 143A & 148 of the NI Act: The Supreme Court’s Reference in Bharat Mittal v. State of Rajasthan

I. Introduction

The Supreme Court’s decision in Bharat Mittal v. State of Rajasthan & Ors., 2025 INSC 1459 does not finally resolve the substantive dispute between the parties. Instead, it performs a different but very significant function: it identifies a serious interpretive conflict within the Court’s own recent jurisprudence on cheque dishonour cases under the Negotiable Instruments Act, 1881 (“NI Act”) and refers that conflict to a Larger Bench.

The central issue is narrow in wording but wide in consequence:

  • When a company’s director or authorised signatory is convicted under Section 138 read with Section 141 NI Act,
  • and the company itself cannot be prosecuted or convicted due to a “legal snag” (e.g. winding up, liquidation, insolvency moratorium),
  • can an appellate court, while hearing the director’s appeal, require him to deposit a minimum of 20% of the fine/compensation under Section 148 NI Act?

Recent decisions in Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh and Bijay Agarwal v. Medilines answered this, in effect, in favour of directors and authorised signatories: they treated the “drawer” as only the company and thereby excluded such individuals from the mandatory pre‑deposit regime of Sections 143A and 148.

In Bharat Mittal, a two‑Judge Bench (Aravind Kumar and N.V. Anjaria, JJ.) respectfully disagrees with this approach. The Bench argues for a purposive, compensation‑oriented reading of the 2018 amendments (Sections 143A & 148), and indicates that a blanket exemption for directors from appellate deposit is inconsistent with the legislative object. However, bound by the discipline of precedent, the Bench does not overrule the earlier cases; it instead refers the question to a Larger Bench for authoritative resolution.

II. Factual Background

1. The Parties and Transactions

  • Complainant / Respondent No. 2: Steel Authority of India Ltd. (“SAIL”).
  • Accused Company / Respondent No. 3: M/s Shiv Mahima Ispat Pvt. Ltd.
  • Appellant: Bharat Mittal, then Director of the accused company and signatory of the impugned cheque.

Under a Memorandum of Understanding dated 17.04.2012, SAIL agreed to supply steel to Shiv Mahima Ispat. During 2012–13, SAIL supplied about 208 MT of HR coils, invoiced and dispatched from Bokaro Steel Plant to Jaipur on 25–26.12.2012. Payment was to be made on receipt.

The accused company issued cheque dated 03.01.2013 for ₹4,82,72,269/‑, signed by the appellant as director. When presented, the cheque was dishonoured with the endorsement “Exceeds Arrangement”. After statutory notice and non‑payment, SAIL filed a complaint under Section 138 NI Act.

2. Criminal Complaint and Company Winding‑Up

  • Complaint (RCC No. 2919/2013) was filed against:
    • Accused No. 1: Shiv Mahima Ispat Pvt. Ltd. (company)
    • Accused No. 2: Bharat Mittal (appellant; signatory director)
    • Accused Nos. 3–6: Other directors.
  • Parallelly, SAIL filed a company petition (CP No. 9/2013) for winding up under Sections 433(e),(f), 434, 439 of the Companies Act, 1956.

The Trial Court took cognizance and summoned all accused. In revision, the Sessions Court quashed the process against Accused Nos. 3–6 for want of specific allegations, but maintained proceedings against the company and the appellant.

Meanwhile, a separate FIR (No. 353/2014) under Sections 420, 406, 120B IPC was lodged against the appellant and others. The police filed a closure report; a protest petition by SAIL was dismissed, and that matter attained finality.

On 22.04.2016, in the company petition, the High Court ordered winding up of Shiv Mahima Ispat; formal winding up followed on 01.12.2016, with an Official Liquidator taking charge. As a result, in the Section 138 proceedings, the company effectively became unavailable for prosecution; only the appellant remained before the criminal court.

3. Conviction, Appeal, and Section 148 Deposit Condition

The Trial Court convicted the appellant under Section 138 NI Act, sentencing him to:

  • Two years’ simple imprisonment, and
  • Compensation of ₹8,10,00,000/‑ under Section 357(3) CrPC, in default six months’ additional imprisonment.

The appellant filed an appeal under Section 374 CrPC along with an application for suspension of sentence under Section 389 CrPC. By order dated 27.11.2024, the Appellate Court:

  • Suspended the sentence,
  • But on condition that the appellant deposit 20% of ₹8.10 crore within 60 days, invoking Section 148 NI Act.

On failure to deposit, a non‑bailable warrant was issued (12.02.2025). The appellant then sought exemption from the deposit condition, contending inter alia:

  • The company had already been wound up; the Official Liquidator had accepted and partly satisfied SAIL’s claim from sale proceeds of company assets.
  • Further personal recovery from him would amount to double recovery.
  • His conviction was itself erroneous because:
    • The company was not convicted, contrary to Section 141 NI Act.
    • Supplied material was defective; about 500 MT (₹2.25 crore) was returned.
    • There was no legally enforceable debt to that extent.
  • He was in severe financial distress and could not deposit 20% of the compensation.
  • Reliance was placed on Jamboo Bhandari v. MP State Industrial Development Corp. which recognised exceptional cases in which deposit under Section 148 could be waived.

The Appellate Court rejected his application for exemption (02.05.2025), holding that the earlier suspension order was final and could not be modified (save clerical errors).

4. High Court Proceedings under BNSS and Dismissal

The appellant approached the Rajasthan High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS) against the condition requiring 20% deposit. He relied heavily on:

  • Bijay Agarwal v. Medilines, 2024 SCC OnLine SC 4094, and
  • Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh, 2024 SCC OnLine SC 1800,

where the Supreme Court had held that an authorised signatory is not the “drawer” and that only the company is the “drawer” for purposes of Sections 143A and 148; accordingly, such signatories/directors were exempted from interim compensation or appellate deposit.

The High Court, however, dismissed the petition (27.05.2025), reasoning that:

  • Under Section 141 NI Act, directors in charge of the company at the relevant time are vicariously liable.
  • The appellant was a signatory and had assured payment; he remained liable despite resignation or winding up.
  • The 20% deposit under Section 148 was mandatory; the appellant was a dilatory, “compulsive litigant”.
  • Costs of ₹5,00,000/‑ were imposed, and restraints placed on his ability to alienate personal assets pending clearance from the Official Liquidator.

Aggrieved, the appellant approached the Supreme Court, challenging both the High Court’s refusal to interfere with the deposit condition and the underlying legal interpretation of Section 148.

III. Summary of the Supreme Court’s Judgment

The Supreme Court in Bharat Mittal does not decide whether Bharat Mittal must or must not deposit 20% under Section 148. Instead, the Court:

  1. Re‑states the governing principles on:
    • Vicarious liability of directors under Section 141,
    • Necessity of arraigning the company as an accused (save for “legal snag” exception), and
    • The generally mandatory character of appellate deposits under Section 148, subject to limited discretion in exceptional cases.
  2. Analyses in detail the 2018 Amendments introducing Sections 143A (interim compensation) and 148 (appellate deposit), emphasising their compensatory, remedial and quasi‑criminal character.
  3. Examines and critiques the recent decisions in:
    • Shri Gurudatta Sugars Marketing Pvt. Ltd. (on Section 143A), and
    • Bijay Agarwal (extending the same logic to Section 148),
    which strictly confined the “drawer” to the company and effectively gave a blanket exemption from Section 148 deposit to directors and authorised signatories.
  4. Holds that such a blanket exemption is inconsistent with the purpose of the 2018 Amendments and with the compensatory nature of Section 138 proceedings, particularly in “legal snag” scenarios where only directors can be prosecuted.
  5. Nevertheless, refrains from overruling Gurudatta and Bijay since it is a co‑ordinate Bench, and therefore refers the following question to a Larger Bench:
    Whether, upon a conviction under Section 138 read with Section 141, 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 decision thus functions as a reference order: it identifies a conflict, criticises prior reasoning, but leaves the law formally unchanged pending Larger Bench adjudication.

IV. Precedents and Authorities Considered

1. Vicarious Liability of Directors: Section 141 NI Act

Section 141 makes both the company and certain persons connected with it liable where the company commits an offence under Section 138:

  • The company itself,
  • Every person who, at the time of the offence, was in charge of and responsible for the conduct of the company’s business, and
  • Any director/manager/secretary/other officer whose consent, connivance or neglect led to the offence.

Key decisions reaffirmed in Bharat Mittal include:

  • SMS Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89:
    • Specific averment in the complaint that the accused was in charge of and responsible for the conduct of the business at the relevant time is essential.
    • Mere status as “director” is not enough; no deemed liability except for positions like Managing Director or Joint Managing Director.
    • The signatory of a dishonoured cheque is clearly liable under Section 141(2).
  • K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48:
    • Managing Director/Joint Managing Director can be presumed to be in charge of affairs.
    • Other directors/officials require specific pleadings about their role and responsibility.
  • National Small Industries Corp. v. Harmeet Singh Paintal, (2010) 3 SCC 330 and CBI v. Asian Global Ltd., (2010) 11 SCC 203:
    • Vicarious criminal liability arises only where statute explicitly provides and stipulated conditions are strictly met.
    • Mere designation does not suffice; material must show involvement in day‑to‑day management.

2. Prosecution Without Arraigning the Company: The “Legal Snag” Exception

This line of cases is critical in Bharat Mittal because the company was wound up and could not realistically be prosecuted:

  • Anil Hada v. Indian Acrylic Ltd., (2000) 1 SCC 1:
    • Recognised that where the company cannot be prosecuted “due to any legal snag,” prosecution can still proceed against persons in charge (directors, etc.).
    • However, conviction of such persons still requires a finding that the company committed the offence.
  • Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd., (2012) 5 SCC 661:
    • General rule: the company must be arraigned as an accused in a Section 138/141 complaint; prosecution of directors alone is not maintainable.
    • Exception: where the company cannot be prosecuted due to a legal impediment (e.g., liquidation, statutory bar), proceedings may continue against the “category of persons” under Section 141.

This “legal snag” or “legal impediment” exception underlies the paradox highlighted in Bharat Mittal: the law allows prosecution and conviction of directors even when the company cannot be before the court, yet recent case law would exempt those very directors from the remedial apparatus of Sections 143A and 148.

3. Appellate Deposit Under Section 148: Mandatory or Discretionary?

  • Surinder Singh Deswal v. Virender Gandhi, (2019) 11 SCC 341:
    • Interpreted “may” in Section 148(1) as “shall”, treating the appellate deposit requirement as generally mandatory.
  • Jamboo Bhandari v. MP State Industrial Development Corp., (2023) 10 SCC 446:
    • Affirmed Surinder Singh’s purposive reading but clarified that appellate courts retain a limited discretion:
    Normally, the appellate court will be justified in imposing deposit under Section 148. However, in an exceptional case where imposing the 20% deposit would be unjust or effectively deprive the appellant of the right of appeal, the court may dispense with deposit, for reasons recorded.
  • Muskan Enterprises v. State of Punjab, 2024 SCC OnLine SC 4107:
    • Reiterated Jamboo Bhandari: Section 148 is generally mandatory, but discretionary in truly exceptional circumstances.

Bharat Mittal expressly concurs with Jamboo and Muskan, affirming that:

  • Appellate courts normally must insist on deposit,
  • But have jurisdiction to exempt an appellant where deposit would be unjust or would render the appeal illusory, provided reasons are recorded.

4. “Drawer” and Interim/Appellate Monetary Liability: Gurudatta and Bijay

(a) Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh, 2024 SCC OnLine SC 1800

In Gurudatta, cheques were drawn by Cane Agro Energy (India) Ltd. The company entered Corporate Insolvency Resolution Process (CIRP) before the NCLT; hence, it could not be effectively proceeded against under Section 138. The Magistrate nevertheless directed the directors/authorised signatories to pay interim compensation under Section 143A.

The Supreme Court held:

  • “Drawer” has a precise meaning in Section 7 NI Act: the person whose account is drawn upon (the account‑holder).
  • An authorised signatory, signing on behalf of the company, does not become the “drawer”. The company, as separate juristic person, is the only drawer.
  • Vicarious liability of officers under Section 141 is a criminal concept; Section 143A (interim compensation) is a separate monetary liability and cannot be extended to such officers by analogy.
  • Accordingly, interim compensation under Section 143A can only be ordered against the drawer — here, the company, not its signatories/directors.

(b) Bijay Agarwal v. Medilines, 2024 SCC OnLine SC 4094

In Bijay, the appellant was described as an authorised signatory/director of Gee Pee Infotech Pvt. Ltd. He was convicted under Section 138. The Appellate Court, while suspending sentence, directed him to deposit 20% of the fine/compensation under Section 148. The High Court upheld this condition.

Relying on Gurudatta, the Supreme Court held:

  • Section 143A (trial‑stage interim compensation) and Section 148 (appeal‑stage deposit) are “analogous” provisions; both empower courts to order payments only against the “drawer”.
  • The proviso to Section 148(1), which links Section 148 deposit with any Section 143A interim compensation already paid, reinforces that both apply to the same person — the drawer.
  • An authorised signatory, merely by signing the cheque, does not become the drawer.
  • Therefore, directing such a signatory to make deposit under Section 148 is impermissible.
  • Jamboo Bhandari was invoked to say: forcing a non‑drawer to deposit would itself be an “exceptional circumstance” warranting exemption.

The Court quashed the deposit condition and restored the suspension of sentence without any monetary deposit requirement.

5. Nature of Section 138 Proceedings: Quasi‑Criminal and Compensatory

To reposition Sections 143A and 148 as compensatory and remedial rather than purely penal, the judgment in Bharat Mittal cites several authorities:

Collectively, these precedents support the Court’s description of Sections 143A and 148 as provisions that, though couched in penal form, are fundamentally compensatory and restorative, thereby justifying a purposive, not strictly penal, interpretation.

V. The Court’s Legal Reasoning

1. Statutory Scheme, Legislative Intent, and Purposive Interpretation

The Court begins by emphasising the Statement of Objects and Reasons of the 2018 Amendment introducing Sections 143A and 148:

  • There were systemic delays in disposal of cheque dishonour cases.
  • Unscrupulous drawers used procedural tactics and appellate stays to delay or avoid payment.
  • This caused serious injustice to payees, undermined the sanctity and credibility of cheques, and hindered trade and commerce.
  • The amendments were intended:
    • To provide early, interim financial relief to payees (Section 143A), and
    • To prevent appeals from becoming tools for stalling recovery by mandating a minimum 20% pre‑deposit (Section 148).

Section 148, in particular:

  • Operates post‑conviction and is independent of the CrPC due to its non‑obstante clause.
  • Authorises the appellate court to direct deposit of at least 20% of the fine/compensation.
  • Allows release of deposit to the complainant during pendency of appeal, with restitution plus interest if the appeal succeeds.

From this architecture, the Court draws several conclusions:

  • Sections 143A and 148 are designed to achieve restitutionary justice and discourage dilatory, frivolous litigation.
  • The deposit obligations are interim and reversible, not a final affirmation of guilt; they do not shift the burden of proof or create a presumption against the appellant.
  • Thus, treating them as if they were purely penal provisions attracting the strictest literal construction is doctrinally unsound.

2. Purposive vs Literal Interpretation of “Drawer”

The Bench acknowledges that Gurudatta and Bijay adopt a strict textual approach:

  • They tie “drawer” in Sections 143A and 148 to the definition in Section 7 (maker of the cheque).
  • They emphasise corporate separateness and treat only the company as “drawer” where the account is in the company’s name.
  • They refuse to extend this label to directors or signatories, even when they are being prosecuted and convicted under Section 141.

Bharat Mittal accepts the correctness of these principles in the context of criminal liability and prosecution:

  • The Court explicitly states it does not disagree with:
    • The doctrine of corporate separateness, or
    • The proposition that authorised signatories are not “drawers” for the purpose of prosecution.

But the Court insists that when it comes to interim monetary and appellate deposit obligations:

  • Sections 143A and 148, being compensatory/quasi‑criminal, must be construed purposively to give effect to the legislative object of protecting payees.
  • A narrow, purely literal reading of “drawer” in these provisions can frustrate this object, especially in “legal snag” scenarios.

Consequently, the Court argues that:

  • It is not necessary — nor appropriate — to mechanically transplant the Section 7 definition of “drawer” to Sections 143A and 148 in a way that defeats the remedial scheme.
  • Purposive interpretation, tied to the 2018 Amendment’s mischief‑remedying object, should prevail.

3. The “Legal Snag” Scenarios and the Problem of Blanket Exemption

The Court’s central concern is the following scenario (illustrated by the present case):

  1. A complaint under Section 138/141 is validly instituted against both company and its directors/authorised signatory.
  2. During pendency, a “legal impediment” arises: e.g., the company is wound up, under insolvency moratorium, or otherwise non‑prosecutable.
  3. By the Aneeta Hada exception, prosecution continues only against the “category of persons” (directors etc.).
  4. Those individuals are duly convicted under Section 138 read with Section 141.
  5. An appeal is filed by the convicted director.

Under Gurudatta and Bijay, in such a setting:

  • Only the company is treated as “drawer” for Sections 143A and 148.
  • Since the company is unavailable, no interim compensation under Section 143A and no appellate deposit under Section 148 can ever be ordered against the director, regardless of his control over the company or the strength of the complainant’s claim.

The Bharat Mittal Bench explains why this outcome is problematic:

  • It effectively disables Sections 143A and 148 in precisely those cases where only the directors are prosecutable — i.e., where the company is defunct, in liquidation or shielded by a legal bar.
  • It produces an artificial and unwarranted distinction:
    • Directors of a functioning company can be subjected to interim compensation and appellate deposit (via the company),
    • But directors of a wound‑up company, who are otherwise liable and convicted, automatically escape these obligations.
  • This frustrates the 2018 Amendments’ purpose of strengthening payee protection and discouraging frivolous appeals.
  • It deprives complainants — frequently banks and traders — of meaningful interim relief in the very situations where the underlying default is most serious (e.g., insolvency, winding up).

The Court is clear that such a consequence “could never have been the intention of the legislature.”

4. Clarifying the Role of Judicial Discretion Under Section 148

Another key clarification is that the Court rejects the idea that all cases of vicarious liability (where the company cannot be prosecuted) should automatically be declared “exceptional cases” warranting exemption from appellate deposit.

The Bench insists that:

  • No blanket exemption can be granted to all directors or authorised signatories merely because they are not technically the “drawer” for Section 7 purposes.
  • Whether an exemption from deposit under Section 148 is warranted must be decided:
    • Case by case,
    • In light of the facts (e.g., financial condition, quantum of partial recovery, equities between parties), and
    • By recording specific reasons, as mandated in Jamboo Bhandari.

In other words, being a non‑drawer director is not by itself sufficient to qualify as an “exceptional circumstance”. This runs counter to the broad tenor of Bijay, which effectively treated non‑drawer status as a sufficient exceptional ground.

5. Respectful Disagreement and Reference to Larger Bench

Having explained why a purely literal construction of “drawer” in Sections 143A and 148 produces results inconsistent with the statute’s remedial purpose, the Bench states:

  • It is unable to concur with the conclusions in Shri Gurudatta Sugars and Bijay Agarwal insofar as they lead to a blanket exemption for Section 141 “category of persons” from the operation of Section 148 when the company cannot be prosecuted.
  • However, it fully endorses:
    • The doctrine of corporate separateness, and
    • The proposition that authorised signatories are not “drawers” for the purposes of criminal prosecution.

Being a co‑ordinate Bench, it cannot overrule or depart from earlier co‑ordinate decisions. Hence, it invokes the mechanism of reference:

  • The identified issue — scope of “drawer” and applicability of Section 148 deposits to convicted directors/authorised signatories — requires an authoritative pronouncement by a Larger Bench.
  • Papers are directed to be placed before the Chief Justice of India for constitution of such Larger Bench.

Until the Larger Bench decides, the law formally remains as declared in Gurudatta and Bijay, but is now openly questioned and in a state of flux.

VI. Impact and Implications

1. Immediate Practical Position

As of this judgment:

  • Vicarious liability under Section 141 remains unchanged:
    • Directors “in charge of and responsible for” the company’s business, as well as those whose consent/connivance/neglect led to the offence, are prosecutable and convictable under Section 138/141, including in “legal snag” cases.
  • Section 148 is generally mandatory, with limited discretion in exceptional circumstances as per Jamboo Bhandari and Muskan Enterprises.
  • Gurudatta and Bijay technically continue to bind lower courts:
    • An authorised signatory/director is not “drawer” for Sections 143A/148.
    • Interim compensation and appellate deposits cannot ordinarily be directed against them purely as signatories.
  • But Bharat Mittal introduces strong, reasoned doubt as to the correctness of treating such persons as uniformly exempt from Section 148 in “legal snag” cases.

Trial and appellate courts will likely continue to follow Gurudatta and Bijay, but may:

  • Be more cautious in treating non‑drawer status as an automatic ground to waive deposit, and
  • Be more receptive to arguments about purposive interpretation and legislative intent, pending Larger Bench clarification.

2. Potential Outcomes Before the Larger Bench

The Larger Bench might, broadly speaking, adopt one of several approaches:

  1. Affirm Gurudatta and Bijay in full:
    • “Drawer” for Section 143A & 148 remains strictly the company/account‑holder.
    • Directors/signatories cannot be asked to pay interim compensation or appellate deposits as such.
    • Payees’ protection under 2018 Amendments would be weaker in “legal snag” cases.
  2. Partially modify the approach:
    • Affirm non‑drawer status for criminal prosecution,
    • But hold that for compensatory/interim monetary liabilities under Sections 143A/148, persons “deemed guilty” under Section 141 may also be directed to pay, especially when the company cannot be proceeded against.
    • This would align with the purposive, remedial rationale in Bharat Mittal.
  3. Distinguish between Section 143A and Section 148:
    • Possibly retain a narrow reading of “drawer” in Section 143A (trial‑stage),
    • But adopt a broader, purposive interpretation in Section 148 (post‑conviction stage) permitting deposit directions against convicted directors/authorised signatories, particularly in “legal snag” cases.

Each path has significant implications for:

  • The efficacy of cheque dishonour prosecutions, especially in insolvency/winding‑up contexts,
  • The exposure of directors to interim and appellate monetary burdens alongside criminal liability, and
  • The balance between payee protection and right of appeal.

3. Interaction with Insolvency and Winding‑Up Regimes

The issue is especially salient where companies are:

  • In winding up under the Companies Act, as in Bharat Mittal, or
  • Under CIRP/moratorium under the Insolvency and Bankruptcy Code (IBC), as in Gurudatta and P. Mohanraj.

Under current law:

  • Section 138 proceedings against the corporate debtor are stayed under IBC moratorium (P. Mohanraj),
  • But proceedings against directors/guarantors can continue, and they can be convicted.

If directors are also shielded from interim compensation and appellate deposit in such cases, payees may be left with a paper conviction but limited practical remedy during prolonged appellate and insolvency processes. Bharat Mittal flags this as a policy/law‑in‑action problem that the Larger Bench must address.

VII. Simplifying Key Legal Concepts

1. “Drawer” vs “Signatory”

  • Drawer (Section 7 NI Act): the person who makes the cheque — typically, the account‑holder (individual or company) whose bank account is to be debited.
  • Authorised signatory: the individual who signs the cheque on behalf of the account‑holder (e.g., a director signing for a company).
    • In law, the company remains the drawer; the signatory does not become the drawer merely by signing.

2. Vicarious Liability Under Section 141 NI Act

Section 141 allows certain individuals to be held liable when a company commits an offence under Section 138:

  • Those “in charge of and responsible for” the conduct of business at the relevant time, and
  • Those whose consent/connivance/neglect led to the offence.

This is an exception to the normal rule in criminal law that liability is personal. It is strictly construed, but once attracted, such individuals can be:

  • Prosecuted,
  • Convicted, and
  • Subjected to punishment similar to that of the company.

3. “Legal Snag” / Legal Impediment

From Anil Hada and Aneeta Hada, a “legal snag” means a legal obstacle that prevents prosecution of the company, such as:

  • Winding up and dissolution,
  • Statutory bars or moratoria (e.g., insolvency moratorium under IBC),
  • Other legal incapacities.

In such cases:

  • Prosecution can proceed directly against directors/others under Section 141;
  • However, the Court must still find that the company committed the offence to convict them.

4. Interim Compensation (Section 143A) vs Appellate Deposit (Section 148)

  • Section 143A:
    • Applies at the trial stage, when:
      • The accused pleads not guilty in a summary/summons case, or
      • Charges are framed in other cases.
    • Allows the court to order the “drawer” to pay interim compensation not exceeding 20% of the cheque amount, within set time lines.
    • Refund: If the accused is acquitted, the complainant must refund this amount with RBI bank rate interest.
  • Section 148:
    • Applies at the appellate stage, when the drawer appeals against conviction.
    • Appellate court may (and generally must) order deposit of a minimum of 20% of the fine or compensation awarded by the trial court.
    • Deposit within 60 days (extendable by 30 days for sufficient cause).
    • Amount can be released to complainant during pendency of appeal, with refund plus interest if the appeal succeeds.

5. Quasi‑Criminal Nature of Section 138 Proceedings

Section 138 cases:

  • Resemble civil recovery actions (they are about unpaid debts/liabilities),
  • But are given criminal form (with possible imprisonment and fine) to increase deterrence and ensure speedy payment.

Because of this hybrid nature:

  • Courts treat Section 138 as a remedial/compensatory mechanism with criminal overtones, not as a traditional penal statute.
  • This justifies purposive interpretation aimed at making cheque‑based commerce reliable and ensuring payees are compensated without undue delay.

VIII. Conclusion

Bharat Mittal v. State of Rajasthan marks an important moment in the evolving jurisprudence on cheque dishonour under the NI Act. The judgment does three things of enduring significance:

  1. Reaffirms the foundational structure of Section 138/141 prosecutions:
    • Vicarious liability of directors is exceptional but real;
    • Prosecution can continue only against such individuals where a “legal snag” prevents proceeding against the company, yet they can still be convicted.
  2. Clarifies the nature and purpose of Sections 143A and 148:
    • They are not mere punitive add‑ons but central to the compensatory and restorative design of Section 138;
    • Section 148 pre‑deposit is generally mandatory, with limited space for carefully reasoned exemptions.
  3. Squarely questions the recent trend (in Gurudatta and Bijay) of treating directors and authorised signatories as automatically exempt from interim compensation or appellate deposits on the ground that they are not “drawers” in the technical sense:
    • It finds this approach inconsistent with the 2018 Amendment’s intent to curb delay and protect payees;
    • It highlights the anomaly of allowing conviction of such persons while depriving complainants of the very remedial tools the legislature introduced;
    • But, in deference to judicial discipline, it refers the issue to a Larger Bench instead of unilaterally changing the law.

The forthcoming decision of the Larger Bench on the precise reach of “drawer” in Sections 143A and 148 — and on whether convicted directors/authorised signatories can be compelled to make appellate deposits in “legal snag” scenarios — will have far‑reaching implications. It will determine not only the practical power of courts to grant effective interim and appellate relief in cheque dishonour cases, but also the delicate balance between:

  • The right of appeal and protection of individual directors, and
  • The legitimate expectation of payees that a dishonoured cheque, once proved, will lead to real and timely recovery.

Until then, Bharat Mittal stands as a carefully reasoned call for a more purposive, commercially realistic reading of the NI Act’s compensatory provisions, one that honours both corporate law principles and the legislature’s clear resolve to restore confidence in cheque‑based transactions.

Case Details

Year: 2025
Court: Supreme Court Of India

Judge(s)

Justice Aravind Kumar

Advocates

SATYA KAM SHARMA

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