Discretion under Section 148 of the NI Act: Supreme Court’s New Guidance

Introduction

The Supreme Court of India’s decision in Muskan Enterprises v. The State of Punjab (2024 INSC 1046) offers a fresh perspective on the interpretation of Section 148 of the Negotiable Instruments Act, 1881 (“NI Act”). Specifically, the Court was called upon to examine whether, pending an appeal against conviction under Section 138 of the NI Act, the appellate court is strictly mandated to direct the accused to deposit 20% of the compensation awarded, or whether it retains limited discretion in exceptional circumstances.

The dispute arose when the appellants, convicted under Section 138 of the NI Act, were ordered by the Sessions Court to deposit 20% of the compensation amount. Upon challenging this directive under Section 482 of the Code of Criminal Procedure, 1973 (“CrPC”), the High Court of Punjab and Haryana dismissed their petition, primarily on the ground that they had previously withdrawn a similar petition without seeking liberty to re-file. In overruling the High Court, the Supreme Court engaged extensively with two precedent-setting decisions—Surinder Singh Deswal and Jamboo Bhandari—and ultimately confirmed a discretionary reading of the word “may” in Section 148 of the NI Act, clarifying that courts can, in exceptional cases, exempt the accused from making any deposit if justified.

The appellants here included Muskan Enterprises, a proprietorship represented by the second appellant, and the respondent included the State of Punjab and the complainant. This Judgment has significant bearings on the procedural conduct of appeals under the NI Act and expands the possible arguments against mandatory deposits.

Summary of the Judgment

The Supreme Court set aside both the High Court’s dismissal of the second petition under Section 482 CrPC and the Sessions Court’s direction to deposit 20% of the compensation. The Court explained that:

• The principle of res judicata does not apply to criminal proceedings and thus withdrawing an earlier petition (without having sought explicit liberty to re-file) does not automatically prevent filing a subsequent petition under Section 482 CrPC.
• A “change in law” or a development in the interpretation of an existing law, such as the ruling in Jamboo Bhandari (which modified strict readings of Surinder Singh Deswal), constitutes a new circumstance that can justify filing a fresh Section 482 CrPC petition.
• The appellate court enjoys limited discretion under Section 148 of the NI Act to dispense with or reduce the deposit requirement in exceptional cases where imposing a deposit would be manifestly unjust or might deny the appellant a fair opportunity to pursue the appeal.
• The matter was remitted back to the Sessions Court to decide afresh on whether the deposit was warranted, applying the clarified legal principles.

Analysis

A. Precedents Cited

Two primary Supreme Court precedents informed the Court’s reasoning:

1. Surinder Singh Deswal @ Col. S.S. Deswal v. Virender Gandhi, (2019) 11 SCC 341:
   In Surinder Singh Deswal, the Court interpreted Section 148 of the NI Act to mean that deposit of 20% of the compensation is generally required, emphasizing a purposive interpretation of the provision.
2. Jamboo Bhandari v. Madhya Pradesh State Industrial Development Corporation Ltd. & Ors., (2023) 10 SCC 446:
   The Jamboo Bhandari judgment introduced the nuanced view that while Section 148 of the NI Act empowers the appellate court to order such deposit, the court also retains the discretion not to do so in rare and exceptional cases. This exception requires specific reasons to be recorded, ensuring no undue hardship is imposed upon the accused.

By applying Jamboo Bhandari, the Court recognized that the appellate court could meaningfully evaluate whether the convicted person’s circumstances justify an order waiving or reducing the deposit. The newer judgment was viewed as the more current interpretation, and Surinder Singh Deswal was understood in a manner consistent with discretionary leeway.

B. Legal Reasoning

The Supreme Court first addressed the High Court’s procedural objection that the appellants withdrew their earlier Section 482 CrPC petition without liberty to re-file. In resolving this, the Court highlighted fundamental distinctions between criminal and civil proceedings, noting that:

• The res judicata principle (Section 11 of the CPC) is not strictly applicable in criminal cases.
• Criminal procedural rules (Sections 482 and 362 CrPC) do not resemble Order XXIII Rule 1(3) of the CPC, which governs withdrawal of suits.

Further, the Court reasoned that a “change in law” or “fresh guidance” from a subsequent judgment (in this case, Jamboo Bhandari) constitutes a significant change in circumstances. Since Jamboo Bhandari recognized that “may” in Section 148 NI Act affords the court a measure of discretion, the Court concluded that the appellants were entitled to re-approach the courts to consider such discretion.

Interpreting the word “may” in Section 148 of the NI Act, the Court explained that where the appellate court finds the conviction is patently flawed or that the compensation award is exorbitantly disproportionate, it would be unjust to demand a substantial deposit. Thus, the legislative touchstone behind “may” and “shall” in the provision was confirmed: “may” confers the choice whether to order a deposit, while “shall” sets the minimum at 20% if the court decides to require a deposit.

C. Impact on Future Cases and Law

This decision makes it clear that:

• Flexible Approach: Appellate courts are no longer bound to mechanically impose a 20% deposit on every appellant challenging a conviction under Section 138 of the NI Act. They must consider the totality of circumstances and distinguish genuinely exceptional cases.
• Clarification of “May” and “Shall”: By highlighting that legislative drafters used “may” and “shall” deliberately in Section 148, the Court underscores an approach that respects the precise language of statutes. Courts must interpret “shall” as mandatory only for fixing the amount of deposit once a deposit is deemed appropriate, while “may” covers the decision whether to impose such a deposit in the first place.
• Greater Procedural Fairness: Where a trial court’s judgment appears patently unsustainable, an appellate court would not force an accused to deposit a high monetary sum. This comports with the principle that procedural rules should not operate oppressively or stifle legitimate defenses.
• Scope for Reconsideration: The Court’s analysis reaffirms that litigants may file successive petitions under Section 482 CrPC where new legal bases arise, preventing miscarriage of justice or abuse of the court’s process.

Complex Concepts Simplified

• Res Judicata: Primarily a civil law concept preventing parties from re-litigating the same issue once a court has rendered a final judgment. Here, the Court emphasizes that it does not apply strictly to criminal processes—enabling the accused to bring a fresh Section 482 CrPC petition when new legal developments emerge.
• Section 148 NI Act – “May” vs. “Shall”: Statutory interpretation often hinges on these words. “Shall” typically signifies an obligatory command, whereas “may” grants discretionary power. Section 148 uses both terms distinctly—“shall” fixes the minimum percentage of deposit (20%) if an appellate court decides to impose one, whereas “may” confirms the appellate court’s freedom to decide whether to impose any deposit at all.
• Inherent Powers under Section 482 CrPC: This provision authorizes High Courts to pass orders necessary to “secure the ends of justice” or to prevent “abuse of the process of any court.” It reflects the High Court’s extraordinary power to do what is just in criminal matters, even in situations not specifically addressed by the CrPC’s explicit provisions.
• Exceptional Circumstances: While not exhaustively defined, these may include clear errors in procedure, lack of minimum evidentiary foundation, excessively high or unjust compensation amounts, or other unique factual contexts suggesting that insisting on a deposit would work an undue hardship or denial of justice.

Conclusion

The Supreme Court’s ruling in Muskan Enterprises v. The State of Punjab (2024 INSC 1046) provides much-needed clarity on the proper application of Section 148 of the NI Act in cases involving convictions for cheque dishonor under Section 138. By distinguishing the permissive “may” from the mandatory “shall,” the Court ensures lower courts retain limited discretion to exempt convicted appellants from onerous financial deposits in truly exceptional cases.

Beyond the specific statutory interpretation, this Judgment reaffirms the broader principles that criminal procedure must remain flexible enough to adapt to shifting legal precedents and that the inherent powers of the court serve as a safeguard against potential injustices. The case stands as a pivotal precedent for future litigations under the NI Act, clarifying that while deposit of compensation remains the normative expectation on appeal, a principled exception is available where the demands of justice so require.

Overall, this decision underscores the judiciary’s ongoing commitment to a fair balance between deterring financial misconduct through prompt compensation and preventing genuine appellants from bearing unjust burdens. The Sessions Court will now reassess the deposit requirement in light of these clarified principles, setting an important course for future litigation under the NI Act.