Kiran Raj

The Supreme Court of India Division Bench of Justice Aravind Kumar and Justice N.V. Anjaria directed that the papers be placed before the Chief Justice of India for constitution of a larger bench to decide whether a convicted company director or authorised signatory can be required to deposit a minimum amount pending appeal in cheque dishonour cases. In the matter, a director convicted after a company cheque issued to a supplier was dishonoured sought suspension of sentence without making the statutory deposit, arguing that the company—treated as the cheque’s drawer—could not be prosecuted due to winding up. The Bench expressed doubt about two earlier rulings that treated such appellants as automatically exempt and said any exemption cannot be granted as a blanket rule but must turn on case-specific facts.

Steel Authority of India entered into an MoU dated 17.04.2012 with Shiv Mahima Ispat Pvt. Ltd. for supply of steel. The accused company issued a cheque dated 03.01.2013 for ₹4,82,72,269/-, signed by the appellant (director). The cheque was returned with the endorsement “Exceeds Arrangement”.

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After statutory compliance, a complaint under Section 138 NI Act was filed on 20.02.2013 against the company and its directors. A winding-up petition followed; the High Court ordered winding up on 22.04.2016 and the company was formally wound up on 01.12.2016, leaving the appellant as the available accused for continuation of prosecution. The Trial Court convicted the appellant under Section 138 NI Act and sentenced him to two years’ simple imprisonment, directing compensation of ₹8,10,00,000/- under Section 357(3) CrPC with a default sentence.

In appeal, suspension of sentence was granted on 27.11.2024 subject to deposit of 20% of the compensation under Section 148 NI Act; on non-deposit, a non-bailable warrant was issued on 12.02.2025. The High Court dismissed the appellant’s challenge on 27.05.2025 and imposed costs of ₹5,00,000, also restraining alienation of personal assets until clearance from the Official Liquidator.

The Court framed the core issue in these terms: “When a director of an accused company is convicted under Section 138… without the company itself being convicted due to some existing ‘legal snag’… can the appellate court… impose a condition of depositing 20% of the amount as prescribed under Section 148 of the Act?”

On vicarious liability, the Court set out that Section 141 “fastens vicarious liability… upon ‘every person who… was in charge of and responsible to the company for the conduct of its business’, as well as upon the company itself” and that liability may attach across distinct categories (company; persons in charge; and specified officers/directors in cases of consent/connivance/neglect).

The judgment revisited the principle that prosecution ordinarily cannot proceed against directors/signatories alone without impleading the company, subject to the exception where the company cannot be prosecuted due to a legal impediment. In that context, the Court reproduced and relied upon the formulation that “if a company is not prosecuted due to any legal snag or otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability” and then summarized the post-Aneeta Hada position, including: “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’.”

The Court also noted the doctrinal position on Section 148’s character, recording that Surinder Singh construed the statutory “may” as “shall”, making the provision mandatory, while Jamboo recognized a narrow discretion in exceptional circumstances.

As to the conflicting lines of authority, the Court stated: “a director of a company cannot be granted a blanket exemption from the deposit contemplated under Section 148… as suggested in Bijay Agarwal. Whether such exemption is warranted must necessarily depend upon the factual matrix of each individual case.” It further recorded: “we find ourselves unable to concur with the interpretation adopted” in Shri Gurudatta Sugars and Bijay Agarwal, and clarified that the disagreement was confined to the effect of those decisions insofar as they produced a blanket exemption outcome, while not disputing settled principles such as corporate separateness and the proposition regarding an authorised signatory not being equated with the “drawer” for prosecution.

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The Supreme Court recorded that “the issue identified herein requires an authoritative pronouncement by a Larger Bench of this Court on the following question: i. 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 papers be placed before Hon’ble the Chief Justice for constitution of a Larger Bench to resolve the interpretative conflict.”

Advocates Representing the Parties

For the Petitioners: Sr Adv Raghenth Basant, Advs Manaisha Kaushik, Satya Kam Sharma(AoR), Yashpriya Sharan and Hima Bharatwaj
For the Respondents: Anand Varma (AoR), Adv. Ayush Gupta

Case Title: Bharat Mittal v. State of Rajasthan and Others
Neutral Citation: 2025 INSC 1459
Case Number: Criminal Appeal arising out of Special Leave Petition (Criminal) No. 12327 of 2025
Bench: Justice Aravind Kumar, Justice N.V. Anjaria