20% Pre-Deposit Under Section 148 NI Act Is Not Automatic—Discretion Must Be Applied: Delhi High Court

Merely Being Convicted in a Cheque Bounce Case Does Not Mean Automatic Pre-Deposit—Judicial Discretion Must Be Applied - Delhi High Court, in a significant ruling held that the requirement of depositing 20% of the compensation amount under Section 148 of the Negotiable Instruments Act (NI Act), 1881, is not mandatory in every case and must be applied judiciously. The Court set aside the order of the Additional Sessions Judge (ASJ), Rohini Courts, Delhi, which had directed businessman Anuj Ahuja to deposit 20% of the compensation amount before hearing his appeal against his conviction in two cheque bounce cases.

Clarifying the legal position, the High Court ruled, "Section 148 NI Act does not impose a blanket requirement for deposit. The discretion must be exercised in a fair and just manner, considering the financial capacity of the accused and whether such a deposit would effectively deprive him of the right to appeal."

The decision comes as a relief for Ahuja, a real estate businessman, who was convicted under Section 138 NI Act for dishonoring two cheques totaling ₹53 lakh issued to his creditors, Sumitra Mittal and Rajesh Mittal. The Court remanded the case back to the ASJ for reconsideration, directing that the previous orders imposing the deposit condition shall not be enforced until a fresh determination is made.

"Businessman Convicted in Cheque Bounce Case—Appeals Against 20% Deposit Condition"

The legal dispute began when Anuj Ahuja, engaged in real estate, took loans amounting to ₹53 lakh from Rajesh Mittal and his mother, Sumitra Mittal. To repay the loan, he issued two post-dated cheques of ₹25 lakh and ₹28 lakh, drawn on IDBI Bank, Azadpur, Delhi.

Both cheques were dishonored due to insufficient funds, leading the Mittals to file separate complaints under Section 138 of the NI Act before the Metropolitan Magistrate (MM), Rohini Courts. The MM convicted Ahuja and sentenced him on July 1, 2024, ordering him to compensate the complainants with an additional penalty.

Challenging his conviction, Ahuja filed appeals before the ASJ, who granted suspension of sentence on August 7, 2024, but made it conditional upon depositing 20% of the compensation amount within 60 days. As Ahuja failed to comply, he sought a waiver of the deposit condition, arguing financial hardship. The ASJ, however, rejected his plea on January 27, 2025, stating that his financial capacity was sufficient to make the deposit.

Aggrieved by this order, Ahuja approached the Delhi High Court, challenging the imposition of the 20% deposit condition as a prerequisite for hearing his appeal.

"Pre-Deposit Is a Discretionary Power—Courts Must Consider Exceptional Circumstances"

Before the High Court, Senior Advocate Dr. Amit George, representing Ahuja, argued that the ASJ had treated the deposit condition as an absolute requirement rather than a discretionary power. He contended, "The ASJ failed to consider the financial incapacity of the petitioner and wrongly attributed ownership of a saree business to him, leading to a flawed assessment of his ability to pay."

Citing the Supreme Court’s rulings in Surinder Singh Deswal v. Virender Gandhi (2019) 11 SCC 341 and Jamboo Bhandari v. MP State Industrial Development Corporation (2023) 10 SCC 446, George submitted that courts must exercise discretion in a manner that does not render the right to appeal illusory. He argued, "A pre-deposit should not be imposed in a manner that effectively deprives an appellant of their statutory right to challenge a conviction."

Opposing the plea, Advocate F.K. Jha, representing the Mittals, defended the ASJ’s order, stating, "The petitioner has not demonstrated genuine financial incapacity. Mere claims of hardship are not a sufficient ground to waive the pre-deposit requirement."

Jha further argued that Ahuja had deliberately delayed compliance with the deposit order and was using legal proceedings as a tactic to avoid payment. He asserted, "The purpose of Section 148 NI Act is to protect the rights of the complainant and prevent the misuse of appeals to delay rightful compensation."

"Pre-Deposit Requirement Is Not Absolute—Courts Must Assess If It Causes Unjust Hardship"

After hearing both parties, the High Court ruled that the ASJ had erred in treating the deposit condition as an automatic mandate rather than a matter of judicial discretion. The Court observed, "The phraseology of Section 148 NI Act indicates that the appellate court ‘may’ order the appellant to deposit a minimum of 20% of the fine or compensation, making it clear that the requirement is discretionary and not mandatory."

Referring to the Supreme Court’s interpretation in Jamboo Bhandari, the High Court emphasized that: "Normally, the appellate court will be justified in imposing the deposit condition. However, where the deposit would cause unjust hardship or effectively deprive the appellant of the right to appeal, an exception must be made with specific reasons."

Criticizing the ASJ’s reasoning, the High Court noted, "The ASJ wrongly presumed the financial capability of the petitioner without sufficient evidence. Furthermore, the record itself acknowledges that the ownership of the saree business was incorrectly attributed to him, undermining the basis of the financial assessment."

The Court held that the ASJ had failed to conduct a proper inquiry into whether the deposit condition would unfairly obstruct Ahuja’s right to appeal, ruling, "Any order directing deposit under Section 148 must reflect due application of mind and must not be passed mechanically."

"High Court Sets Aside ASJ’s Order—Fresh Consideration Required"

Setting aside the ASJ’s orders dated January 27, 2025, the High Court directed: "The matter is remanded for fresh consideration by the ASJ, who must decide the application for waiver of deposit in accordance with the settled legal principles and based on the appellant’s actual financial capacity."

The Court further directed that, "Until the ASJ reconsiders the application, the earlier orders dated August 7, 2024, and September 23, 2024, directing deposit of 20% compensation, shall not be enforced."

This ruling provides crucial clarity on the interpretation of Section 148 NI Act, reinforcing that:

• The requirement of a 20% deposit is not mandatory in every case and must be applied with judicial discretion.

• Courts must consider the financial position of the appellant and whether the deposit condition would effectively deprive them of their right to appeal.

• Any pre-deposit order must be backed by proper reasoning, reflecting due application of mind.

By emphasizing that pre-deposit should not be imposed mechanically, the Delhi High Court has ensured that statutory rights of appeal remain meaningful and accessible, particularly for individuals facing genuine financial distress.

Date of decision: 17/03/2025