Appellate Courts Can’t Blanket-Exempt Convicted Directors from Deposit under NI Act Merely Because Company Wound Up: Supreme Court Refers Interpretation of Section 148 to Larger Bench

"Vicarious Liability Under Section 141 Doesn't Automatically Exempt Deposit Under Section 148 — 'Whether a Director Can Escape Statutory Deposit Due to Company’s Legal Snag Must Be Decided Case-by-Case'" – Supreme Court

In a significant ruling delivered on December 18, 2025, the Supreme Court of India, comprising Justice Aravind Kumar and Justice N.V. Anjaria, referred to a larger bench the crucial interpretative question of whether appellate courts can mandate the deposit of 20% compensation under Section 148 of the Negotiable Instruments Act, 1881 (“NI Act”) from a convicted director or signatory in cheque dishonour cases, even when the company — the juristic drawer — has not been prosecuted due to a legal impediment such as winding up.

The ruling came in Bharat Mittal v. State of Rajasthan & Others, arising out of Special Leave Petition (Crl.) No. 12327 of 2025. While concurring with the compensatory object behind Section 148, the Bench found itself unable to agree with recent coordinate bench rulings in Shri Gurudatta Sugars and Bijay Agarwal, which had held that only the “drawer” — the company — could be mandated to deposit compensation, thereby excluding directors or signatories.

Calling this interpretation “unduly literal” and potentially destructive to legislative intent, the Bench opined: “If Sections 143A and 148 are to be interpreted in the manner adopted in Gurudatta and Bijay Agarwal, then despite the company being beyond the reach of prosecution, the individual responsible for its affairs cannot be compelled to comply with the remedial mechanism under Section 148. This would render the purpose and intent underlying the provision wholly nugatory.” [Para 65]

Legislative Purpose of Section 148 Would Be Frustrated If Convicted Directors Automatically Exempted from Deposit — SC

On December 18, 2025, the Supreme Court rendered a pivotal ruling in Bharat Mittal v. State of Rajasthan & Others, Criminal Appeal No. ___ of 2025 (arising out of SLP (Crl.) No. 12327 of 2025), examining the scope of Section 148 of the NI Act post-conviction. The central question was whether a convicted director or signatory, held vicariously liable under Section 141, could be directed to deposit 20% of the compensation under Section 148, even if the company (as drawer) could not be prosecuted due to liquidation.

The appellant, Bharat Mittal, was convicted under Section 138 NI Act and directed to deposit ₹1.62 crores (20% of ₹8.1 crores) as a precondition to appeal. The appellate court, relying on Section 148, imposed the deposit. Mittal challenged this, citing financial hardship, prior winding up of the company, and judgments in Gurudatta Sugars and Bijay Agarwal, which held that directors or signatories are not “drawers” under Section 148. The Court, unable to overrule coordinate bench rulings, referred the issue to a larger bench.

Sole Conviction of Director Post-Winding Up — ₹8.1 Crore Compensation Ordered

The case arose from a transaction between the complainant, Steel Authority of India Ltd. (SAIL), and the accused company, Shiv Mahima Ispat Pvt. Ltd., for the supply of steel. A cheque for ₹4.82 crore, signed by the appellant as director, bounced due to “exceeds arrangement.” Criminal proceedings under Section 138 NI Act ensued in 2013. While proceedings were pending, the complainant also filed a winding up petition under Sections 433 and 434 of the Companies Act, 1956.

The High Court ordered winding up of the accused company in 2016. The complaint proceeded only against Mittal, the signatory director, as others were discharged and the company became unavailable for prosecution. The Trial Court convicted Mittal and awarded ₹8.1 crore compensation under Section 357(3) CrPC.

Mittal appealed under Section 374 CrPC and sought suspension of sentence under Section 389. The appellate court, invoking Section 148 NI Act, required him to deposit 20% of the compensation. Upon failure to do so, a non-bailable warrant was issued.

Mittal filed a miscellaneous petition under Section 528 of the BNSS, 2023, arguing that since the company was not prosecuted, and partial recovery had been made by the Official Liquidator, he should not be liable for any deposit.

Whether Director Can Be Mandated to Deposit under Section 148 If Company Not Prosecuted

The core legal issue before the Court was: “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' alone in all scenarios?”

Mittal’s counsel relied heavily on Bijay Agarwal v. Medilines, where the Court held that a signatory-director is not a “drawer” and cannot be compelled to deposit compensation under Section 148. Similarly, in Gurudatta Sugars, it was held that interim compensation under Section 143A could not be directed against non-drawers.

The respondent-complainant argued that Mittal was not a mere signatory but the main actor, having issued and signed the cheque, and had been rightly convicted under Section 141. The complainant asserted that the legislative object of Section 148 — compensatory justice and deterrence of frivolous appeals — would be defeated if directors could escape deposit merely because the company was wound up.

Section 148 Must Be Interpreted Purposively, Not Literally — Quasi-Criminal Character Demands Flexible Approach

The Court undertook a detailed analysis of the legislative intent behind Sections 143A and 148, introduced by the Negotiable Instruments (Amendment) Act, 2018. It noted that the object was to "address the issue of undue delay in final resolution of cheque dishonour cases so as to provide relief to payees… and to discourage frivolous and unnecessary litigation.” [Para 66]

Importantly, the Court emphasized that Sections 143A and 148 are compensatory, not purely penal in nature. Referring to precedents like Meter & Instruments v. Kanchan Mehta and R. Vijayan v. Baby, it held: “We have no hesitation in holding that both the provisions i.e. Sections 143A and 148 are compensatory in nature… therefore the provisions cannot be said to be purely penal in nature.” [Para 59]

Rejecting the narrow reading of “drawer” as adopted in Bijay Agarwal and Gurudatta Sugars, the Court held:

“A strict construction of the definition of ‘drawer’ under Section 7 so as to confine it exclusively to the company would amount to an unduly narrow interpretation, running contrary to the legislative intent…” [Para 63]

The Bench also noted that “purposive interpretation is preferred over literal interpretation”, especially in quasi-criminal statutes like the NI Act. [Para 60]

No Blanket Exemption for Directors — Case-by-Case Discretion Applies; Conflict with Bijay and Gurudatta Referred to Larger Bench

Although the Court refrained from overruling Gurudatta Sugars and Bijay Agarwal, being coordinate bench rulings, it firmly departed from their reasoning, stating:

“We are unable to concur with the interpretation adopted therein… and the construction placed upon the statutory provisions appears to depart from the textual scheme as well as the legislative intent.” [Para 72]

Thus, the Court concluded:

“A director of a company cannot be granted a blanket exemption from the deposit contemplated under Section 148… Whether such exemption is warranted must necessarily depend upon the factual matrix of each individual case.” [Para 71]

Consequently, the Bench framed the following question of law for reference 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?” [Para 74]

The Registry was directed to place the matter before the Hon’ble Chief Justice for constitution of a larger bench.

A Significant Turn in Cheque Dishonour Jurisprudence — Directors Can No Longer Evade Deposit Merely on Technical Grounds

The judgment in Bharat Mittal v. State of Rajasthan & Ors. significantly reshapes the debate surrounding post-conviction deposits under Section 148 NI Act. While not conclusively overruling Bijay Agarwal and Gurudatta Sugars, the Bench robustly critiques their literal interpretation of “drawer”, advocating for a purposive reading aligned with legislative objectives.

By holding that directors cannot be automatically exempt from deposit obligations merely because the company is under liquidation, the Court has sought to restore the compensatory backbone of the NI Act’s cheque dishonour framework. The referral to a larger bench signals a possible landmark clarification in the near future, which will directly impact thousands of pending appeals under Section 138 across India.

Date of Decision: December 18, 2025