No Shelter Under SICA to Escape Cheque Bounce Liability: Supreme Court Restores Section 138 NI Act Prosecutions

Today, On September 2, 2025, the Supreme Court of India delivered a crucial judgment, arising from multiple dishonoured cheque complaints. The Court ruled that proceedings under Section 138 of the Negotiable Instruments Act, 1881 cannot be quashed merely because the drawer company has been declared “sick” under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Setting aside the Bombay High Court’s order which upheld the discharge of the accused, the Court emphatically restored the prosecutions, declaring: “There is no embargo on filing a complaint under Section 138 of the N.I. Act against a ‘SICK’ company.”

“Recall of Summons Not Permissible—Revisional Court Erred in Quashing Proceedings”

The appellant-company had supplied goods to the respondent, who in part payment issued several cheques amounting to over ₹1.20 crores. These cheques, all dated April 2001, were dishonoured for “insufficient funds.” Notices demanding payment went unheeded. The Magistrate took cognizance and issued summons, but the accused sought recall, pleading that they were declared “sick” by BIFR and restrained from disposing of assets. The Magistrate refused to recall, but the revisional court intervened and discharged the accused.

The Supreme Court rejected this, citing Adalat Prasad v. Rooplal Jindal and the Constitution Bench in In Re: Expeditious Trial of Cases under Section 138 NI Act, reaffirming that “recall of processes is not permissible” and that “trial courts have no inherent power to review or recall summons.”

“Restraint Order of BIFR Does Not Bar Cheques for Day-to-Day Operations”

A key issue was whether the BIFR’s restraint order of August 21, 2000 immunized the company from criminal liability. The restraint barred disposal of assets without BIFR consent, but expressly permitted drawing current assets “to the extent required for day-to-day operations.” The Court stressed that cheques issued for operational purposes could not be protected by the embargo. “Whether those cheques were issued for running day-to-day operations of the company is an issue to be addressed on the basis of evidence led in trial,” it held, refusing to quash the complaints at the threshold.

“Kusum Ingots and Southern Steel Clarified—SICA No Excuse for Dishonoured Cheques”

The Court revisited its earlier rulings in Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. and Southern Steel Ltd. v. Jindal Vijayanagar Steel Ltd. It clarified that Section 22 of SICA only suspends civil recovery actions like execution or winding-up, not criminal prosecutions. “Section 22 SICA does not create any legal impediment for instituting and proceeding with a criminal case on the allegations of an offence under Section 138 of the NI Act,” the Court quoted from Kusum Ingots. Only in narrow circumstances—where a restraint order operates before issuance of cheques or expiry of notice period—might liability be avoided. But in the present case, the restraint expressly allowed day-to-day operations, and the cheques were issued thereafter.

In Southern Steel, the Court had already condemned directors who knowingly issued cheques despite being aware of their company’s sickness, remarking that such conduct shows “no intention of paying” and loss of “total credibility.” The present ruling reinforces that principle.

“No Pre-Judging at Threshold—Accused Must Face Trial”

The Supreme Court was categorical that whether cheques were post-dated or issued for operations are factual questions, not grounds for quashing: “At this stage… it would not be permissible to pre-judge the issue and record a finding that cheque was post-dated.” Only evidence at trial can rebut the statutory presumption that cheques are issued on their face date. The revisional and High Courts, by short-circuiting the process, “fell in error by recalling the processes and discharging the accused at the threshold.”

The judgment is a stern reminder that declarations of “sickness” under SICA cannot serve as a blanket defence to dishonoured cheque prosecutions. By restoring the complaints, the Supreme Court reaffirmed the object of Section 138—to uphold the credibility of commercial transactions—and underscored that such prosecutions must run their full course.

Date of Decision: September 2, 2025