Supreme Court Clarifies “20% Deposit Not Mandatory in Cases Under Section 138 of N.I. Act

In a landmark judgment delivered on September 4, a Supreme Court bench led by Justice Abhay S. Oka and Justice Pankaj Mithal has provided critical insights into Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act). The Court clarified that “depositing 20% is not an absolute rule but allows for exceptions based on circumstances,” overturning the High Court’s decision.

The Supreme Court heard an appeal against the High Court’s ruling, which mandated that appellants must deposit at least 20% of the compensation/fine amount as per Section 148 of the N.I. Act. The Court observed that the term “may” in Section 148 should not be read as “shall,” indicating that there’s room for judicial discretion.

Further deepening the verdict, the Court pointed out that under Section 389 of the Code of Criminal Procedure, 1973 (Cr.P.C.), an appellate court has the discretion to consider waiving the 20% deposit requirement in exceptional cases. “If it decides to do so, the reasons must be specifically recorded,” added Justice Oka.

The judgment also explicitly mentioned that both the Sessions Court and the High Court were wrong in assuming that the 20% deposit rule is without exceptions. “Both courts were wrong in assuming that the 20% deposit rule has no exceptions,” read the observation.

The Supreme Court set aside the High Court’s decisions and restored the petitions for reconsideration. “The High Court’s orders are set aside, and the petitions are restored for reconsideration based on this judgment,” concluded the Court.

Legal experts believe this judgment will serve as a pivotal guide for future cases concerning Section 138 of the N.I. Act. It also raises important questions about the judiciary’s role in interpreting laws, emphasizing the importance of a nuanced understanding that takes individual circumstances into account.

Date of Decision: September 4, 2023

JAMBOO BHANDARI      vs M.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. & ORS.