Bharat Mittal v. State of Rajasthan & Ors.
SPECIAL LEAVE PETITION (CRL.) NO.12327 OF 2025
N.V. ANJARIA and ARAVIND KUMAR, JJ
Overview
This is regarding an issue of high relevance to the extent of Section 148 of the Negotiable Instruments Act of 1881 (NI Act), which is:
Whether or not an appellate court can order for the deposit of 20% of the awarded compensation or penalty against a convicted director/Authorized Signatory in cases where, owing to legal impediments like winding up or liquidation of companies, no conviction is established against companies?
This is highly important as there is massive litigation regarding cases under Section 138 of NI Act and by virtue of amendments of 2018 to overcome delays in cases of cheque dishonour.
Facts
Steel Authority of India Ltd. (SAIL) was supplying steel to Shiv Mahima Ispat Pvt. Ltd. The MoU was entered into on 17.04.2012. As consideration for payment, they drew a cheque of ₹4.82 crore, signed by their director, one Bharat Mittal. The said cheque was dishonoured with “Exceeds Arrangement.”
After the statutory formalities, SAIL filed a complaint against the company and its directors under Section 138 NI Act. However, during the pendency of the case, the company was directed to be wound up by the High Court, thus resulting in a legal hitch that stayed the further prosecution of the company. Only the trial against the appellant-director continued.
The Trial Court held the appellant guilty under Section 138 of the NI Act and sentenced him to two years of imprisonment and also directed compensation of ₹8.10 crores. On appeal, although suspending the sentence under Section 389 of the CrPC, the Appellate Court directed the appellant to pay 20% of the compensation under Section 148 of the NI Act. The appellant defaulted on payment and claimed exemption on various grounds related to liquidation of his company, partial realization of his claim from his company by the Official Liquidator, financial difficulties, and precedents supporting that he is not the drawer.
The High Court rejected his petition, awarded costs, and affirmed the condition of the deposit. This case appealed to the Supreme Court.
Legal Issues
- Whether the expression “drawer” in Section 148 NI Act applies solely to the company, thus excusing the directors/signatories from making an appeal deposit.
- Whether conviction of a director under Section 138 read with Section 141, without conviction of the company on account of a legal obstacle, automatically amounts to an “exceptional case” requiring exemption from deposit provisions of Section 148.
- Whether decisions such as Gurudatta Sugars and Bijay Aggarwal, restricting the liability of parties to Section 143A and Section 148, can be extended to instances where the directors are accused because of a technicality which hinders prosecuting the company itself.
Decision & Reasoning
The Supreme Court rejected the appeal and affirmed the rulings of the Appellate Court and the High Court.
The Court reaffirmed established precedents which held that:
Under Section 141, the directors or officers in charge of the company can be made vicariously liable for offenses under Section 138.
On Section 148, the Court held that the provision is mandatory, although with limited discretion in exceptional circumstances. It was held that vicarious conviction does not ipso facto give rise to an exceptional circumstance.
In this case, it has been held that:
“The present case represents a good and valid conviction of the director for an occasion wherein there existed a legal technicality that precluded prosecution of the company. After being convicted, it would not be possible for the appellant to avoid section 148 by assertions that he was not the ‘drawer’.”
The Court made it clear that Section 148 has a post-conviction, restorative function designed to prevent abuse of the appeal process, to ensure timely compensation. Giving absolute exemptions on liquidations will thwart the legislative intent of the 2018 amendments.
