TaxTMI 
TaxTMI 
2025 (12) TMI 1238
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the amount as prescribed under Section 148 of the Act?" This question assumes significance in the present context, given the large number of litigations arising under Section 138 of the NI Act. To properly address the complexity of this issue and appreciate the existing legal position that guides us in determining the mandate in such cases, it is necessary to first examine the facts of the present case, which falls within this category. BRIEF FACTS: 3. The Respondent No. 2/ Steel Authority of India (hereinafter referred to as the SAIL/Complainant) had entered into a Memorandum of Understanding (MOU) dated: 17.04.2012 with Respondent No. 3/ Shiv Mahima Ispat Private Limited (hereinafter referred to as the Accused Company) for the supply of Steel. During the financial year 2012-13, the accused company ordered 208.01 metric tonnes of HR (Hot Rolled) coils, which were dispatched from the complainant's Bokaro Steel Plant to Kanakpura Railway Siding, Jaipur District on 25.12.2012 and 26.12.2012 through multiple invoices. 3.1. Payment was to be made by the accused on receipt of the goods. Accused No. 1 company issued a cheque dated: 03.01.2013 for the supplied coils for a su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions. The complainant filed a protest petition seeking re-investigation and challenged the final report. The protest petition was dismissed by the concerned court, and the matter attained finality. 3.6. On 22.04.2016, the High Court, in a company petition filed by the complainant company, ordered that the accused company be wound up. Pursuant to the said order, the accused company was formally wound up on 01.12.2016. 3.7. Upon the accused company being formally wound up pursuant to the order of the High Court, the only person left available for prosecution in the complaint under Section 138 of the NI Act was the appellant herein. 3.8. The Trial Court convicted the appellant for the offence under Section 138 of the NI Act and sentenced him to two years' simple imprisonment. The Trial Court further directed the appellant to pay compensation of Rs.8,10,00,000/- under Section 357(3) of the Code of Criminal Procedure, failing which he was to undergo six months' additional imprisonment. 4. The appellant filed an appeal [Criminal Appeal No. 83/2024] before the Appellate Court [The Court of Additional District & Session Judge No. 8, Jaipur Metropolitan City-Second] under Sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ified or reviewed except for clerical or arithmetic errors. 5. The appellant challenged the order dated 27.11.2024 before the High Court by filing a petition [S.B. Criminal Miscellaneous (Petition) No. 2912/2025] under Section 528 of Bharatiya Nagarik Suraksha Sanhita (for short 'BNSS') up to an extent it imposes 20% of the compensation amount to be deposited. 5.1. Before the High Court, the appellant relied on the judgments of this Court in Bijay Agarwal v. Medilines [2024 SCC OnLine SC 4094 Hereinafter referred to as Bijay Agarwal] and Shri Gurudatta Sugars Marketing P. Ltd. v. Prithviraj Sayajirao Deshmuk and Ors [2024 SCC OnLine SC 1800 Hereinafter referred to as Gurudatta]., wherein it was held that an authorized signatory is not the "drawer" of the cheque, and that the company alone is the drawer and therefore in view of this principle, the Court exempted the authorized agent from depositing any amount as prescribed under Sections 148 and 143A of the NI Act. 5.2. The High Court, by the impugned order dated 27.05.2025, dismissed the petition filed by the appellant on the ground that, under Section 141 of the NI Act, directors in charge of the company at the relevant t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....personally on the appellant, as settled by this Court in Bijay Agarwal v. Medilines. 6.5. The High Court erred in directing a fresh deposit of 20% of the compensation and in imposing costs and restraint on personal assets, despite the value of goods already returned exceeding 20% of the claim, rendering the impugned orders arbitrary, excessive, and contrary to law. 7. Sri Nagamuthu, Senior Advocate, appearing for Respondent No. 2/Complainant Company, while supporting the impugned order, contended as follows: 7.1. The appellant was both the signatory of the dishonored cheque and a director actively managing the affairs of Shiv Mahima Ispat Pvt. Ltd./the accused company. Having assured payment of the dues in writing, he cannot now claim that he does not fall under the category of "drawer" under Sections 138 and 141 of the NI Act. 7.2. Unlike other directors against whom the order of cognizance was set aside, the appellant's direct role in issuing the cheque and assuring payment justified his prosecution and conviction by the Trial Court. 7.3. The appellant cannot escape liability under Section 148 of the NI Act, as any contrary interpretation would defeat the purpose o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, 5 [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.-For the purposes of this section, "debt of other liability" means a legally enforceable debt or other liability. iii. Section 141- Offences by companies.- (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant. (5) The interim compensation payable under this section may be recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973 (2 of 1974). (6) The amount of fine imposed under section 138 or the amount of compensation awarded under section 357 of the Code of Criminal Procedure, 1973 (2 of 1974), shall be reduced by the amount paid or recovered as interim compensation under this section.] v. Section 148. Power of Appellate Court to order payment pending appeal against conviction. - (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), in an appeal by the drawer against conviction under section 138, the Appellate Court may order the appellant to deposit such sum which shall be a minimum of twenty per cent. of the fine o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....K.K. Ahuja v. V.K. Vora & Anr (2009) 10 SCC 48., the issue that arose for consideration was whether a director or officer could be held vicariously liable under Section 141 merely on account of his designation. This Court answered the question in the negative, holding that vicarious liability under Section 141 attaches only to those persons who, at the time of commission of the offence, were in charge of and responsible for the conduct of the business of the company. The Court further held that while a Managing Director or Joint Managing Director may, by virtue of their position, be presumed to be in charge of the business, any other director or officer would require specific and necessary averments demonstrating their role, responsibilities, and involvement in the conduct of the company's affairs. Mere designation as a director or officer is not sufficient. In Central Bureau of Investigation v. Asian Global Ltd. (2010) 11 SCC 203, this Court reiterated that criminal liability cannot be imposed mechanically or on the basis of assumptions. There must be material to indicate participation of the accused in the day-to-day management or decision-making of the company. Vicarious liabili....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n a complaint, the requirements of Section 141 cannot be said to be satisfied. (b) The answer to question posed in sub-para (b) has to be in negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. (c) The answer to question (c) has to be in affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of the company, with whose connivance or due to whose neglect the company has committed the offence. ......... 13. If the offence was committed by a company it can be punished only if the company is prosecuted. But instead of prosecuting the company if a payee opts to prosecute only the persons falling within the second or third category the payee can succeed in the case only if he succeeds in showing that the offence was actually committed by the company. In such a prosecution the accused can show that the company has not committed the offence, though such company is not made an accused, and hence the prosecuted accused is not liable to be punished. The provisions do not contain a condition that prosecution of the company is sine qua non for prosecution of the other persons who fall within the second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is sine qua non for convicting those other persons. But if a company is not prosecuted due to any legal snag or otherwise, the other prosecuted persons cannot, on that score alone, escape from the penal liability created through the legal fiction envisaged in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....velopment Corporation Ltd. & Ors (2023) 10 SCC 446. Hereinafter referred to as Jamboo.., wherein this Court, while taking note of the ratio in Surinder Singh, clarified that although Surinder Singh treated the requirement under Section 148 as mandatory, the appellate court retains a limited discretion, in exceptional circumstances, to exempt an appellant from making the statutory deposit contemplated under the provision. The Court held as follows: "6. What is held by this Court is that a purposive interpretation should be made of Section 148 of the N.I. Act. Hence, normally, Appellate Court will be justified in imposing the condition of deposit as provided in Section 148. However, in a case where the Appellate Court is satisfied that the condition of deposit of 20% will be unjust or imposing such a condition will amount to deprivation of the right of appeal of the Appellant, exception can be made for the reasons specifically recorded. 7. Therefore, when Appellate Court considers the prayer Under Section 389 of the Code of Criminal Procedure of an Accused who has been convicted for offence Under Section 138 of the N.I. Act, it is always open for the Appellate Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an accused. The only exception to this requirement arises where the company cannot be prosecuted due to a legal impediment or legal snag III. An appellate court possesses a limited discretion, to be exercised only in exceptional circumstances, to exempt an appellant from making the deposit contemplated under Section 148 of the NI Act. 25. Before proceeding with the further analysis, we consider it appropriate to reproduce the Statement of Objects and Reasons of the Negotiable Instruments (Amendment) Act, 2018, by which Sections 143A and 148 were introduced into the Negotiable Instruments Act, 1881. The same reads as follows: "The Negotiable Instruments Act, 1881 (the Act) was enacted to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques. The said Act has been amended from time to time so as to provide, inter alia, speedy disposal of cases relating to the offence of dishonor of cheques. However, the Central Government has been receiving several representations from the public including trading community relating to pendency of cheque dishonor cases. This is because of delay tactics of unscrupulous drawers of dishonored cheques d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act. The question that now arises for our consideration, and which has been formulated in Paragraph 8, is whether the expression 'drawer' in Section 148 must be understood as referring only to the company, and consequently, whether in cases where a person falling within the category noted under Section 141 stands convicted for an offence under Section 138 on account of the company not being prosecutable due to a legal snag, all such situations must, by necessary implication, be treated as 'exceptional cases' within the meaning of Jamboo Bhandari and Muskan Enterprises, thereby mandating that the appellate court exempt the appellant from the statutory deposit under Section 148. 27. In order to simplify, the key issue is whether the word "drawer" occurring in Section 148 refers only to the company and if so, whether all cases where individuals are convicted vicariously (because the company could not be prosecuted) must automatically be treated as "exceptional cases" warranting exemption from the statutory deposit. 28. Having introduced the core issue which arises for our consideration we will now proceed to analyze the issue. II. STATUTORY TEXT AND LEGISLATIVE INTENT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect to suitable undertakings for restitution in the event the appeal succeeds. 34. The architecture of Section 148 reflects a deliberate departure from the conventional appellate norm that ordinarily presumes the suspension of monetary consequences upon admission of appeal. Parliament, recognising the inherently compensatory nature of Section 138 proceedings, envisaged that the right of appeal must not become an instrument for defeating legitimate financial claims arising from a proved dishonour. Section 148, therefore, recalibrates the balance between the appellant's right to challenge the conviction and the complainant's right to timely recompense, ensuring that the appellate process does not operate as a de facto stay of monetary liability. 35. The expression "may order" in Section 148 confers a structured discretion, which is neither mechanical nor unguided. While the statutory minimum of twenty per cent indicates the legislative benchmark, the Appellate Court is expected to examine the nature of the transaction, the conduct of the convict-appellant, and the reasons advanced for resisting such deposit. The purpose of the provision is not punitive, but regulatory, its obje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shmukh and Ors 2024 SCC OnLine SC 1800. Hereinafter referred to as Gurudatta and Bijay Agarwal v. Medilines 2024 SCC OnLine SC 4094. Hereinafter referred to as Bijay. III. THE RATIO OF THE JUDGMENT IN GURUDATTA AND BIJAY. 40. The proceedings before this Court in Gurudatta arose from proceedings initiated under Section 138 of the Negotiable Instruments Act, 1881, wherein the appellant-company had sought interim compensation under Section 143A in respect of cheques issued by Cane Agro Energy (India) Ltd. towards repayment of substantial advance amounts received under sugar- supply arrangements. The Magistrate, upon considering the application, directed the respondents, who were directors and authorised signatories of the company to deposit interim compensation quantified at four percent of the cheque amount as the company - Cane was admitted to Corporate Insolvency Resolution Process by the National Company Law Tribunal, Mumbai and therefore cannot be proceeded against. Aggrieved thereby, the respondents invoked the jurisdiction of the High Court, which set aside the order on the ground that the respondents, not being the "drawer" of the cheque, could not be burdened with such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly observed by the High Court, rests on the drawer, emphasizing the drawer's responsibility for maintaining sufficient funds. 29. The general Rule against vicarious liability in criminal law underscores that individuals are not typically held criminally liable for acts committed by others unless specific statutory provisions extend such liability. Section 141 of the NI Act is one such provision, extending liability to the company's officers for the dishonour of a cheque. The Appellants' attempt to extend this principle to Section 143A, to hold directors or other individuals personally liable for interim compensation, is unfounded. The High Court rightly emphasized that liability Under Section 141 arises from the conduct or omission of the individual involved, not merely their position within the company. 30. The distinction between legal entities and individuals acting as authorized signatories is crucial. Authorized signatories act on behalf of the company but do not assume the company's legal identity. This principle, fundamental to corporate law, ensures that while authorized signatories can bind the company through their actions, they do not m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....SCC 663. This judgment clarified that a signatory is merely authorized to sign on behalf of the company and does not become the drawer. The Respondents' interpretation aligns with the principle that penal statutes should be interpreted strictly, particularly in determining vicarious liability. The judgment in K.K. Ahuja (Supra) (2009) 10 SCC 48, further supports this approach, emphasizing that penal provisions must be read strictly to determine liability. 35. In conclusion, the High Court's decision to interpret 'drawer' strictly as the issuer of the cheque, excluding authorized signatories, is well- founded. This interpretation aligns with the legislative intent, established legal precedents, and principles of statutory interpretation. The primary liability for an offence Under Section 138 lies with the company, and the company's management is vicariously liable only under specific conditions provided in Section 141. The Appellants' submissions are thus rejected, and the High Court's judgment is upheld. This decision maintains the clarity and consistency of the law regarding cheque dishonour cases, ensuring that liability is appropriately assig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ow examined the ratio laid down in Gurudatta, wherein this Court was concerned with the interpretation of the expression 'drawer' as it appears in Section 143A of the Act. The incidental question that therefore arises in the present matter is whether the interpretation of the term 'drawer' adopted in Gurudatta for the purposes of Section 143A would equally apply to the same expression occurring in Section 148 of the Act. This precise issue came up for consideration before this Court in Bijay Agarwal. 48. In Bijay Agarwal this Court was dealing with the issue Whether the signatory of a cheque authorized by the Company is a drawer and whether such a signatory could be directed to deposit any sum out of the fine or compensation awarded by the trial Court Under Section 148 of the Negotiable Instruments Act, 1881 (for short 'NI Act')", as a condition for suspending the sentence in an appeal filed against his conviction Under Section 138 of the NI Act? 49. It is important to look into the facts of the case in the case of Bijay Agarwal wherein ratio has been laid down. The appeals in Bijay Agarwal arose from a common order of the High Court of Karnataka rejecting the Bijay's....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion under Section 148 mechanically, without examining whether exceptional circumstances exist and one such circumstance being that the appellant is not the drawer. This Court held that High Court, failed to consider these decisive aspects. 51. Consequently, this Court set aside the High Court's order and quashed the Sessions Court's direction requiring the appellant to deposit 20% of the fine/compensation as a condition for suspension of sentence. The order suspending sentence was restored, subject only to execution of bond. The Court clarified that an authorised signatory of a company cannot be compelled to deposit amounts under Section 148 unless shown to be the drawer, and directed the First Appellate Court to dispose of the pending appeals expeditiously. 52. This Court in Bijay Agarwal held as follows: "13. A scanning of Sections 143A and 148 would reveal that the former deals with the power of the Court trying an offence Under Section 138 of the NI Act to direct the drawer of the cheque to pay interim compensation to the complainant whereas the latter Section deals with the power of the Appellate Court in an appeal by the drawer against the conviction Under Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. The proviso to Section 148(1) itself makes it specifically clear that the amount payable Under Section 148(1), NI Act, if the Appellate Court so directs, shall be in addition to any interim compensation paid by the Appellant concerned Under Section 143A, NI Act. It is nobody's case that the Appellant was made to pay interim compensation Under Section 143A, in relation to the original proceedings. Be that as it may, the other question is whether an authorised signatory of the cheque can be said to be the drawer of the cheque concerned? We may hasten to add here that we were not addressed on the question whether the Appellant herein could be saddled with the liability to pay such additional compensation in terms of Section 148(1) by virtue of the provision Under Section 141, NI Act which extends liability to the officers of the company for the dishonour of a cheque and as such, we do not propose to consider that aspect as it need be considered only when pointedly posed for consideration based on proven facts. 15. There can be no doubt with respect to the position that Section 143A and 148. empowers the Court trying an offence Under Section 138 and the Appellate Court ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... law, the Appellate Court ought to have considered the aforesaid aspects as it would certainly be an exceptional circumstance to exempt the Appellant who is not the 'drawer' of the cheque concerned to deposit the amount payable Under Section 148(1) by an Appellant who is the 'drawer' of the cheque. In the case on hand, the High Court has failed to consider these crucial aspects in the light of the dictum laid down by this Court in the decisions referred supra while considering the application for suspension of sentence for the conviction Under Section 138 of the NI Act in the pending appeal. 18. The upshot of the discussion is that these appeals should succeed and consequently, it is allowed. The impugned common order dated 09.01.2024 passed by the High Court of Karnataka at Bengaluru in Criminal Petition Nos. 13095/2023 and 13153/2023 is set aside. Accordingly, the orders dated 10.11.2023 passed by the Principal City Civil & Sessions Judge at Bangalore respectively in Criminal Appeal No. 1537/2023 and 1536/2023 stands quashed and set aside to the extent it put the condition to deposit of 20% of the fine amount payable under orders in CC Nos. 13937/2023 and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f, and that such definition cannot, in any circumstance, be extended to include directors, authorised signatories, or other individuals acting on behalf of the company. 57. Having analysed the aforesaid judgments in detail, we find that the reasoning adopted therein rests predominantly upon an unduly literal construction of the statutory language, without sufficient engagement with the nature of the provisions or the legislative intent underlying their enactment. For the reasons set out hereinafter, we find it difficult to concur with the outcome of conclusions reached in Gurudatta Sugars and Bijay Agarwal. In our considered view, a harmonious construction of these provisions is required which aligns with and gives effect to the intent of the legislature. I. THE OVERLY LITERAL INTERPRETATION OF "DRAWER" IN GURUDATTA AND BIJAY AGARWAL IS NOT PREFEERED OVER PURPOSIVE INTERPRETATION WHICH ALIGNS WITH THE INTENTION OF THE LEGILATURE 58. Before we proceed to articulate our reasons, it is necessary to advert to the nature of the offence contemplated under Section 138 of the Act, for such appreciation aids in construing the provisions in a purposive manner consistent with the leg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egard to the mischief sought to be remedied by the statute. The legislative intent underlying Chapter XVII is to confer credibility, stability, and sanctity upon commercial transactions by ensuring that negotiable instruments particularly cheques serve as reliable substitutes for cash. Consequently, courts have consistently declined to adopt a narrow, technical, or hyper-literal interpretation that would enable the drawer of a dishonoured cheque to defeat the compensatory object of the provision. Instead, the interpretation must advance the twin purposes of deterring the practice of issuing cheques without sufficient funds and ensuring speedy and effective recovery of the cheque amount. 60.1 The purposive orientation has shaped judicial approaches on several aspects of Section 138, including service of notice, deemed receipt, territorial jurisdiction, and vicarious liability under Section 141. Courts have repeatedly held that procedural requirements cannot be construed in a manner that would undermine the remedial, compensatory, and quasi-civil nature of the offence. The Supreme Court, in a line of decisions such as NEPC Micon Ltd. Vs. Magma Leasing Ltd. (1999) 4 SCC 253, C.C. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t are instituted against the persons responsible for its affairs, 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 underlying Sections 143A and 148. It is significant that when the amendment inserting Sections 143A and 148 was enacted, the definition of 'drawer' was left unchanged. To deny the complainant the benefit of the remedial framework introduced by the amendment, merely by relying on a definition framed at the time of the original enactment and without construing it in the light of the purpose sought to be achieved by the legislature, would, in our considered view, amount to a misinterpretation of the statute. 64. While an insistence on corporate separateness may accord with the principles of strict interpretation, it fails to account for the economic realities of cheque transactions, wherein the acts of authorised signatories and directors embody the volition of the company itself. A purposive and harmonised construction one that extends interim liability to the responsible officers where the corporate entity is sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, to continue to extend financing to the productive sectors of the economy." 67. The interpretation adopted in the aforesaid decisions rests upon an overly literal construction of the statutory language and fails to give effect to the remedial intent underlying the 2018 Amendment. Sections 143A and 148 were enacted to provide interim monetary relief to payees during the pendency of cheque-dishonour proceedings, thereby addressing the long- standing problem of procedural delay and frivolous defences. To confine the application of these provisions to the company alone defeats their compensatory purpose, particularly in cases where the company is under a legal impediment and is unable to discharge its liabilities. Such an interpretation amounts to a departure from the true legislative intention, in our considered view. 68. In cases where there is no legal impediment in prosecuting a company, or where the prosecution is directed against a natural person, the statutory requirement to make payment under Sections 143A and 148 applies without exception. To then completely exempt an accused person of a company that is shielded by a legal snag from the obligation to make such payment ....