Can Section 148’s Appellate Deposit Be Imposed on a Director Vicariously Liable When the Company Is Non-prosecutable?

Summary

Practical Impact

What’s New / What Lawyers Should Note

• Supreme Court has referred to a Larger Bench the conflict over whether Section 148’s deposit condition applies to vicariously liable directors when the company cannot be prosecuted.
• Coordinate-bench rulings strictly defining “drawer” as the corporate entity are questioned as inconsistent with the 2018 Amendment’s compensatory and deterrent objectives.
• Section 148 remains generally mandatory, but appellate courts retain limited discretion in “exceptional circumstances”—blanket exemptions for directors are not automatic.
• Reaffirms that prosecution under Section 138/141 can proceed against persons in charge when the company faces a legal impediment (winding-up/liquidation).
• Lawyers may flag the pending Larger Bench reference in appeals involving director-deposit conditions under Section 148.

Summary of Legal Reasoning

1. Vicarious Liability Under Section 141: Section 141 attaches liability to every person in charge/responsible for corporate business and to the company itself; prosecution against directors alone is valid if the company cannot be prosecuted due to a legal snag (Aneeta Hada).
2. Mandatory Nature of Section 148 with Limited Exception: Section 148’s “may order” construed as “shall” for deposit of 20% of fine/compensation, but courts retain narrow discretion in exceptional cases (Surinder Singh; Jamboo Bhandari; Muskan Enterprises).
3. Legislative Intent of 2018 Amendments: Sections 143A and 148 designed to deter dilatory tactics, secure interim and appellate-stage relief, and preserve cheque sanctity by providing compensatory measures up to 20%.
4. Coordinate-Bench Conflict: Gurudatta Sugars (Section 143A) and Bijay Agarwal (Section 148) held “drawer” confined to juristic drawer (company) and excluded directors/signatories; decision questioned for unduly literal construction.
5. Purposive Interpretation Preferred: A literal exclusion undermines the remedial object of the 2018 Amendment, especially where the company is non-prosecutable; a director effectively “drawing” on company’s account should not be exempted by formality.
6. Need for Larger Bench: The interpretative conflict on Section 148 and the scope of “drawer” when applied to directors convicted under Section 141 can be resolved only by a Larger Bench.

Arguments by the Parties

Petitioner (Director)

• Company was wound up; Official Liquidator satisfied part of the claim—personal deposit causes double recovery.
• Under Section 141 and coordinate rulings, an authorised signatory/director is not the “drawer” for Section 148.
• Financial incapacity and unfairness of compelling 20% deposit; appeal right rendered illusory.
• Reliance on Jamboo Bhandari, Bijay Agarwal, and Gurudatta Sugars for exemption.

Respondent (Complainant)

• Appellant signed the cheque and assured payment; vicarious liability under Section 141 persists despite liquidation.
• Winding-up does not extinguish personal criminal liability; Section 148 mandatory to prevent misuse of appeals.
• Reliance on Section 141 to support deposit condition and maintain compensatory object.

Factual Background

During 2012–13 a steel-supply MOU led to multiple shipments and a ₹4.82 crore cheque signed by a director. The cheque was dishonoured. A Section 138 NI Act complaint named the company and its directors. While proceedings were pending, the company was wound up (Dec 2016), leaving only the director for prosecution. He was convicted and awarded ₹8.10 crore compensation by the trial court. On appeal, suspension of sentence was conditioned on a 20% deposit under Section 148. He failed to deposit, challenged the condition on grounds of liquidation and partial recovery, but the High Court upheld the deposit order. The Supreme Court then addressed the scope of Section 148 as applied to a vicariously liable director.

Statutory Analysis

• Section 138 NI Act: Creates offence for cheque dishonour and prescribes imprisonment/fine.
• Section 141 NI Act: Fastens vicarious liability on persons in charge and responsible for corporate affairs when the company commits a Section 138 offence. Exception if offence committed without their knowledge or with due diligence.
• Section 143A NI Act: Empowers trial court to award interim compensation up to 20% of the cheque amount during pendency of the trial.
• Section 148 NI Act: Empowers appellate court to order deposit of a minimum 20% of fine or compensation awarded by trial court as condition of appeal. Mandatory in nature but subject to court’s limited discretion in exceptional circumstances. Deposit is in addition to any interim compensation under Section 143A.

Procedural Innovations

• Referral to a Larger Bench to resolve the interpretative conflict over Section 148’s scope as applied to directors vicariously liable under Section 141 when the company cannot be prosecuted.

Alert Indicators

• ⚖️ Split Verdict – Coordinate-bench conflict on scope of “drawer” under Sections 143A/148.
• 🚨 Breaking Precedent – Judgment challenges Gurudatta Sugars and Bijay Agarwal interpretations.
• 🔄 Conflicting Decisions – Referred to Larger Bench for authoritative resolution.