The Supreme Court on Tuesday settled a practical but often confusing question in cheque bounce cases-whether a convicted company director can be forced to deposit 20% of the compensation while appealing, even if the company itself no longer exists. The ruling came in Bharat Mittal v. State of Rajasthan, a matter closely watched by lawyers handling Negotiable Instruments Act cases across the country.
Background
The dispute began over a large steel supply deal between Steel Authority of India Limited (SAIL) and Shiv Mahima Ispat Pvt. Ltd. In 2013, the company issued a cheque worth over ₹4.8 crore towards payment. The cheque bounced with the remark “exceeds arrangement.”
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A complaint under Section 138 of the Negotiable Instruments Act was filed. While several directors were dropped from the case early on, Bharat Mittal, a director and signatory of the cheque, faced trial. During the proceedings, the company was ordered to be wound up by the Rajasthan High Court, leaving Mittal as the only surviving accused.
The trial court convicted him and imposed two years’ imprisonment along with ₹8.10 crore as compensation. When Mittal appealed, the appellate court suspended his sentence but directed him to deposit 20% of the compensation amount under Section 148 of the NI Act. His failure to deposit led to further coercive steps, prompting the matter to reach the Supreme Court.
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Court’s Observations
A Bench led by Justice Aravind Kumar noted that cheque dishonour cases form a massive chunk of criminal litigation and clarity on deposit conditions is essential.
The Court explained that ordinarily, both the company and its directors are prosecuted together. However, where the company cannot be prosecuted due to a “legal snag” like winding-up or liquidation, the case can legally continue against the director alone.
On Section 148, the Bench reiterated that appellate courts normally must insist on a 20% deposit. But this rule is not absolute. Referring to earlier rulings, the Court observed, “the appellate court does have limited discretion to exempt the appellant from deposit, but only in exceptional circumstances, and such reasons must be recorded.”
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Importantly, the Court drew a distinction between cases where a person is merely an authorised signatory and cases where the person was actively in charge of the company’s affairs. It clarified that the word “drawer” cannot be read mechanically and context matters. The fact that a company has been wound up does not automatically turn every director’s appeal into an exceptional case deserving exemption.
Decision
Applying these principles, the Supreme Court held that a director convicted under Section 138 read with Section 141 of the NI Act can still be directed to deposit 20% of the compensation while pursuing an appeal, even if the company itself could not be prosecuted due to liquidation or winding-up.
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The Court made it clear that exemption from deposit is not a matter of right and depends on truly exceptional facts. Since the appellate court and the High Court had examined the conduct and role of the appellant, no blanket relief was warranted. The challenge to the deposit condition was therefore rejected, and the appeal stood dismissed at that stage.
Case Title: Bharat Mittal v. State of Rajasthan & Others
Case No.: Criminal Appeal of 2025 (arising out of SLP (Crl.) No. 12327 of 2025)
Case Type: Criminal Appeal (Negotiable Instruments Act – Cheque Dishonour)
Decision Date: 2025
