Guide to Exemption from 20% Deposit in Cheque Bounce Appeal

Are you a director seeking exemption from 20% deposit in cheque bounce appeal? This article analyzes a crucial judgment regarding the mandatory deposit under Section 148 NI Act for suspension of sentence. We explore whether a legal snag in prosecuting company, such as liquidation, affects the liability of the director to pay compensation in a Cheque Bounce Appeal when company is in liquidation. Discover if you can file an appeal against Section 138 conviction without depositing 20% amount and whether the Can appellate court order director to pay interim compensation in a cheque bounce appeal despite the company’s absence.

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Supreme Court Judgment – BHARAT MITTAL VERSUS STATE OF RAJASTHAN AND ORS. – 2025 INSC 1459

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Navigating the complexities of a mandatory deposit under Section 148 NI Act for suspension of sentence can be overwhelming. If you are unsure about your liability of the director to pay compensation in a Cheque Bounce Appeal when company is in liquidation, expert legal guidance is essential.

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Below is the detailed roadmap of our analysis on exemption from 20% deposit in cheque bounce appeal. This Table of Contents guides you through the facts, the legal snag in prosecuting company, and the final verdict on filing an appeal against Section 138 conviction without depositing 20% amount.

Article – Exemption from 20% Deposit in Cheque Bounce Appeal

1. Bibliographic Details of the Judgment on exemption from 20% deposit in cheque bounce appeal
2. Brief Facts: The Context of the Appeal against Section 138 conviction without depositing 20% amount
3. Timelines: Events Leading to the Mandatory deposit under Section 148 NI Act for suspension of sentence
4. The Trial Court Verdict: Conviction of the Director
5. The Appellate Court Order: Can appellate court order director to pay interim compensation in a cheque bounce appeal?
6. The High Court Ruling: Addressing the legal snag in prosecuting company
7. Proceedings Before the Hon’ble Supreme Court
8. The Referral to Larger Bench: A Critical Turn in the Law
9. Conclusion: Implications for Directors and Complainants
10. Frequently Asked Questions on exemption from 20% deposit in cheque bounce appeal

1. Bibliographic Details of the Judgment on exemption from 20% deposit in cheque bounce appeal

This significant judgment by the Hon’ble Supreme Court of India addresses the critical issue of whether a director can seek exemption from 20% deposit in cheque bounce appeal when the company itself cannot be prosecuted due to liquidation.

Title of the Judgment: BHARAT MITTAL VERSUS STATE OF RAJASTHAN AND ORS.
Name of the Judges: Hon’ble Mr. Justice Aravind Kumar and Hon’ble Mr. Justice N.V. Anjaria.
Citation Number of the Judgment: 2025 INSC 1459
Date of the Judgment: December 18, 2025.

2. Brief Facts: The Context of the Appeal against Section 138 conviction without depositing 20% amount

The case revolves around a dispute between the Steel Authority of India (SAIL), the Complainant, and Shiv Mahima Ispat Private Limited, the Accused Company, along with its director, the Appellant. The factual matrix highlights the complexities regarding the liability of the director to pay compensation in a Cheque Bounce Appeal when company is in liquidation.

The Transaction: The Complainant and the Accused Company entered into a Memorandum of Understanding (MOU) on April 17, 2012, for the supply of steel. In the financial year 2012-13, the Accused Company ordered 208.01 metric tonnes of coils, which were dispatched in December 2012.
Issuance of Cheque: To discharge the liability, the Accused Company issued a cheque dated January 3, 2013, for a sum of Rs. 4,82,72,269/-. This cheque was signed by the Appellant, who was a director of the company.
Dishonour of Cheque: Upon presentation, the cheque was returned by the bank with the endorsement “Exceeds Arrangement”.
Filing of Complaint: The Complainant filed a complaint under Section 138 of the Negotiable Instruments Act (NI Act) on February 20, 2013, arraying the Company as Accused No. 1 and the Appellant as Accused No. 2.
Legal Snag: While the criminal case was pending, the Complainant also filed a petition for winding up the Accused Company. The Hon’ble High Court ordered the company to be wound up, and it was formally wound up on December 1, 2016. Consequently, the Appellant became the “only person left available for prosecution”.

This unique situation led the Appellant to file an Appeal against Section 138 conviction without depositing 20% amount, arguing that the primary offender, the company, was no longer in existence.

3. Timelines: Events Leading to the Mandatory deposit under Section 148 NI Act for suspension of sentence

The following timeline details the procedural history and the events that culminated in the controversy regarding the mandatory deposit under Section 148 NI Act for suspension of sentence.

17.04.2012: The Complainant and Accused Company entered into an MOU for steel supply.
25.12.2012 & 26.12.2012: Goods were dispatched by the Complainant.
03.01.2013: The Accused Company issued the cheque in question for Rs. 4,82,72,269/-.
20.02.2013: The Complainant filed the complaint under Section 138 of the NI Act before the Trial Court.
21.03.2013: A Company Petition for winding up was filed before the Hon’ble High Court.
20.08.2013: The Trial Court took cognizance and summoned the accused persons.
12.05.2014: The Sessions Court quashed summons against other directors but allowed prosecution to continue against the Company and the Appellant.
22.04.2016: The Hon’ble High Court ordered the Accused Company to be wound up.
01.12.2016: The Accused Company was formally wound up.
27.11.2024: The Appellate Court suspended the sentence subject to the condition that the Appellant deposit 20% of the compensation amount.
12.02.2025: A non-bailable warrant was issued against the Appellant for failing to deposit the amount.
02.05.2025: The Court dismissed the Appellant’s application seeking exemption from the deposit.
27.05.2025: The Hon’ble High Court dismissed the petition filed by the Appellant challenging the deposit condition.

4. The Trial Court Verdict: Conviction of the Director

Despite the legal snag in prosecuting company due to its liquidation, the Trial Court proceeded against the Appellant. The court analyzed the evidence and concluded that the Appellant was liable for the dishonour of the cheque.

Conviction: The Trial Court convicted the Appellant for the offence under Section 138 of the NI Act.
Sentence: The Appellant was sentenced to undergo “two years’ simple imprisonment”.
Compensation: The court directed the Appellant to pay compensation of “Rs. 8,10,00,000/-” under Section 357(3) of the Code of Criminal Procedure (Cr.P.C.).
Default Sentence: In case of failure to pay the compensation, the Appellant was directed to undergo “six months’ additional imprisonment”.

The conviction set the stage for the Appellant to approach the higher court, leading to the central debate on whether the appellate court can enforce a deposit condition on a director when the company is wound up.

5. The Appellate Court Order: Can appellate court order director to pay interim compensation in a cheque bounce appeal?

Aggrieved by the conviction, the Appellant filed an appeal under Section 374 of the Cr.P.C. along with an application for suspension of sentence under Section 389 of the Cr.P.C.. This stage raised the pivotal question: Can appellate court order director to pay interim compensation in a cheque bounce appeal?

Suspension Order: On November 27, 2024, the Appellate Court allowed the suspension of sentence but imposed a significant condition. The suspension was “subject to the condition that the appellant deposit 20% of the amount” (Rs. 8,10,00,000/-) within 60 days, as per Section 148 of the NI Act.
Non-Compliance: The Appellant failed to deposit the directed amount. Consequently, the Appellate Court issued a non-bailable warrant against him on February 12, 2025.
Application for Exemption: The Appellant filed an application seeking exemption from 20% deposit in cheque bounce appeal. He argued that since the company had been wound up and the Official Liquidator had already satisfied part of the claim, making him personally liable would result in “double recovery”.
Dismissal: The Court dismissed this exemption application on May 2, 2025, reasoning that the earlier order of suspension was a final order and could not be reviewed except for clerical errors.

This refusal to grant exemption compelled the Appellant to knock on the doors of the Hon’ble High Court, escalating the legal battle regarding the interpretation of the “drawer” under the NI Act.

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6. The High Court Ruling: Addressing the legal snag in prosecuting company

Following the dismissal of his application by the Appellate Court, the Appellant approached the Hon’ble High Court challenging the order dated 27.11.2024. This stage was critical as it addressed whether the legal snag in prosecuting company (liquidation) could shield the director from the deposit requirement.

6.1. Issue Pending Before the Hon’ble High Court

The Appellant filed a petition under “Section 528 of Bharatiya Nagarik Suraksha Sanhita (for short ‘BNSS’)”. The primary grievance was against the condition imposed by the Appellate Court requiring the Appellant to deposit 20% of the compensation amount. The core legal question was whether a director could be compelled to make this deposit when the company itself was wound up.

6.2. Contentions of the Petitioner (Accused)

The Petitioner (Accused) heavily relied on previous judgments of the Hon’ble Supreme Court, specifically “Bijay Agarwal v. Medilines” and “Shri Gurudatta Sugars Marketing P. Ltd. v. Prithviraj Sayajirao Deshmuk and Ors.”. His argument for seeking exemption from 20% deposit in cheque bounce appeal was based on the premise that:

An authorized signatory is not the “drawer” of the cheque.
The company alone is the drawer.
Therefore, the authorized agent should be exempted from depositing any amount under Sections 148 and 143A of the NI Act.

6.3. Contentions of the Respondent (Complainant)

While the summary of the High Court proceedings primarily focuses on the court’s findings, the context implies that the Respondent maintained that the liability of the director to pay compensation in a Cheque Bounce Appeal when company is in liquidation remains intact due to their active role in the company’s affairs.

6.4. The Hon’ble High Court’s Stand and Rationale

The Hon’ble High Court dismissed the petition via an order dated 27.05.2025. The court provided the following rationale:

Vicarious Liability: Under Section 141 of the NI Act, directors in charge at the relevant time are vicariously liable.
Role of Appellant: Since the Appellant “signed the dishonored cheque and assured repayment,” he was rightly convicted.
Irrelevance of Winding Up: The court held that “neither his resignation nor the company’s winding-up absolves him of past liability”.
Conduct of Accused: The court noted that the Appellant had delayed proceedings and acted as a “compulsive litigant”.

Consequently, the Hon’ble High Court dismissed the petition with costs of Rs. 5,00,000 and restrained him from alienating personal assets.

7. Proceedings Before the Hon’ble Supreme Court

Aggrieved by the High Court’s dismissal, the Appellant approached the Hon’ble Supreme Court. This proceeding brought the issue of Appeal against Section 138 conviction without depositing 20% amount to the forefront of legal discourse.

7.1. Issue Pending Before the Hon’ble Supreme Court

The Hon’ble Supreme Court framed the question precisely in Paragraph 8: “Whether, upon a conviction under Section 138 read with Section 141, the appellate deposit contemplated by Section 148 may be directed against a convicted director/authorized signatory, or whether such deposit is confined to the juristic ‘drawer’ alone in all situations?”

7.2. Appellant’s Contentions: Seeking exemption from 20% deposit in cheque bounce appeal

The Appellant, represented by Senior Advocate Sri R. Basant, argued that the High Court erred in not applying the principles of Bijay Agarwal and Gurudatta Sugars. His key arguments were:

Not the Drawer: The Appellant is not the “drawer” of the company cheque and thus should be fully exempted from the Section 148 deposit.
Defective Goods: The cheque was not issued towards any existing debt or liability, as the supplied material was of inferior quality and goods worth Rs. 2.25 crores were returned.
Collateral Proceedings: The complaint was a collateral attempt to misuse criminal process, as evidenced by the closure report in a related FIR.
Resignation: The Appellant had resigned before the winding-up order, and liability should rest with the company under liquidation and the Official Liquidator.

7.3. Respondent’s Contentions: The liability of the director to pay compensation in a Cheque Bounce Appeal when company is in liquidation

The Complainant (SAIL), represented by Senior Advocate Sri Nagamuthu, supported the impugned order. Their arguments regarding the liability of the director to pay compensation in a Cheque Bounce Appeal when company is in liquidation included:

Active Role: The Appellant was both the signatory and a director actively managing affairs; he cannot escape the category of “drawer” under Sections 138 and 141.
Distinct from Precedents: The reliance on Bijay Agarwal was misplaced as those cases involved non-executive directors, unlike the Appellant’s direct role.
Legal Snag Exception: While proceedings against the company were halted due to liquidation, this “does not absolve the appellant’s personal criminal liability”.
Mandatory Nature: Interpreting Section 148 to exempt the director would “defeat the purpose of the provision”.

7.4. Supreme Court’s Analysis: The Conflict on “Drawer” and Vicarious Liability

The Hon’ble Supreme Court undertook a deep analysis of the statutory text and legislative intent.

Legislative Intent: The Court observed that Sections 143A and 148 were introduced to address “undue delay” and strengthen the credibility of cheques.
Nature of Deposit: The deposit under Section 148 is not punitive but regulatory, aiming to discourage dilatory tactics.
Critique of Previous Judgments: The Court analyzed Gurudatta Sugars and Bijay Agarwal, noting they adopted a “strict interpretation” that confined “drawer” only to the company. The Bench found this reasoning to rest on “an overly literal construction”.
Purposive Interpretation: The Court advocated for a purposive interpretation. It held that if a company cannot be prosecuted due to a legal snag, allowing the director to escape the deposit requirement would render the remedial mechanism “wholly nugatory”.

The Court concluded that a director “cannot be granted a blanket exemption” from the deposit under Section 148 merely because the company is in liquidation.

8. The Referral to Larger Bench: A Critical Turn in the Law

Despite their strong view that the mandatory deposit under Section 148 NI Act for suspension of sentence should apply to directors in such cases, the Bench faced a procedural hurdle.

Disagreement: The Hon’ble Judges expressed their inability to concur with the decisions in Gurudatta Sugars and Bijay Agarwal, stating those decisions “depart from the textual scheme as well as the legislative intent”.
Judicial Discipline: As a Bench of co-equal strength, they were bound by judicial discipline and could not unilaterally overrule the previous decisions.
The Referral: Consequently, the Court directed the papers to be placed before the Hon’ble Chief Justice for the constitution of a Larger Bench to resolve this conflict.

The Question Referred: “Whether, upon a conviction under Section 138 read with Section 141, the appellate deposit contemplated by Section 148 may be directed against a convicted director/authorized signatory, or whether such deposit is confined to the juristic ‘drawer/company’ alone in all scenarios?”

9. Conclusion: Implications for Directors and Complainants

The Judgment leaves the legal position on exemption from 20% deposit in cheque bounce appeal at a critical juncture.

For the Appellant (Director): Currently, there is no automatic exemption. While previous judgments (Bijay Agarwal) favored the view that directors are not “drawers,” the present Bench has strongly disagreed. Directors facing an Appeal against Section 138 conviction without depositing 20% amount must now await the decision of the Larger Bench. The argument of a legal snag in prosecuting company (like liquidation) may not currently guarantee immunity from the deposit condition.
For the Respondent (Complainant): The Hon’ble Supreme Court’s observations bolster the Complainant’s right to seek interim compensation. The Court has recognized that liability of the director to pay compensation in a Cheque Bounce Appeal when company is in liquidation is essential to prevent injustice to payees. The referral indicates a potential shift towards a stricter enforcement of the mandatory deposit under Section 148 NI Act for suspension of sentence against directors.

10. Frequently Asked Questions on exemption from 20% deposit in cheque bounce appeal

Q1: Can a director get an exemption from 20% deposit in cheque bounce appeal? Currently, there is no automatic exemption. The Hon’ble Supreme Court has held that a director cannot be granted a blanket exemption from the deposit contemplated under Section 148 of the NI Act merely because the company is in liquidation. The matter has been referred to a Larger Bench to resolve the conflict in interpretation.

Q2: Is it possible to file an appeal against Section 138 conviction without depositing 20% amount? While an appeal can be filed, the suspension of the sentence is often conditional upon this deposit. The Appellate Court typically directs the appellant to deposit a minimum of 20% of the fine or compensation. Failure to comply can lead to the issuance of non-bailable warrants, as seen in the present case.

Q3: Is the mandatory deposit under Section 148 NI Act for suspension of sentence absolute? The Hon’ble Supreme Court has previously held that while Section 148 is generally mandatory, the appellate court retains limited discretion to exempt an appellant in “exceptional circumstances.” However, whether the inability to prosecute a company due to a legal snag qualifies as such an exception is the specific question now referred to a Larger Bench.

Q4: Can appellate court order director to pay interim compensation in a cheque bounce appeal? Yes, the Hon’ble Supreme Court in this judgment expressed the view that the appellate court can direct a convicted director to make the deposit. The Court reasoned that exempting a director who effectively acted as the drawer would render the remedial purpose of the Act nugatory.

Q5: What is the liability of the director to pay compensation in a Cheque Bounce Appeal when company is in liquidation? The High Court held that neither the resignation of the director nor the winding-up of the company absolves the director of past liability. The Supreme Court’s current bench concurred that the director remains liable to be proceeded against, and the deposit condition can be enforced to prevent the director from escaping liability on technical grounds.

Q6: Does a legal snag in prosecuting company, like liquidation, protect a director from the deposit requirement? The appellant argued that since the company (the “drawer”) could not be prosecuted due to a legal snag, he should not be liable for the deposit. However, the Supreme Court bench observed that allowing such an exemption would defeat the legislative intent, though this specific legal question has been referred to a Larger Bench for a final authoritative pronouncement.

Q7: Who is considered the “drawer” of the cheque in these proceedings? Traditionally, the “drawer” is the person or entity whose bank account is the source of the cheque (i.e., the company). However, the Supreme Court in this judgment criticized an overly literal interpretation that excludes directors from this definition for the purpose of Section 148 deposits when the company cannot be prosecuted.

Q8: What happens if the director fails to deposit the 20% amount directed by the court? If the appellant fails to deposit the amount within the stipulated time, the suspension of the sentence may be revoked. In this case, the Appellate Court issued a non-bailable warrant against the appellant on account of his failure to deposit the amount as directed.

Q9: Why did the Supreme Court refer the matter to a Larger Bench? The Bench found itself unable to agree with earlier coordinate bench decisions (like Bijay Agarwal) that interpreted “drawer” strictly to exclude authorized signatories from the deposit requirement. To resolve this interpretative conflict and maintain judicial discipline, the matter was referred to a Larger Bench.

Q10: What is the purpose of the deposit under Section 148 of the NI Act? The deposit is not punitive but regulatory. Its purpose is to discourage frivolous and unnecessary litigation, prevent delay tactics, and ensure that the complainant is not deprived of the fruits of a lawful conviction due to appellate delays.

Q11: Did the Official Liquidator’s involvement affect the director’s liability? The appellant contended that since the Official Liquidator had accepted the claim and partly satisfied it, demanding a deposit from him would amount to double recovery. However, the courts did not accept this as a ground to exempt him from the criminal liability or the deposit condition at this stage.

Q12: Can a director claim financial hardship to avoid the deposit? The appellant argued he was unemployed and under severe financial hardship. While courts have discretion in “exceptional circumstances,” in this case, the argument did not succeed in exempting him from the deposit, and the High Court even noted he was acting as a compulsive litigant.

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Can You Get Exemption from 20% Deposit in Cheque Bounce Appeal?

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