Bharat Mittal vs. State of Rajasthan and Ors.
Background
The appellant, a director of Shiv Mahima Ispat Pvt. Ltd., signed a cheque worth over Rs. 4.8 crore issued to Steel Authority of India (SAIL) for supplied steel, which was dishonoured. While the Section 138 NI Act complaint was pending, the company was ordered wound up by the High Court, leaving the appellant as the only person left to prosecute. He was convicted and directed to pay compensation of over Rs. 8 crore. When he appealed and sought suspension of sentence, the Appellate Court required him to deposit 20% of the compensation under Section 148 of the NI Act as a condition: a requirement he resisted, arguing (relying on two recent Supreme Court decisions, Gurudatta Sugars and Bijay Agarwal) that only the company, as the technical "drawer" of the cheque, could be made to pay such a deposit, not a director/signatory.
Decision Breakdown
The Court examined the statutory scheme of Sections 141, 143A and 148 of the NI Act and the settled position that a company cannot generally be prosecuted alongside its directors unless the company itself is arraigned, except where a "legal snag" (like winding-up) makes prosecuting the company impossible, in which case directors alone can be prosecuted and convicted. The Bench disagreed with the reasoning in the coordinate-bench decisions in Shri Gurudatta Sugars and Bijay Agarwal, which had held that only the company (the literal "drawer") could be compelled to make the Section 148 deposit, holding instead that Section 138/148 proceedings are compensatory and quasi-criminal in nature and should be interpreted purposively, not with rigid literalism, otherwise a director who effectively ran the company and remains liable to conviction could escape the deposit requirement purely on a technicality, defeating the 2018 amendment's remedial purpose. However, since this view directly conflicted with a coordinate (equal-strength) bench's rulings, the present Bench held it was bound by judicial discipline not to simply override them; instead, it referred the legal question to a Larger Bench of the Supreme Court for authoritative resolution, without deciding the appellant's individual case at this stage.
Lesson Learnt
When a company cannot be prosecuted due to legal obstacles like winding-up, the individuals actually responsible for running it may still be prosecuted and convicted, and courts are actively grappling with whether such individuals can also be required to make the standard appellate pre-deposit for cheque-bounce appeals, an unsettled point of law now referred to a Larger Bench.