On Thursday, the Supreme Court cast doubt on its earlier view that a convicted director or authorised signatory of a company cannot be directed to make an appellate deposit under Section 148 of the Negotiable Instruments Act, 1881, holding that such immunity cannot operate as a rule of thumb. While examining an appeal arising from cheque dishonour proceedings, the Court observed that exemption from deposit cannot be automatic and must turn on the facts of each case, warning that a contrary interpretation risks defeating the remedial purpose of the statute.
The case arose in an appeal filed by Bharat Mittal, an ex-director of Ispat Private Ltd, challenging the Rajasthan High Court’s refusal to exempt him from making a deposit under Section 148 of the NI Act as a condition for suspension of sentence. Mittal had been convicted under Section 138 read with Section 141 of the NI Act for dishonour of a cheque issued by the company. He sought exemption on the ground that, as a director or authorised signatory, he could not be treated as the “drawer” of the cheque and therefore could not be compelled to comply with the deposit requirement under Section 148 of the NI Act. The appeal came up before the Division Bench of Justice Aravind Kumar and Justice N.V. Anjaria, which was called upon to examine the correctness of earlier rulings that had accepted similar contentions.
Relying on the Supreme Court’s decisions in Bijay Agarwal v. M/s Medilines and Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh & Ors., the appellant argued that the liability to make a deposit under Section 148 of the NI Act is fastened only on the “drawer” of the cheque, namely the company. It was contended that a director or authorised signatory, though convicted under Section 138 read with Section 141 of the NI Act, cannot be equated with the juristic drawer and therefore cannot be compelled to make the appellate deposit.
On the other hand, the Respondent opposed the plea for exemption, contending that persons in charge of and responsible for the conduct of the company’s business are vicariously liable under the NI Act and cannot evade statutory obligations merely by invoking the technical distinction between a company and its officers.
The Bench framed the core issue in clear terms, stating that “The question that arises is whether under Section 138 read with Section 141 of NI Act, the appellate deposit contemplated under Section 148 can be directed against a convicted director or authorised signatory or whether such deposit is confined to the juristic drawer in all situations.”
The Court noted that under Section 141 of the NI Act, a person who is in charge of and responsible for the conduct of the company’s affairs is vicariously liable when a cheque issued by the company is dishonoured. It observed that such a person, being in managerial control, effectively acts as the “drawer” of the cheque.
The Bench observed that “If Sections 143A and 148 are interpreted in the manner adopted in Bijay Agarwal, then in every scenario, such as the present one, where the company cannot be prosecuted owing to legal impediment, the person in charge of the control of the company and its entire business and effectively acted as a drawer on its behalf, would escape the requirement of making appellate deposit on the technical ground of not being a drawer, even though he remains prosecutable and liable to conviction.”
The Court warned that such an approach would strip the statute of its remedial force, adding that it would “render the purpose and intent of Sections 143A and 148 wholly nugatory” and reduce them to “a lifeless statutory form devoid of practical efficacy”.
The Bench further observed that “We are of the considered view that the director of a company cannot be granted blanket exemption from the deposit contemplated under section 148 of the Act as suggested in Bijay Agarwal. Whether such exemption is warranted must necessarily depend upon the factual matrix of each individual case.”
Lastly, in light of its disagreement with the earlier coordinate Bench decisions, the Apex Court held that judicial discipline required the issue to be settled authoritatively. Accordingly, without overruling the existing precedents, the Bench referred the matter to the Chief Justice of India for the constitution of a larger Bench to decide whether, and in what circumstances, a convicted director or authorised signatory can be directed to make an appellate deposit under Section 148 of the NI Act.
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