Supreme Court Upholds Deposit Condition for Suspension of Sentence in NI Act Cases: Surinder Singh Deswal vs. Virender Gandhi (2020) INSC 14

Date of the Judgment: January 8, 2020
Citation: (2020) INSC 14
Judges: Ashok Bhushan, J., M.R. Shah, J.
Can a court mandate a deposit of a portion of the compensation amount as a condition for suspending a sentence in a cheque dishonor case? The Supreme Court of India addressed this question in a recent judgment, clarifying the applicability of Section 148 of the Negotiable Instruments Act, 1881. The Court upheld the High Court’s decision, affirming that the deposit condition is valid even if the original complaint was filed before the amendment to the Act.

Case Background

The case involves a dispute between Surinder Singh Deswal and others (the appellants), who were partners in M/s. Bhoomi Infrastructure Co., and Virender Gandhi (Respondent No. 1), a former partner. After Gandhi’s retirement, the appellants issued 64 cheques to him as part of his retirement dues. One of these cheques, dated March 31, 2014, for Rs. 45,84,915/-, was presented by Gandhi on April 6, 2015, but was dishonored due to insufficient funds. The other 63 cheques also met the same fate.

Following the dishonor, Gandhi issued a statutory demand notice under Section 138 of the Negotiable Instruments Act, 1881, on May 6, 2015. Subsequently, he filed 28 complaints against the appellants in the Judicial Magistrate Court, Panchkula.

Timeline:

Course of Proceedings

The Judicial Magistrate convicted the appellants on October 30, 2018, under Section 138 of the NI Act, sentencing them to two years imprisonment and ordering them to pay the cheque amount plus 1% interest and litigation costs. The appellants appealed this decision in the Sessions Court, Panchkula. The Sessions Court, on December 1, 2018, suspended the sentence during the appeal, subject to the condition that the appellants deposit 25% of the compensation amount awarded by the trial court. The appellants sought an extension to deposit the amount, which was granted until January 28, 2019.

The appellants then filed a petition under Section 482 of the Code of Criminal Procedure (Cr.P.C.) in the High Court, seeking to quash the condition of deposit. The High Court dismissed this petition on April 24, 2019. The appellants further appealed to the Supreme Court, which also dismissed their appeals on May 29, 2019. Subsequently, the Additional Sessions Judge directed the appellants to surrender for not complying with the deposit condition. The appellants again filed petitions under Section 482 Cr.P.C., which were dismissed by the Punjab and Haryana High Court on September 10, 2019, leading to the current appeals before the Supreme Court.

Legal Framework

The case primarily revolves around Section 138 and Section 148 of the Negotiable Instruments Act, 1881, and Section 482 of the Code of Criminal Procedure (Cr.P.C.).

Section 138 of the Negotiable Instruments Act, 1881: This section deals with the offense of dishonor of cheques for insufficiency of funds. It stipulates that if a cheque is dishonored due to insufficient funds in the account, the drawer of the cheque is deemed to have committed an offense and can be punished with imprisonment or fine or both.

Section 148 of the Negotiable Instruments Act, 1881: This section, introduced by an amendment in 2018, empowers the appellate court to order the appellant (convicted under Section 138) to deposit a minimum of 20% of the fine or compensation awarded by the trial court, while suspending the sentence during the pendency of the appeal.

Section 482 of the Code of Criminal Procedure (Cr.P.C.): This section grants the High Court inherent powers to prevent abuse of the process of any court or to secure the ends of justice.

Arguments

Appellants’ Submissions:

• The appellants argued that the direction to deposit 25% of the compensation was not valid under Section 148 of the NI Act, as this provision came into force on September 1, 2018, whereas the complaints were filed in 2015. They contended that Section 148 should not apply retrospectively.
• They further submitted that non-deposit of the amount should not lead to the vacation of the suspension of sentence. Instead, the respondents should have recovered the amount through procedures under Section 421 of Cr.P.C.
• The appellants relied on the Supreme Court judgment in G.J. Raja vs. Tejraj Surana, where it was held that Section 143A of the NI Act (another provision introduced by the same amendment) is prospective. They argued that Section 148 should also be interpreted prospectively.
• They also cited judgments of the Bombay High Court in Ajay Vinodchandra Shah vs. State of Maharashtra and the Punjab and Haryana High Court in Vivek Sahni and another vs. Kotak Mahindra Bank Ltd., to support their claim that the deposit condition was not mandatory.

Respondents’ Submissions:

• The respondents contended that Section 148 of the NI Act was applicable at the time of the appeal and the suspension of sentence, and therefore the condition of deposit was valid.
• They argued that the order of the Appellate Court was in consonance with the objectives of the amendment to Section 148 of the NI Act, which was to curb the delay tactics by unscrupulous drawers of dishonored cheques.
• The respondents submitted that the High Court was correct in dismissing the petition under Section 482 Cr.P.C. and that the Sessions Court was within its jurisdiction to vacate the suspension of sentence due to non-compliance with the deposit condition.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the main issues that the Court addressed were:

1. Whether Section 148 of the NI Act applies to appeals against convictions under Section 138 of the NI Act, where the original complaints were filed before the amendment came into force on September 1, 2018.
2. Whether the Appellate Court was justified in vacating the suspension of sentence due to non-compliance with the condition of deposit of 25% of the compensation amount.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following authorities:

Cases:

• G.J. Raja vs. Tejraj Surana, Criminal Appeal No. 1160 of 2019, Supreme Court of India: The Court distinguished this case, which dealt with Section 143A of the NI Act, by stating that it applies at the trial stage, whereas Section 148 applies at the appellate stage.
• Surinder Singh Deswal @ Col. S.S. Deswal and others vs. Virender Gandhi, Criminal Appeal Nos. 917-944 of 2019, Supreme Court of India: This is the same case in an earlier round, where the Supreme Court had already upheld the applicability of Section 148.
• Ajay Vinodchandra Shah vs. State of Maharashtra, (2019) 4 Mah LJ 705, Bombay High Court: The Court noted that this judgment was delivered before the Supreme Court’s decision in Surinder Singh Deswal’s case and thus, cannot be considered good law.
• Vivek Sahni and another vs. Kotak Mahindra Bank Ltd., CRM-M-29187 of 2019(O&M), Punjab and Haryana High Court: The Court disagreed with the reasoning of the Punjab and Haryana High Court in this case, stating that the question was not correctly considered.

Legal Provisions:

• Section 138 of the Negotiable Instruments Act, 1881: Offence of dishonor of cheque for insufficiency of funds.
• Section 148 of the Negotiable Instruments Act, 1881: Power of Appellate Court to order deposit of amount pending appeal.
• Section 482 of the Code of Criminal Procedure (Cr.P.C.): Inherent powers of the High Court.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• G.J. Raja vs. Tejraj Surana [CITATION]: The Court distinguished this case, clarifying that it pertained to Section 143A of the NI Act, which operates at the trial stage, unlike Section 148, which applies at the appellate stage.
• Surinder Singh Deswal @ Col. S.S. Deswal and others vs. Virender Gandhi [CITATION]: The Court followed this earlier decision in the same case, which had already upheld the retrospective application of Section 148 of the NI Act.
• Ajay Vinodchandra Shah vs. State of Maharashtra [CITATION]: The Court did not follow this judgment, noting that it was delivered before the Supreme Court’s ruling in Surinder Singh Deswal’s case and thus cannot be considered good law on this point.
• Vivek Sahni and another vs. Kotak Mahindra Bank Ltd. [CITATION]: The Court disagreed with the reasoning of the Punjab and Haryana High Court in this case, stating that the question was not correctly considered.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the intent behind the 2018 amendment to the NI Act, particularly the insertion of Section 148. The Court emphasized that the amendment aimed to curb the delay tactics used by unscrupulous drawers of dishonored cheques, which were frustrating the purpose of Section 138 of the NI Act. The Court also considered that the deposit condition was not a new disability but rather a measure to ensure that the appellate process was not abused to delay payment to the complainant.

Logical Reasoning

The Court reasoned that the amendment to Section 148 of the NI Act was specifically designed to address the issue of frivolous appeals intended to delay the payment of compensation to the complainant. The Court emphasized that a purposive interpretation of the law was necessary to achieve the legislative intent. The Court also clarified that the use of the word “may” in Section 148 should be construed as “shall” in most cases, to ensure that the provision is not rendered ineffective. The Court also highlighted that the deposit condition was a measure to ensure that the appellate process was not abused to delay payment to the complainant.

The Court considered the judgment in G.J. Raja vs. Tejraj Surana, which held that Section 143A of the NI Act is prospective, but distinguished it by noting that Section 143A applies at the trial stage, whereas Section 148 applies at the appellate stage. The Court also noted that Section 148 does not create any fresh disability but relies on existing legal machinery. The Court also considered the judgments of the Bombay High Court and Punjab and Haryana High Court and stated that they were not correctly decided.

The Court’s decision was unanimous, with both judges concurring on the judgment.

The Supreme Court quoted from its earlier judgment in the same case:

“Therefore, considering the Statement of Objects and Reasons of the amendment in Section 148 of the N.I. Act stated hereinabove, on purposive interpretation of Section 148 of the N.I. Act as amended, we are of the opinion that Section 148 of the N.I. Act as amended, shall be applicable in respect of the appeals against the order of conviction and sentence for the offence Under Section 138 of the N.I. Act, even in a case where the criminal complaints for the offence Under Section 138 of the N.I. Act were filed prior to amendment Act No. 20/2018 i.e., prior to 01.09.2018.”

“Therefore amended Section 148 of the N.I. Act confers power upon the Appellate Court to pass an order pending appeal to direct the Appellant-Accused to deposit the sum which shall not be less than 20% of the fine or compensation either on an application filed by the original complainant or even on the application filed by the Appellant-Accused Under Section 389 of the Code of Criminal Procedure to suspend the sentence.”

“Therefore, such a purposive interpretation would be in furtherance of the Objects and Reasons of the amendment in Section 148 of the N.I. Act and also Section 138 of the N.I. Act.”

Key Takeaways

• Section 148 of the Negotiable Instruments Act, 1881, applies to appeals filed after September 1, 2018, regardless of when the original complaint was filed.
• Appellate courts can mandate a deposit of a minimum of 20% of the compensation amount as a condition for suspending a sentence in cheque dishonor cases.
• Non-compliance with the deposit condition can lead to the vacation of the suspension of sentence.
• The Supreme Court has emphasized the need for a purposive interpretation of the law to curb delay tactics in cheque dishonor cases.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that Section 148 of the Negotiable Instruments Act, 1881, is applicable to appeals filed after September 1, 2018, irrespective of when the original complaint was filed. This clarifies the retrospective application of Section 148, which was previously a point of contention. This decision reinforces the legislative intent behind the amendment, which was to expedite the resolution of cheque dishonor cases and prevent the abuse of the appellate process. The Supreme Court has also clarified that the word “may” in Section 148 should be interpreted as “shall” to achieve the object of the amendment.

Conclusion

The Supreme Court dismissed the appeals, upholding the High Court’s decision. The Court clarified that Section 148 of the NI Act is applicable to appeals filed after the amendment came into force, irrespective of when the original complaint was filed. The Court also held that the Appellate Court was justified in vacating the suspension of sentence due to non-compliance with the deposit condition. This judgment reinforces the legislative intent behind the amendment to Section 148, which was to prevent delay tactics in cheque dishonor cases and ensure that the appellate process is not abused.