The Supreme Court on September 2, 2025, delivered its judgment in Shree Nagani Silk Mills Pvt. Ltd. vs. L.D. Industries Ltd. & Ors., restoring criminal complaints under Section 138 of the Negotiable Instruments Act, 1881.
The case involved multiple cheques worth over ₹1.4 crore issued by L.D. Industries Ltd. towards payment for goods supplied by Shree Nagani Silk Mills. When deposited, the cheques bounced due to insufficient funds. Despite serving legal notices, the payment was not made, prompting the complainant to file cases under Section 138 read with Section 141 NI Act.
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The central question was whether proceedings under Section 138 NI Act could continue against a company declared ‘sick’ under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), and restrained by the Board for Industrial and Financial Reconstruction (BIFR) from disposing of its assets.
Appellant (Shree Nagani Silk Mills)
- Cited Adalat Prasad vs. Rooplal Jindal and the Constitution Bench ruling on Section 138 cases, stressing that recall of summons is not legally allowed.
- Pointed out that the restraint order of BIFR dated 21.08.2000 allowed use of current assets for day-to-day operations, meaning cheques issued in 2001 could not be exempt.
- Emphasized that whether the cheques were issued for legitimate operations is a factual issue, to be decided during trial.
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“Whether proceedings under Section 138 NI Act are barred by a BIFR restraint order is a mixed question of law and fact, which must be decided on evidence.” – Counsel for Appellant
Respondents (L.D. Industries Ltd. & Ors.)
- Argued that since the company was declared ‘sick’ and a restraint order was in place, criminal proceedings should not continue.
- Relied on the precedent set in Kusum Ingots & Alloys Ltd. vs. Pennar Peterson Securities Ltd. (2000).
- The Court clarified that Section 22 of SICA does not bar criminal proceedings under Section 138 NI Act.
- The BIFR order of 2000 did not impose an absolute bar; it allowed withdrawals for daily operations.
- The Court cited Kusum Ingots and Southern Steel Ltd. vs. Jindal Vijayanagar Steel Ltd. (2008), reiterating that accused companies cannot misuse SICA provisions to avoid liability.
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“There is no embargo on filing a complaint under Section 138 NI Act against a ‘sick’ company. Whether such cheques were issued for day-to-day operations is a matter of evidence.” – Supreme Court
The Supreme Court set aside the Bombay High Court’s order dated 05.10.2023 and the revisional court’s discharge order.
The complaints filed by Shree Nagani Silk Mills under Section 138/141 NI Act were restored before the Magistrate, who has been directed to proceed with the trial.
Case Title: Shree Nagani Silk Mills Pvt. Ltd. vs. L.D. Industries Ltd. & Ors.
Date of Judgment: September 2, 2025
Case Number: Criminal Appeal No. 3821–3827 of 2025 (arising out of SLP (Crl.) Nos. 1550–1555 of 2024 & 530/2024)
