NI Act| Company's Authorized Signatory Not "Drawer" Of Cheque, Not Liable To Pay Interim Compensation Under Sec.143A : Bombay High Court

Justice Amit Borkar further held that persons who are not the drawers of the cheque are not required to make the deposit in terms of Section 148 of the Act while filing appeal against conviction under Section 138 of the NI Act.

The court was dealing with a batch of petitions having the following common questions of law –

1. Whether the signatory of the cheque, authorized by the Company, is the drawer and can be directed to pay interim compensation under section 143A of the Negotiable Instruments Act, 1881.
2. Whether a deposit of a minimum sum of 20% of the fine or compensation is necessary under Section 148 of NI Act in an appeal filed by persons other than "drawer" against the conviction and sentence under section 138 of the NI Act.

As per section 7 of the NI Act, the maker of a bill of exchange or cheque is called the “drawer”. The drawer has the liability under section 138 of the Act in a cheque dishonour case.

If offence under section 138 is committed by a company, section 141 extends liability vicariously to officers of a company.

Under section 143A, the trial court has the power to order the drawer to pay interim compensation to the complainant for the pendency of the trial.

The court said that the word ‘drawer’ in section 143A has a clear and unambiguous meaning. “By specifically fastening the liability on the drawer/issuer, the legislature excluded anyone else from being made liable to pay interim compensation…Principal offender under Section 138 in case cheque issued by the company is the drawer(company). Drawer alone would have been the offender thereunder if the Act did not contain section 141. By virtue of Section 141 of the Act that penal liability under Section 138 is cast on other persons connected with the company. Therefore there is no need to interpret the word 'drawer' to include authorised signatory”, the court held.

The court further stated that the term drawer has achieved technical connotation over the years which must not be disturbed. The legislature has never changed the definition of drawer and the judicial pronouncements have consistently held drawer to include only the principal offender and not those who are vicariously liable, the court noted.

The court added that sections 143A and 148 of NI Act were enacted in 2018 much after the Insolvency and Bankruptcy Code, 2016. Therefore, legislature was aware that drawer companies could not be made to pay interim compensation considering the moratorium imposed by section 14 of IBC on companies undergoing corporate insolvency resolution process. Despite this, the legislature chose a language that limits the liability of interim compensation to the drawer and does not extend it vicariously to any other person, said the court.

The court further reasoned that the Apex Court has consistently excluded signatory of the cheque from the expression “drawer” in section 138. “The expression 'drawer' in section 138 has not been interpreted to include either signatory of the cheque or the signatory director. Despite the expression 'drawer' occurring in section 138, both- signatories of a cheque and in charge director have been held vicariously liable under section 141”, the court stated. Further, there is no power under section 141 of the NI Act for the court to direct payment of interim compensation, the court noted.

Under section 148 of the NI Act, the appellate court, in an appeal filed by the drawer against conviction under section 138, can direct the drawer to deposit minimum 20% of the fine or compensation awarded by the trial court. Since ‘drawer’ does not include an ‘authorised signatory’ in the case of a company, the court held that appellate court cannot direct deposit of the amount in an appeal filed by authorized signatory.

The court clarified that appellate court has the power under section 389 of Cr.P.C. to direct deposit of amount in an appeal under section 148 of NIA by persons other than drawer.

Case Title – Lyka Labs Limited & Anr. v. State of Maharashtra & Anr. and connected cases