S. 138 NI Act | Whether Authorised Signatory Will Be Liable Along With Proprietor When Proceedings Are Initiated? Madras HC Refers To Division Bench

Justice Anand Venkatesh noted that there were two contradictory views on the same issue and thus an authoritative pronouncement was necessary. This was more so since the provision was under criminal law and had to be given a strict interpretation.

Thus, the following questions were referred to the division bench-

• Whether in a proceeding initiated under Section 138 of the NI Act, against the proprietary concern, the proprietor alone can be considered as the drawer of the cheque under Section 138 of the NI Act
• If the authorized signatory has signed the cheque on behalf of the proprietary concern, whether such an authorized signatory can also be added as an accused along with the proprietor?

Background

The court was dealing with a plea to quash the proceedings initiated against the petitioner, Vikas Chudiwala. Vikas was an authorized signatory of the proprietorship concern M/s Prabhat General Agencies. One TL Chudiwala was the proprietor of the concern. When a cheque, issued by the proprietorship concern was dishonored, both Vikas and Chudiwala were made accused.

Vikas argued that only the sole proprietor could be made an accused and he, being only the authorized signatory could not be made an accused. He relied on the judgment of the Supreme Court in RaghuLakshminarayanan v. Fine Tubes. Vikas also relied on a single bench decision of the Madras High Court in N.Gopalan Vs. K.Udhayakumar where the judge, relying upon the above Supreme Court decision, had observed that the prosecution under S. 138 could be made only against the drawer of the cheque who was maintaining the account and thus quashed the complaint against the authorized signatory.

The court, however, noted that in another judgment of the Madras High Court, a single judge had taken a contrary view and held that the complaint is maintainable against the proprietor as well as the authorized signatory. The judge had also observed that the earlier single-judge order was rendered on a wrong understanding of the judgment of the Apex court.

The court noted that as per S. 138 of the NI Act, criminal proceedings were to be launched only against the drawer of the cheque on an account maintained by him/her. The court added that when the account was maintained by a proprietary concern, the proprietor would be made an accused. The court then wondered how the authorized signatory could also be made an accused. According to the court, if both the authorized signatory and the proprietor were made accused, it would not be in line with S. 138 of the NI Act.

Thus, the court directed the registry to place the order before the Chief Justice to constitute a bench to decide the issue.

Citation: 2024 LiveLaw (Mad) 49

Case Title: Vikas Chudiwala v R Ravinder Kumar

Case No: Crl.O.P.No.3159 of 2023