S. 143A NI Act | Company's Authorized Signatory Not 'Drawer' Of Cheque, Can't Be Directed To Pay Interim Compensation: Supreme Court

The Supreme Court held that an authorized signatory of the company could not be considered as a 'drawer' of cheque, and therefore, could not be directed to pay the interim compensation to the complainant under Section 143A of the Negotiable Instruments Act of 1881 (“NI Act”).

"Authorized signatories act on behalf of the company but do not assume the company's legal identity. This principle, fundamental to corporate law, ensures that while authorized signatories can bind the company through their actions, they do not merge their legal status with that of the company. This distinction supports the High Court's interpretation that the drawer under Section 143A refers specifically to the issuer of the cheque, not the authorized signatories," the bench comprising Justices Vikram Nath and Prashant Kumar Mishra said.

"The general rule against vicarious liability in criminal law underscores that individuals are not typically held criminally liable for acts committed by others unless specific statutory provisions extend such liability. Section 141 of the NI Act is one such provision, extending liability to the company's officers for the dishonour of a cheque. The appellants' attempt to extend this principle to Section 143A, to hold directors or other individuals personally liable for interim compensation, is unfounded. The High Court rightly emphasized that liability under Section 141 arises from the conduct or omission of the individual involved, not merely their position within the company," the judgment stated.

Section 143A of the NI Act gives the power to the court to order the 'drawer' of a dishonoured check to pay interim compensation to the complainant.

The issue was whether the signatory of the cheque authorised by the company to issue the cheque could be considered as a 'drawer' to attract liability under Section 143A of the NI Act.

Answering in negative, the Judgment authored by Justice Vikram Nath upheld the impugned decision of the Bombay High Court which held that the authorized signatory of the company could not be considered as drawer of the cheque to attract the liability under Section 143A of the NI Act.

The High Court rejected the inclusion of authorized signatories within the definition of 'drawer'. It pointed out that the legislature's choice of words in Section 143A specifically targets the drawer of the cheque, whether an individual or a company, and does not extend liability to authorized signatories.

Contextually, the High Court stressed upon the finding that 'drawer' within the framework of the NI Act consistently refers to the party issuing the cheque. It dismissed the arguments seeking to expand this definition to include authorized signatories, citing the need for consistency in statutory interpretation.

The Court observed that the legislative intent, as discerned from the plain language of Section 143A, aims to hold the drawer accountable and not the authorized signatory.

“The appellants' argument for a broader interpretation to include authorized signatories under Section 143A contradicts this principle and would lead to an unjust extension of liability not supported by the statutory text.”, the court added.

Reference was made to the case of N. Harihara Krishnan v. J. Thomas reported in (2018) 13 SCC 663 where the court held that an authorized signatory of a company could not be considered as a drawer of the cheque.

“Every person signing the cheque on behalf of a company on whose account the cheque is drawn does not become the drawer of the cheque. Such a signatory is only a person duly authorised to sign the cheque on behalf of the company/drawer of the cheque.”, the court observed in N. Harihara Krishnan.

Referring to the precedent, the Court in the instant case said :

“The respondents correctly argued that an authorized signatory is not a drawer of the cheque, as established in N. Harihara Krishnan (Supra). This judgment clarified that a signatory is merely authorized to sign on behalf of the company and does not become the drawer...”, 

Acts Performed By Authorized Signatories Do Not Assume Company's Legal Identity

Distinguishing between the legal identity of the company and its authorized signatory, the Court observed that since both have separate legal personalities, therefore, the authorized signatory's act to issue cheque on behalf of the company does not assume the company's legal identity, and they can't be held liable for the default committed by the company.

“The distinction between legal entities and individuals acting as authorized signatories is crucial. Authorized signatories act on behalf of the company but do not assume the company's legal identity. This principle, fundamental to corporate law, ensures that while authorized signatories can bind the company through their actions, they do not merge their legal status with that of the company.”, the court said.

Conclusion

The Court concluded that the High Court's interpretation of Section 143A of the NI Act to interpret 'drawer' as the company, excluding authorized signatories, is well-founded. The Court said that the authorized signatory only acts on behalf of the company to issue the cheque, and such an act of the authorized signatory would not make him drawer of the cheque.

In a nutshell, the authorized signatory could not be made liable to pay interim compensation under Section 143A of the NI Act.

Appearances:

For Petitioner(s) Mr. D.P. Singh, Adv. Mr. Manu Mishra, Adv. Ms. Shreya Dutt, Adv. Mr. Iman Khera, Adv. Ms. Sonam Gupta, AOR

For Respondent(s) Mr. Siddharth Dave, Sr. Adv. Mr. Ramchandra Madan, AOR Ms. Tanisha Kaushal, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Siddharth Dharmadhikari, Adv. Mr. Bharat Bagla, Adv. Mr. Sourav Singh, Adv. Mr. Aditya Krishna, Adv. Ms. Preet S. Phanse, Adv. Mr. Adarsh Dubey, Adv.

Case Details: SHRI GURUDATTA SUGARS MARKETING PVT. LTD. Versus PRITHVIRAJ SAYAJIRAO DESHMUKH & ORS., Crl.A. No. 003070 - 003071 / 2024

Citation : 2024 LiveLaw (SC) 513

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