Authorized Signatory Is Not Drawer Of Cheque, Cannot Be Directed To Pay Interim Compensation For Dishonour- Bombay HC

A Bombay High Court Bench of Justice Amit Borkar has clarified that an authorized signatory of a company who signs a cheque on its behalf is not the "drawer" of the cheque, and hence such signatory is not liable to pay interim compensation under section 143A of the Negotiable Instruments Act, 1881 in a case of the dishonor of the cheque.

Senior Advocate Aabad Ponda appeared for the Accused, Senior Advocate Sharan Jagtiani appeared for the Complainant, and APP AR Patil appeared for the State.

In this case, the issue being considered by the Court was whether the authorised signatory of the cheque is the ‘drawer’ and whether he could be directed to pay interim compensation in an appeal.

The Court noted that "a plain reading of section 138 of the NI Act makes it evident that the said section is controlled by the expression "where in a cheque drawn by a person on an account maintained by him". To attract liability under section 138, it is one of the preconditions that a cheque must be drawn on an account maintained by the drawer. The person contemplated in the section can be an individual or legal entity. The principal liability is imposed on the drawer.".

In furtherance of the same, the Court observed that "Reading section 138 of the NI Act makes it clear that the duty to maintain sufficient funds on the date of presentation of the cheque is cast on the drawer. On receipt of demand notice, section 31 creates the right to receive compensation from the drawee bank if the drawer has sufficient funds in the account maintained by him and the drawee bank fails to honour the cheque. Such compensation needs to be paid only to the drawer. Unless demand notice is served on the drawer, the offence under section 138 of the said Act is not complete. It is evident that the drawer of the cheque is the principal offender who alone is liable for the offence under section 138 of the NI Act. The drawer of the cheque is deemed to have committed an offence when the cheque drawn by him is returned unpaid on the specified grounds, subject to fulfilment of conditions precedent and conditions subsequent."

Further, the Court was of the considered view that "it appears that the legislature's purpose was to provide interim relief to the drawee by directing the drawer to pay temporary compensation. This compensation was made payable by the cheque's drawer or issuer. By specifically fastening the liability on the drawer/issuer, the legislature excluded anyone else from being made liable to pay interim compensation. The plain language section 143A clearly spells out the intention of the parliament by resorting to the golden rule of interpretation- that a statute must be read plainly to arrive at its meaning. 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."

In similar context, the Court proceeded to observe that the expression 'drawer' has obtained a fixed and legal connotation over the years on account of (i) the legislature never having changed said definition nor the context in which the expression is used, (ii) the judicial pronouncements having consistently held drawer to include only the principal offender and not those who are vicariously liable. 

The Court also deemed it fit to clarify that in an appeal under section 148 of NI Act filed by persons other than "drawer" against the conviction under Section 138 of the NI Act, a deposit of a minimum sum of 20% of the fine or compensation is not necessary, however, in an appeal filed by persons other than "drawer" against the conviction under section 138 of the NI Act such power to direct deposit of compensation is available with the Appellate Court while suspending sentence under Section 389 of code of criminal procedure.

Cause Title: Lyka Labs Limited & Anr. v. The State of Maharashtra & Anr.

Click here to read/download the Judgment