When Can An Authorised Signatory Of A Proprietary Concern Be Made An Accused In Cheque Bounce Complaint? Madras HC Refers Matter To Larger Bench

The Court examined two conflicting judgments in cases related to prosecutions under Section 138 of the NI Act. In the judgment of N.Gopalan v. K.Udhayakumar (2009) 4 CTC 217, a Single Bench of the Madras High Court had concluded that the prosecution under Section 138 of the NI Act can only be made against the drawer of the cheque, who maintains the account, and not against the authorized signatory. The court relied on the Supreme Court's judgment in Raghu Lakshminarayanan Vs. Fine Tubes (2007) 5 SCC 103.

However, in a subsequent case, P.Saravana Kumar v. S.P.Vijaya Kumar 2022 SCC OnLine Mad 1387, another Single Bench held a contrary view, stating that the complaint is maintainable against both the proprietor and the authorized signatory. The Single Bench disagreed with the earlier judgment in N.Gopalan's case, arguing that it was based on a misinterpretation of the Supreme Court's judgment in Raghu Lakshminarayanan's case.

A Single Bench of Justice N. Anand Venkatesh observed, “In view of the above, there are two contradictory judgments on the same issue. In the instant case, there is no dispute with regard to the fact that the cheque was issued by a proprietorship concern, called as M/s Prabhat General Agencies. The proprietor of this concern was one T.L. Chudiwala. The petitioner was an authorised signatory. Both the petitioner as well as the authorised signatory have been made as an accused in this case.”

M/S Rugan and Arya represented the petitioner, while M/S Eswar Kumar and Rao appeared for the respondent.

The Court carefully examined Section 138 of the NI Act and stated that criminal proceedings can be launched only against a person who draws the cheque on an account maintained by them. But if an account is maintained by a proprietary concern, then the proprietor should be made an accused.

The Court held, “Thus, since the proprietary concern does not have an independent identity apart from the proprietor/ proprietorix, Section 141 of the NI Act will not apply to a case of this nature. If the proprietor/ proprietorix is made as an accused on the ground that the cheque was drawn from the account maintained by the proprietary concern, there should be more clarity as to how the authorised signatory can also be made as an accused. If both of them are made as an accused, it may not strictly be in line with Section 138 of the NI Act.”

The Court referred the issue to the Division Bench to decide on the following:

(a) Whether in a proceeding initiated under Section 138 of the NI Act, against the proprietary concern, the proprietor/ proprietorix alone can be considered as the drawer of the cheque under Section 138 of the NI Act and

(b) If the authorised signatory has signed the cheque on behalf of the proprietary concern, whether such authorised signatory can also be added as an accused along with the proprietor/ proprietorix?

Accordingly, the High Court directed the registry to place the order before the Chief Justice to constitute a bench to decide on the questions of law.

Cause Title: Vikas Chudiwala v. R.Ravinder Kumar

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