HC: Authorised signatory in Company’s bounced cheque is not ‘drawer’
In a landmark judgment, the Bombay high court held that in case of corporates issuing cheques that bounce, the authorised signatory is not the ‘drawer’ and not liable to pay interim compensation of up to 20% to a complainant. Only the company is, pending trial.
“It is held that every person signing a cheque on behalf of the company on whose account a cheque is drawn does not become a 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,” held Justice Amit Borkar. He was dealing with a batch of petitions to decide the common law points raised.
The HC did not extend the definition of drawer to company directors or authorised signatories. It said, “The expression ‘drawer’ in section 138 has not been interpreted to include either signatory of the cheque or the signatory director.” Section 148 of Negotiable Instruments (NI) Act deals with power of appeal court, in an appeal by the drawer against conviction, to direct appellant to deposit minimum 20% of compensation given by trial court.
The HC held that when appeal against conviction in a cheque bouncing case is filed by a person other than the ‘drawer’, “deposit of minimum 20% fine or compensation is not necessary” under the provisions of the NI Act. But, it added, the appeal court can order such deposit, pending appeal, under a provision of the code of criminal procedure, to suspend sentence. The HC held, “The signatory of the cheque, authorised by the ‘company’, is not the drawer in terms of section 143A (provision for interim compensation) of the NI Act and cannot be directed to pay interim compensation under section 143A.”
A company is a separate legal entity, distinct and independent of persons that constitute it, noted the HC. Senior lawyers hailed the judgment dealing with scope of interim compensation underthe 2018 amendment to the Negotiable Instruments Act as being “revolutionary” and see its impact nationwide. Lyka Labs and Venugopal Dhoot of Videocon Group were among the petitioners in a batch of over a dozen matters before the HC.
Senior counsel Aabad Ponda, appearing for an accused, in detailed submissions, said in a company where the account is in the company’s name, the signatory of the company’s cheque does not become the drawer.
Senior counsel Sharan Jagtiani had argued for a complainant that “authorised signatory of a company becomes the drawer for the purpose of sections 138 and 143A (interim compensation) of the NI Act as he has been authorised to do so in respect of the account
maintained by the company”.
Section 143A of the NI Act confers discretion on court to direct ‘drawer’ of cheque to deposit maximum 20% of the cheque amount as interim compensation, before determination of guilt.
Ponda argued, “To attract liability under section 138 (dishonour of cheques) of the NI Act, the cheque must be drawn from the account of the drawer. …word ‘drawer’ can never be construed to mean signatory of a cheque from whose account the cheque is not drawn.”
The SC had held that to maintain prosecution under section 141 (offence by companies) “arraigning of a company as an accused is imperative”. The HC noted that the SC laid down that cheque bouncing “offence under section 138 of NI Act is capable of being committed only by the drawer of the cheque”.
