Section 143A of the NI Act: Supreme Court held that Authorized Signatories of the Company could not be considered as the Drawer of the cheque
On July 24, 2024, the Supreme Court (SC) of India was hearing an appeal challenging the order of the Bombay High Court (HC) that allowed the criminal application filed by the respondents setting aside the order of the Judicial Magistrate directing the interim payment under Section 143A of the Negotiable Instruments Act, 1881 (NI Act) to be paid by the respondents–directors of the company on whose account the dishonored cheque was drawn. The SC bench held that authorized signatories of the company could not be considered as the drawer of the cheque and could not be directed to pay interim compensation in terms of Section 143A of the NI Act. The matter was heard by a two-judge bench of the Supreme Court constituting Justice Vikram Nath and Justice Prashant Kumar Mishra. The bench said, “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 question of law addressed by the top court, in this case, was “Whether the signatory of the cheque, authorized by the ‘Company’, is the ‘drawer’ and whether such signatory could be directed to pay interim compensation in terms of section 143A of the Negotiable Instruments Act, 1881 leaving aside the company?” The SC bench upheld the decision of the Bombay HC that said the company's authorized signatory could not be considered as drawer of the cheque to attract the liability under Section 143A of the NI Act. During the proceedings, the SC observed, “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 dishonor 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.”
While hearing the matter, the top court relied on the case, N. Harihara Krishnan vs. J. Thomas which stated, "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 authorized to sign the cheque on behalf of the company/drawer of the cheque.” In context to this case, the bench said “The respondents correctly argued that an authorized signatory is not a drawer of the cheque, as established in N. Harihara Krishnan…This judgment clarified that a signatory is merely authorized to sign on behalf of the company and does not become the drawer…” Moreover, the bench also discussed the difference between the legal identity of the company and its authorized signatory. It illustrated, “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.”
After hearing the matter from both parties, the SC bench concluded that the decision of the Bombay HC to interpret ‘drawer’ strictly as the issuer of the cheque, excluding authorized signatories, is well-founded. It added, “This interpretation aligns with the legislative intent, established legal precedents, and principles of statutory interpretation. The primary liability for an offence under Section 138 lies with the company, and the company’s management is vicariously liable only under specific conditions provided in Section 141.” Further, the bench said that this decision maintains the clarity and consistency of the law regarding cheque dishonor cases, ensuring that liability is appropriately assigned to the responsible parties under the NI Act. The question of law in this case, “Whether the signatory of the cheque, authorized by the ‘Company’, is the ‘drawer’ and whether such signatory could be directed to pay interim compensation in terms of section 143A of the Negotiable Instruments Act, 1881 leaving aside the company?” is answered in negative.
