1. Cheque dishonour — Complaint under Section 138, NI Act — Order for interim compensation under Section 143-A against company directors — Challenge to liability of authorized signatories. (Para 2 , 3 , 4 , 5 , 8 )
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2024 Supreme(SC) 601
SUPREME COURT OF INDIA
VIKRAM NATH, PRASHANT KUMAR MISHRA, JJ.
Shri Gurudatta Sugars Marketing Pvt. Ltd. – Appellant
Versus
Prithviraj Sayajirao Deshmukh & Ors. - Respondents
Criminal Appeal Nos. 3070 of 2024 (@ Special Leave to Petition (Crl.) Nos.8849-8850 of 2023)
Decided on : 24-07-2024
Important Points
IMPORTANT POINTS
(1) Dishonour of cheque – Offence by company – Authorized signatory is not a drawer of cheque – Signatory is merely authorized to sign on behalf of company and does not become drawer.
(2) Penal provisions must be read strictly to determine liability.
(1) Dishonour of cheque – Offence by company – Authorized signatory is not a drawer of cheque – Signatory is merely authorized to sign on behalf of company and does not become drawer.
(2) Penal provisions must be read strictly to determine liability.
Subject
Civil Law - Negotiable Instruments Act
Act Referred
Headnote
Negotiable Instruments Act, 1881 – Sections 138, 141 and 143-A – Dishonour of cheque – Offence by company – Vicarious liability of drawer of cheque – Distinction between legal entities and individuals acting as authorized signatories is crucial – Authorized signatories act on behalf of company but do not assume company's legal identity – Drawer under Section 143A refers specifically to issuer of cheque, not the authorized signatories – Authorized signatory is not a drawer of cheque – Signatory is merely authorized to sign on behalf of company and does not become drawer – Penal provisions must be read strictly to determine liability – Primary liability for offence under Section 138 lies with company and company’s management is vicariously liable only under specific conditions provided in Section 141 – High Court’s judgment upheld. (Paras 30, 34 and 35)
Facts of the case:
Present Appeals are filed challenging judgments and orders passed by Bombay High Court, dated 08.03.2023 and 29.03.2023 in CRLA 967/2022, whereby High Court allowed Criminal Application filed by present respondents thereby setting aside order of Judicial Magistrate directing interim payment under Section 143-A, Negotiable Instruments Act, 1881 to be paid by respondents – Directors of the company on whose account dishonoured cheque was drawn.
Findings of Court:
This decision maintains clarity and consistency of law regarding cheque dishonour cases, ensuring that liability is appropriately assigned to responsible parties under NI Act. Therefore, question of law put before this Court is answered in the negative.
Result : Appeals dismissed.
Legal Category Hierarchy
Advocates appeared:
For the Petitioner(s): Mr. D.P. Singh, Adv. Mr. Manu Mishra, Adv. Mr. Iman Khera, Adv. Ms. Shreya Dutt, Adv. Ms. Sonam Gupta, AOR
For the Respondent(s): Mr. Ramchandra Madan, AOR 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. Mr. Kirti Kumar, Adv.
For the Petitioner(s): Mr. D.P. Singh, Adv. Mr. Manu Mishra, Adv. Mr. Iman Khera, Adv. Ms. Shreya Dutt, Adv. Ms. Sonam Gupta, AOR
For the Respondent(s): Mr. Ramchandra Madan, AOR 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. Mr. Kirti Kumar, Adv.
Table of Contents
2. Whether authorized signatories of a company qualify as drawers under Section 143-A, NI Act, and whether they can be directed to pay interim compensation. (Para 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 )
3. Analysis of the definition of drawer, distinction between legal entities and authorized signatories, and the requirement for strict interpretation of penal provisions and vicarious liability. (Para 15 , 16 , 17 , 18 , 28 , 29 , 30 , 31 , 32 , 33 , 34 )
4. The term drawer under Section 143-A, NI Act refers strictly to the issuer of the cheque and does not extend to authorized signatories of a company. (Para 35 )
5. Appeals dismissed — High Court judgment upheld — Question of law answered in the negative. (Para 35 , 36 )
6. Who is considered the drawer under the Negotiable Instruments Act?
The drawer is the individual or entity who issues the cheque. Under Section 7, the maker of a cheque is the drawer, and the primary liability for ensuring sufficient funds under Section 138 rests with them. (Para 28 )
7. Can an authorized signatory of a company be held liable as a drawer for interim compensation under Section 143-A, NI Act?
No. An authorized signatory acts on behalf of the company but does not assume its legal identity. The term drawer in Section 143-A refers specifically to the issuer of the cheque, not the authorized signatories. (Para 30 , 35 )
8. How does vicarious liability under Section 141, NI Act relate to the definition of a drawer under Section 143-A?
Section 141 extends criminal liability to company officers via legal fiction. However, this does not transform an authorized signatory into the drawer of the cheque for the purpose of paying interim compensation under Section 143-A. (Para 33 , 35 )
9. What principle of statutory interpretation applies to penal provisions like Section 143-A, NI Act?
Penal statutes must be read strictly to determine liability, especially regarding vicarious liability. When statutory language is clear and unambiguous, it must be given its natural and ordinary meaning without liberal expansion. (Para 26 , 31 , 34 )
JUDGMENT :
VIKRAM NATH, J.
1. Leave granted.
2. The present Appeals are filed challenging the judgments and orders passed by the Bombay High Court, dated 08.03.2023 and 29.03.2023 in CRLA 967/2022, whereby the High Court allowed the Criminal Application filed by the present respondents thereby setting aside the order of the Judicial Magistrate directing the interim payment under Section 143-A, Negotiable Instruments Act, 18811[In short, “NI Act”] to be paid by the respondents – directors of the company on whose account the dishonoured cheque was drawn.
3. Appellant company entered into several Agreements and Sale Orders with one Cane Agro Energy (India) Ltd. (Cane hereinafter) between September 2016 and June 2017. Under these Agreements and Sale Orders, the appellant made advance payments amounting to Rs.63,46,00,000/- (Rupees sixty three crores forty six lakhs) for supply of sugar by Cane. It is alleged by the appellant that Cane failed to supply the ordered quantities of sugar and also failed to discharge its other obligations as agreed upon. Cane agreed to refund the advance amount due and payable to the Appellant. In part discharge of liability, a sum of Rs.1,00,00,000/- (Rupees one crore) was refunded by Cane on 30.01.2018.
4. Subsequently, respondent Nos. 1 to 3 issued two cheques dated 30.03.2020 in favour of the appellant, one for Rs.45,00,00,000/- (Rupees forty five crores) and one for Rs.6,64,41,300/- (Rupees six crores sixty four lakhs forty one thousand and three hundred), amounting to a total amount of Rs.51,64,41,300/- (Rupees fifty one crores sixty four lakhs forty one thousand and three hundred). These two cheques were signed by respondent No.1, who is the Chairman of Cane.
5. The said cheques were presented to the Bank but were dishonoured due to insufficiency of funds, vide return memos dated 02.06.2020. Appellant issued notice date 18.06.2020 to respondent Nos. 1 to 3 against the dishonour of cheques demanding payment of dues. A notice was duly served on 30.06.2020. When the payments due were not made, the appellant preferred a complaint before the Judicial Magistrate, First Class, Kolhapur, which was registered as Summary Criminal Case No.2967 of 2020. On 11.08.2020, the Judicial Magistrate, First Class, Kolhapur issued process against respondent Nos. 1 to 3. In the meantime, Cane was admitted into Corporate Insolvency Resolution Process by order of National Company Law Tribunal, Mumbai.
6. Respondent Nos. 1 to 3 entered appearance before the Judicial Magistrate and subsequently preferred an application under Section 258, Code of Criminal Procedure, 18602[CrPC], seeking stoppage of proceedings in terms of the moratorium running against Cane. On 20.05.2021 an order imposing moratorium against Cane was passed under Section 14, Insolvency and Bankruptcy Code, 20163[IBC]. Respondent Nos. 1 to 3, along with Cane, preferred another application under Section 258, CrPC seeking stoppage of proceedings before the Judicial Magistrate.
7. The Judicial Magistrate partly allowed the above application and held that the complaint shall not proceed against Cane in view of Section 14, IBC till the order of moratorium is operative; but the complaint was ordered to proceed ordinarily against respondent Nos.1 to 3 herein. The Judicial Magistrate observed that as per the scheme of Section 14, IBC the proceedings for offences punishable under Section 138, NI Act is withheld by order of moratorium only for corporate debtors and not against other natural persons arrayed as respondents in representative capacity for the accused company.
8. Appellant filed an application under Section 143-A, NI Act against respondent Nos. 1 to 3 seeking interim compensation from the respondents during the pendency of the criminal proceedings before the Judicial Magistrate. Vide order dated 27.04.2022, the Judicial Magistrate directed each of the respondents to pay 4% of the total cheque amount as interim compensation to the appellant within 60 days. The respo
