The Bombay High Court has on 8 March 2023 held that the signatory of the cheque, authorized by the ‘Company’, is not the ‘drawer’ and that such signatory cannot be directed to pay interim compensation in terms of Section 143A of the Negotiable Instruments Act, 1881 (‘NI Act’), leaving aside the company.
According to the provisions, the ‘drawer’ of the cheque is deemed to have committed an offence under the Negotiable Instruments Act when the cheque drawn by him is returned unpaid on the specified grounds, subject to fulfilment of certain conditions precedent and subsequent.
The complainant in the dispute had contended that the authorised signatory of a company becomes the ‘drawer’ for the purpose of Sections 138 and 143A of the NI Act as he has been authorised to do so in respect of the account maintained by the company.
Interpretating in plain language (and rejecting the rule of purposive construction) the provisions of Sections 143A and 148 of the NI Act, the Court was of the view that there is no need to interpret the word ‘drawer’ to include the authorised signatory.
The High Court in this regard also observed that when a term ‘drawer’ has achieved a technical connotation over the years of its usage, the connotation must not be disturbed. It noted 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, and (ii) the judicial pronouncements consistently holding drawer to include only the principal offender and not those who are vicariously liable.
The Court also noted that under company law, the company's liability is generally not transferred onto the directors. It observed that as per the Companies Act 2013, a company has a separate legal identity, and the directors and members of the company act as representatives and mutually exist in a fiduciary relationship. It noted that the Directors serve as an agent and hence are not liable personally for the acts and actions of the company unless they act beyond their powers and duties.
Rejecting another argument of the effect of legal impossibility, such as Section 14 of the Insolvency and Bankruptcy Code, 2016, which prevents a drawer company from being compelled to pay interim compensation, the Court held that the same derives no support to include authorised signatories within expression ‘drawer’. It, in this regard, observed that such legal impossibility is created by Act of the Parliament of which the legislature is deemed to be fully aware of at the time of enacting Sections 143A and 148 of the NI Act.
The High Court in also noted that the liability for the punishment of persons specified in Section 141(2) is triggered only after it is ‘proved’ that offence has been committed with their consent or connivance of, or is attributable to any neglect on the part of such persons, while power to direct interim compensation under Section 143A is exercisable after recording a plea of the accused. The Court hence rejected the submission that power to direct interim compensation can be traced under Section 141 in addition to Section 143(A) of the NI Act.
Lastly, the High Court in this dispute Lyka Labs Limited v. State of Maharashtra also held 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. It was however held that such power to direct deposit of compensation is available with the Appellate Court while suspending sentence under Section 389 of Code of Criminal Procedure, in a case of appeal by person other than ‘drawer’