Bombay High court led by Justice Amit Borkar held that a signatory cannot be directed to pay interim compensation if a cheque signed by an authorized signatory is dishonored by the recipient.
Authorized Signatory to be not considered anymore
In a recent decision, the Bombay High Court held that individuals authorized by a corporation to sign cheques on its behalf would not be considered the “drawer of the cheque” for interim compensation under the Negotiable Instruments (NI) Act. [Lyka Labs Limited & Anr v. State of Maharashtra & Anr]
Due to this reasoning, Justice Amit Borkar held that a signatory cannot be directed to pay interim compensation if a cheque signed by an authorized signatory is dishonored by the recipient under Section 143A (power to direct interim compensation).
As per Section 143A of the NI Act, any portion of interim compensation cannot be directed to be deposited by the signatory of the cheque authorized by the ’company.’
In addition to a petition from former Videocon chairman Venugopal Dhoot, the court passed the order in a clutch of other petitions.
In an appeal, it was discussed whether the authorized signatory of the cheque could be ordered to pay interim compensation.
In an appeal, courts are empowered to require the drawer to deposit at least 20% of the fine or compensation awarded by the trial court under Section 143A of the NI Act.
Dishonored cheque can be resolved without undue delay under this provision, which provides relief to drawees.
Section 143A’s definition of ‘drawer’ clarifies and unambiguously explains the term. In the legislation, the drawer/issuer was specifically liable for interim compensation, thereby excluding anyone else from being held liable.
“Under section 138, the drawer (company) is considered the principal offender in cases where a cheque is issued by the company. Without section 141 of the Act, only the drawer would have been guilty of violating the act. It is also the responsibility of other persons connected with the company to comply with Section 138 of the Act,” said High Court.
An authorized signatory does not need to be included in the meaning of the word ‘drawer’. It has not been interpreted that the expression ‘drawer’ in section 138 includes both the signatory and director of the cheque.
Section 141 of the Act holds both the signatories of a cheque and the in-charge director vicariously liable regardless of the expression ‘drawer’ appearing in section 138
Further reasoning of the court was that the Apex Court has consistently excluded the cheque signatory from the definition of “drawer” in section 138.
In section 138, the word ‘drawer’ has not been interpreted to include either the maker of the cheque or the director of the company who signed the cheque. According to the court, although the word ‘drawer’ appears in section 138, both cheque signators and charge directors are held vicariously liable under section 141. In addition, the court notes that it does not have the authority to order interim compensation under section 141 of the NI Act.
For criminal action to be brought for dishonoring cheques under section 138 of the NI Act, the cheque must be drawn on an account maintained by the drawer, who is the main liable party.
In addition, Justice Borkar said that a deposit of a minimum sum of 20% of the fine or compensation is not required in an appeal filed under section 148 of the NI Act by anyone other than the drawer.
While suspending a sentence under Section 389 of the code of criminal procedure, the appellate court can also direct deposit compensation in other appeals, the court said.
