Supreme Court clarifies that "drawer" under Section 143A of the Negotiable Instruments Act refers to the issuing entity, not authorized signatories. Analysis of Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh & Ors. and its implications for check dishonor cases: Landmark Judgment.

The Supreme Court of India clarifies the interpretation of the term "Drawer" under Section 143A of the Negotiable Instruments Act, 1881 (NI Act) in hearing an appeal after Bombay High Court ruling that set aside an order for interim compensation against the directors of a company that had issued dishonored checks. The appellant, Gurudatta Sugars Marketing Pvt. Ltd., sought interim compensation from the respondent directors after cheques issued by their company, Cane Agro Energy (India) Ltd., bounced.

The key question before the Court 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?”

Important Observations:

Obligation of the Drawer: The High Court observed that the "drawer," as defined in Section 7 of the NI Act, is the person who issues the cheque and bears the primary liability under Section 138 for ensuring sufficient funds.

Vicarious Liability under Section 141: While acknowledging the general rule against vicarious liability in criminal law, the High Court highlighted that Section 141 of the NI Act extends criminal liability to company officers for cheque dishonor if specific conditions are met. This liability stems from their conduct, not merely their position and held "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"

Distinct Identity of Authorized Signatory: The High Court emphasized the separate legal identities of a company and its authorized signatories. Although authorized signatories act on behalf of the company, they do not become the company itself and are not liable under Section 143A.

Literal Interpretation of Section 143A: The High Court advocated for a plain reading of Section 143A, stating that the term "drawer" unambiguously refers to the issuer of the cheque, not authorized signatories. The legislative intent, as evident from the provision's wording, is to provide interim relief from the actual drawer.

Definition of "Drawer": The Court affirmed that Section 7 of the NI Act clearly defines the "drawer" as the entity issuing the check. In this case, the drawer was the company, Cane Agro Energy (India) Ltd., not its individual directors.

Liability under Section 138: The Court reiterated that the primary liability for dishonoring a check under Section 138 of the NI Act falls upon the "drawer." While Section 141 extends liability to company officers under specific conditions, this extension does not alter the fundamental definition of "drawer."

Distinction between Authorized Signatories and the Company: The judgment emphasized the principle of separate legal identity between a company and its authorized signatories. While authorized signatories can act on behalf of the company, they do not become the "drawer" themselves, the court held "The appellants' interpretation conflates the roles of authorized signatories and drawers, which are distinct under the NI Act..."

Statutory Interpretation: The Court relied on the principle of interpreting statutory language plainly and in accordance with the legislative intent. Since Section 143A explicitly refers to the "drawer," the Court rejected attempts to broaden the interpretation to include authorized signatories.

Reliance on Precedents: The judgment cited several legal precedents to support its interpretation; includes "Nazir Ahmad v. King Emperor○", "Central Bank of India v. Ravindra" , "Noor Mohammed v. Khurram Pasha○" & "N. Harihara Krishnan v. J. Thomas" - This case established that authorized signatories are not considered "drawers" under Section 138.

Rejection of Aneeta Hada: The Court rejected the appellants' reliance on "Aneeta Hada v. godfather travels and tours Pvt. Ltd". While this case highlighted the need to involve the company in prosecutions under Section 141, it did not support extending liability under Section 143A to authorized signatories. The Court noted that the appellants had misconstrued a single paragraph from Aneeta Hada that was not part of the core holding.

Supreme Court's Decision: The Supreme Court upheld the High Court's decision and answered the question of whether authorized signatories are liable under Section 143A in the negative. The Court agreed that "drawer" in Section 143A should be interpreted literally as the issuer of the cheque, excluding authorized signatories. Refering to the "N. Harihara Krishnan v. J. Thomas" the court held that "This judgment clarified that a signatory is merely authorized to sign on behalf of the company and does not become the drawer." Thus, Court highlighted the distinction between authorized signatories and drawers and the principle of vicarious liability. Dismissing the appeal the Apex Court's interpretation ensures clarity and consistency in applying the law related to check dishonor cases.

Coram: Hon’ble Justice Vikram Nath & Justice Prashant Kumar Mishra.
Between:Gurudatta Sugars Marketing Pvt. Ltd. VS Prithviraj Sayajirao Deshmukh & Ors
Date: 24-07-2024