Authorised signatory is not the drawer in a cheque bounce case: Bombay HC

Authorised signatory is not the drawer in a cheque bounce case: Bombay HC

Section 143A of the NI Act confers discretion on court to direct ‘drawer’ of the cheque to deposit a maximum 20% of the cheque amount as interim compensation, before determination of guilt.

FPJ News ServiceUpdated: Thursday, March 09, 2023, 03:18 PM IST
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Bombay High Court | Wikimedia Commons

The Bombay High Court has ruled that in a cheque bounce case, where the cheque issued by a company is dishonoured, the signatory of the cheque, authorized by the "Company", is not the “drawer” and is not liable to pay interim compensation of up to 20% to a complainant.

Justice Amit Borkar observed: “The signatory of the cheque, authorized by the "Company", is not the drawer in terms of section 143A of the NI Act (Negotiable Instruments Act) and cannot be directed to pay interim compensation under section 143A."

Section 143A of the NI Act confers discretion on court to direct ‘drawer’ of the cheque to deposit a maximum 20% of the cheque amount as interim compensation, before determination of guilt.

Signatory only person authorised

In a detailed 56-page judgment, Justice Amit noted: “It is held that every person signing a cheque on behalf of the company on whose account a cheque is drawn does not become a drawer of the cheque. Such a signatory is only a person duly authorised to sign the cheque on behalf of the company / drawer of the cheque.”

The HC was hearing a batch of petition, including that of former Videocon founder Venugopal Dhoot, raising the issue whether the authorised signatory is a drawer of the cheque.The HC did not extend the definition of drawer to company directors or authorised signatories.

The court said: “The expression ‘drawer’ in section 138 has not been interpreted to include either signatory of the cheque or the signatory director.”

Section 148 of NI Act deals with power of appeal court, in an appeal by the drawer against conviction, to direct appellant to deposit minimum 20% of compensation given by trial court.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.

Code of criminal procedure

However, the HC added that the appeal court can order such deposit, pending appeal, under a provision of the code of criminal procedure, to suspend sentence.

“The signatory of the cheque, authorised by the ‘company’, is not the drawer in terms of section 143A (provision for interim compensation) of the NI Act and cannot be directed to pay interim compensation under section 143A,” observed the court, adding: “A company is a separate legal entity, distinct and independent of persons that constitute it.”

Citing a Supreme Court judgment, justice Borkar said that the apex court held that to maintain prosecution under section 141 (offence by companies) “arraigning of a company as an accused is imperative”. Hence, the company will face trial under the NI Act for a cheque bounce case and not the authorised signatory.

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