Shri Gurudatta Sugars Marketing Pvt. Ltd v. Prithviraj Sayajirao Deshmukh & Ors. (Neutral Citation: 2024 INSC 551) - (Supreme Court) (24 Jul 2024)

Authorized signatory of the company shall not be considered as a 'drawer' of cheque, and could not be directed to pay the interim compensation

MANU/SC/0769/2024

Banking

The present appeals are filed challenging the judgments and orders passed by the Bombay High Court, 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, 1881 to be paid by the directors of the company on whose account the dishonored cheque was drawn.

The primary issue 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?

The Bombay High Court has rejected the submission to include authorized signatories in the definition of "drawer" and emphasized that wordings of Section 143A of Act, which targets the drawer of the cheque, regardless of whether it is an individual or a business, does not impose liability on authorized signatories.

The Hon’ble Supreme Court made a distinction between the legal identity of the company and its authorized signatory, noting that since they are separate legal entities, therefore, the authorized signatory's act to issue cheque on behalf of the company does not assume the company's legal identity, and they can't be held liable for the default committed by the company. Thus, the High Court’s decision to interpret 'drawer' strictly as the issuer of the cheque, excluding authorized signatories, is well-founded and the authorized signatory only acts on behalf of the company to issue the cheque, and such an act of the authorized signatory would not make him drawer of the cheque.

Therefore, Division Bench of Supreme Court upheld the judgment of Bombay High Court which held that the authorized signatory of the company could not be regarded as drawer of the cheque to attract the liability under Section 143A of the Negotiable Instrument Act, 1881.

Tags : AUTHORIZED SIGNATORY DRAWER INTERIM COMPENSATION