Are you the Authorised Signatory of your company? What if the cheque you signed bounces? Have you ever wondered if you will be held liable or not?
The Bombay High Court came to the rescue of authorised signatories in a case held in 2023. The Court opined that the authorised signatory of a company who signs a cheque on its behalf is not the “drawer” of the cheque. Thereby, relieving a signatory from the liability of payment of interim compensation under section 143A of the Negotiable Instruments Act, 1881.
Section 7 of the NI Act defines drawer as the maker of a bill of exchange or cheque. Section 143A emanates from the penal liability enumerated under Section 138 of the NI Act. One of the essential conditions to attract Section 138 of NI Act is – that the cheque must be drawn on an account maintained by the drawer. It is evident from the phraseology of the section, that the drawer is the principal offender.
It is the very duty of the drawer to maintain sufficient funds. Drawer alone would have been the offender thereunder if the Act did not contain section 141. By virtue of Section 141 of the Act that penal liability under Section 138 is cast on other persons connected with the company. Therefore there is no need to interpret the word ‘drawer’ to include authorised signatory. It is plausible that the drawer is a legal entity i.e. an artificial person.
In this event, the general rule of vicarious liability applies. However, the HC opined that keeping in mind the legislative intent, the mere signing of a cheque on behalf of a company would not make a person a drawer, for it would not ensure the legislative purpose of ensuring credibility. Liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company.
Case Title – Lyka Labs Limited & Anr. v. State of Maharashtra & Anr. and connected cases
Citation: CRIMINAL WRIT PETITION (ST.) NO. 1436 OF 2021
DISCLAIMER
The content of this article is intended to provide general guidance on the subject matter. Specialist advice should be sought about your specific circumstances.
