2024 (12) TMI 1231 - SC - Indian Laws

Dishonour of Cheque - challenge to order of conviction passed by the Trial Court and affirmed by the Sessions Court for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881 - authorized signatory of a company falls within the ambit of the expression drawer or not - Meaning of the expression on an account maintained by him used in Section 138 of the NI Act - Scope of the expression any debt or other liability appearing in Section 138 of the NI Act - vicarious liability for the offence said to have been committed by the company. Whether the accused could be said to be covered by the expression account maintained by him as it appears in Section 138 of the NI Act? - HELD THAT - It is only the drawer of the cheque who can be held liable under Section 138. Section 141 is an exception to this scheme of the NI Act and provides for vicarious liability of persons other than the drawer of the cheque in cases where the drawer of the cheque under Section 138 is a corporate person. The question as to whether a person who was not the drawer of the cheque upon an account maintained by him could be held to be liable for an offence under Section 138 of the NI Act fell for the consideration of this Court in the case of P.J. Agro Tech Ltd. and Others v. Water Base Ltd. 2010 (7) TMI 280 - SUPREME COURT . The Court construed the provision strictly and answered the question in the negative. As per the legislative scheme it is only the drawer of the cheque who is sought to be made liable for the offence punishable under Section 138 of the NI Act. Thus, the next question that requires consideration is whether a Director of a company, who is also the authorised signatory, to sign and issue cheques on its behalf could be said to be the drawer of a cheque drawn upon the bank account held in the name of the company. In other words, whether such an authorised signatory could be said to maintain the bank account upon which the dishonoured cheque has been drawn for the reason that such a person has the authority to enter into transactions using the bank account of the company and also look after the day-to-day functioning of the bank account of the company. Whether authorized signatory of a company falls within the ambit of the expression drawer ? - HELD THAT - This Court in one of its recent decisions in the case of Shri Gurudatta Sugars Marketing (P) Ltd. v. Prithviraj Sayajirao Deshmukh and Others 2024 (7) TMI 1308 - SUPREME COURT had the occasion to consider the issue of whether the authorised signatory of a company who had signed a cheque drawn on the bank account of the company and which got dishonoured subsequently could be held to be liable for the payment of interim compensation under Section 143A of the NI Act. This Court while answering the issue in the negative, applied the doctrine of separate corporate personality and held that it is only the drawer of the cheque who could be held to be liable for the payment of interim compensation under Section 143A of the NI Act and the authorised signatory of a company cannot be said to be the drawer of the cheque. Meaning of the expression on an account maintained by him used in Section 138 of the NI Act - HELD THAT - Any delegation of authority to manage the account does not alter the intrinsic relationship existing between the account holder and the banker as envisaged under the NI Act. Corporate persons like companies, which are mere legal entities and have no soul, mind or limb to work physically, discharge their functions through some human agency recognised under the law to work. Therefore, if some function is discharged by such human agency for and on behalf of the company it would be an act of the company and not attributable to such human agent. One such instance of discharge of functions could be the authority to manage the bank accounts of the company, issue and sign cheques on its behalf, etc. which may be delegated to an authorised signatory. However, such authorisation would not render the authorised signatory as the maker of those cheques. It is the company alone which would continue to be the maker of these cheques, and thus also the drawer within the meaning of Section 7 of the NI Act. It is not the case of the complainant that the cheque in question was drawn by the accused on a bank account maintained by him, rather the case is that the cheque was issued in discharge of the personal liability of the accused towards the complainant, and hence there was no occasion for it to implead the company as an accused. Scope of the expression any debt or other liability appearing in Section 138 of the NI Act - HELD THAT - Section 138 of the NI Act does not envisage that only those cases where a cheque issued towards the discharge of the personal liability of the drawer towards the payee gets dishonoured would come within the ambit of the provision. The expression of any debt or other liability appearing in Section 138 when read with the Explanation to the provision is wide enough to bring any debt or liability which is legally enforceable within its fold. Thus, the requirement under the provision is that the debt or any other liability has to be legally enforceable and the emphasis is not on the existence of such debt or other liability between the drawer and the payee. A number of decisions of this Court have clarified that even those cases where a person assumes the responsibility of discharging the debt of some other person, and in furtherance thereof draws a cheque on an account maintained by him, which subsequently gets dishonoured upon being presented before the drawee, would be covered by Section 138 if the payee is able to establish that there was some sort of an arrangement by way of which the debt was assumed by the drawer. Section 141 of the NI Act - HELD THAT - It is the drawer Company which must be first held to be the principal offender under Section 138 of the NI Act before culpability can be extended, through a deeming fiction, to the other Directors or persons in-charge of and responsible to the Company for the conduct of its business. In the absence of the liability of the drawer Company, there would naturally be no requirement to hold the other persons vicariously liable for the offence committed under Section 138 of the NI Act. The High Court while rejecting the contention of the petitioner therein, adverted to the object of Section 138 of the NI Act to hold that the authorized signatory could be said to be the drawer of the cheque as he was maintaining the account held in the name of the proprietorix concern and thus could be held liable under Section 138 of the NI Act. In the case on hand, the accused was prosecuted in his individual capacity and not in his capacity of being the Director of the Shilabati Hospital Pvt. Ltd. Although it is undisputed that the accused signed the cheque in question, yet as the cheque was drawn not on an account maintained by him with a Banker but was issued on an account maintained by the hospital, the requirement of Section 138 of the Act cannot be said to have been complied with - The High Court rightly held that in the absence of the principal offender having been arraigned as an accused, prosecution for the commission of an offence under Section 138 of the NI Act could not have proceeded against the accused. It is trite law that an act may constitute an offence under more than one statute. The encashment of the cheque for an amount of Rs 7,00,000/- issued by the complainant in favour of the accused stood proved during the course of the trial. Further, the conduct of the accused in not replying to the statutory notice of dishonour of cheque issued by the lawyer for the complainant and in not taking the plea of the cheque having been drawn on the account of the company in his capacity as a Director during the course of trial undoubtedly raises questions as regards his dishonest intention in not repaying the amount borrowed by him from the complainant. Appeal dismissed.

Summary

Issues Involved:

1. Applicability of Section 138 of the Negotiable Instruments Act, 1881.
2. Whether the authorized signatory of a company falls within the ambit of the expression "drawer".
3. Meaning of the expression "on an account maintained by him" used in Section 138 of the NI Act.
4. Scope of the expression "any debt or other liability" appearing in Section 138 of the NI Act.
5. Interpretation of Section 141 of the NI Act regarding vicarious liability.

Detailed Analysis:

i. Section 138 of the NI Act:

The judgment delves into the legislative intent behind Section 138, which aims to enhance the acceptability of cheques by penalizing dishonor due to insufficient funds. The court outlines the necessary ingredients for a Section 138 offence: a cheque must be drawn by a person on an account maintained by him for discharging a debt or liability; it must be presented within six months; and the drawer must fail to pay within 15 days of receiving a notice of dishonor. The court emphasizes that only the drawer of the cheque can be held liable under Section 138, with Section 141 providing an exception for vicarious liability when the drawer is a corporate entity.

ii. Whether Authorized Signatory of a Company Falls Within the Ambit of the Expression "Drawer":

The court clarifies that an authorized signatory of a company cannot be considered the "drawer" under Section 138. The drawer is the entity that maintains the account, not the individual who signs the cheque on its behalf. The judgment references previous rulings, including Shri Gurudatta Sugars Marketing (P) Ltd. v. Prithviraj Sayajirao Deshmukh, to affirm that the liability under Section 138 lies with the drawer, which is the company, not the individual signatory.

iii. Meaning of the Expression "On an Account Maintained by Him" Used in Section 138 of the NI Act:

The court interprets this phrase to mean the account holder's relationship with the bank. An authorized signatory acts on behalf of the company but does not maintain the account personally. The court distinguishes between corporate accounts and joint accounts, noting that in joint accounts, each holder can be liable if they sign the cheque. The court references Aparna A. Shah v. Sheth Developers (P) Ltd. to support this distinction.

iv. Scope of the Expression "Any Debt or Other Liability" Appearing in Section 138 of the NI Act:

The court emphasizes that Section 138 covers any legally enforceable debt or liability, not limited to personal debts. It discusses cases like Anil Sachar v. Shree Nath Spinners Pvt. Ltd., where the court held that a cheque issued by a company for another's debt could still fall under Section 138 if there was an agreement to assume the debt. The court concludes that the absence of the drawer company as an accused precludes liability under Section 138.

v. Section 141 of the NI Act:

The judgment reiterates that Section 141 creates vicarious liability only when the company, as the primary offender, is prosecuted. The court references Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd., which established that the company must be arraigned for its officers to be held liable. The court emphasizes that without the company as an accused, the directors or signatories cannot be prosecuted under Section 138.

Conclusion:

The court concludes that the accused, prosecuted in his individual capacity, cannot be held liable under Section 138 as the cheque was drawn on the company's account. The court affirms the High Court's decision to acquit the accused, noting that the prosecution must include the company as the principal offender. While acknowledging the complainant's predicament, the court suggests the possibility of pursuing a cheating charge against the accused. The appeal is dismissed, with the court leaving open the option for the complainant to file an FIR for cheating.