2022 (4) TMI 300 - HC - Indian Laws

Dishonor of Cheque - drawer of the cheque - case of the petitioner is that he is the authorised signatory of the Proprietrix concern to sign cheques, but he is not the drawer of the cheque on the account maintained by him - criminal prosecution under Section 138 of the Negotiable Instruments Act 1881 - HELD THAT - This Court put a pointed question to the learned counsel for the petitioner, whether if the account not blocked and sufficient fund available in the account, would the bank have cleared the cheque?. The answer was positive. Therefore, the understanding between the account holder, authorised signatory and the bank is that the cheque drawn by the authorised signatory will be honoured, provided there is sufficient fund available in the account. That means, the account opened in the name of the Proprietor concern, is in fact maintained by the authorised signatory and not the person in whose name the proprietor concern stands. One can easily visualise the object of Section 138 of the Negotiable Instruments Act, 1881, will be defeated, If the proposition canvassed by the petitioner is held legally valid. Fraudsters will open the Bank Account in the name of Proprietor concern by one individual and another individual will be nominated as Authorised Signatory. Allow the cheque drawn by the authorised signatory gets bounced and pleads that he is only the drawer of the cheque, but not the person maintaining the account. The Court cannot give an interpretation to the provision of law, which will be contrary to object of the Act and defeat the very purpose of the Act - this Court finds no merit in the petition to quash the complaint under Section 138 of the Negotiable Instruments Act, 1881 against the petitioner being the drawer of the cheque, and drawn the cheque as authorised signatory of the person who opened the account. Petition dismissed.

Summary

Issues Involved:
1. Whether the petitioner, as an authorized signatory, can be held liable under Section 138 of the Negotiable Instruments Act, 1881.
2. Interpretation of "drawer" under Section 7 of the Negotiable Instruments Act, 1881.
3. Applicability of vicarious liability to a proprietor concern under Section 138 of the Negotiable Instruments Act, 1881.

Issue-wise Detailed Analysis:

1. Liability of Authorized Signatory under Section 138 of the Negotiable Instruments Act, 1881:
The petitioner contended that as an authorized signatory, he could not be held liable under Section 138 of the Negotiable Instruments Act, 1881, because the cheque was issued from an account maintained by the proprietor concern, M/s. Jaandar Apparels, and not by him personally. The court, however, noted that the petitioner signed the cheque in his capacity as the authorized signatory, thereby making him the "drawer" of the cheque. The court emphasized that the authorized signatory is responsible for the cheque's issuance, and the account holder's authorization indicates that the signatory maintains the account. The court rejected the petitioner's defense, stating that the authorized signatory becomes the drawer of the cheque by signing it.

2. Interpretation of "Drawer" under Section 7 of the Negotiable Instruments Act, 1881:
Section 7 of the Negotiable Instruments Act, 1881 defines "drawer" as the maker of a bill of exchange or cheque. The court elaborated that the drawer could be a natural person, an incorporated person, or a body of persons, whether incorporated or not. The court clarified that the term "drawer" includes the person who prepares or creates the cheque, and in this case, the petitioner, by signing the cheque, fulfilled this role. The court highlighted that the authorized signatory, by signing the cheque, becomes the drawer, regardless of whether they maintain the account personally or on behalf of a proprietor concern.

3. Applicability of Vicarious Liability to a Proprietor Concern:
The petitioner argued that vicarious liability does not apply to a proprietor concern, as it does to a company under Section 141 of the Negotiable Instruments Act. The court referenced the Supreme Court's judgment in Ragu Lakshminarayanan vs. Fine Tubes, which distinguished between a partnership firm and a proprietary concern. The court noted that a proprietary concern is solely responsible for its conduct, and the proprietor is liable for the business's actions. However, the court clarified that this distinction does not absolve the authorized signatory of liability under Section 138. The court emphasized that the authorized signatory, by signing the cheque, assumes responsibility for its dishonor, and the principal (proprietor) cannot escape liability for the authorized signatory's actions.

Conclusion:
The court dismissed the petition to quash the complaint under Section 138 of the Negotiable Instruments Act, 1881, against the petitioner. The court held that the petitioner, as the drawer of the cheque and the authorized signatory of the account, is liable for the cheque's dishonor. The court emphasized that interpreting the law to exclude authorized signatories from liability would defeat the Act's purpose and enable fraudulent practices. Consequently, the criminal original petition was dismissed, and connected miscellaneous petitions were closed.