2024 (7) TMI 1308 - SC - Indian Laws

Dishonour of Cheque - vicarious liability in criminal law - 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? - HELD THAT - The High Court's interpretation of Section 7 of the NI Act accurately identified the drawer as the individual who issues the cheque. This interpretation is fundamental to understanding the obligations and liabilities under Section 138 of the NI Act, which makes it clear that the drawer must ensure sufficient funds in their account at the time the cheque is presented. The appellants' argument that directors or other individuals should also be liable under Section 143A misinterprets the statutory language and intent. The primary liability, as correctly observed by the High Court, rests on the drawer, emphasizing the drawer's responsibility for maintaining sufficient funds. The general rule against vicarious liability in criminal law underscores that individuals are not typically held criminally liable for acts committed by others unless specific statutory provisions extend such liability. Section 141 of the NI Act is one such provision, extending liability to the company's officers for the dishonour of a cheque - The High Court rightly emphasized that liability under Section 141 arises from the conduct or omission of the individual involved, not merely their position within the company. The High Court s decision to interpret 'drawer' strictly as the issuer of the cheque, excluding authorized signatories, is well-founded. This interpretation aligns with the legislative intent, established legal precedents, and principles of statutory interpretation. The primary liability for an offence under Section 138 lies with the company, and the company s management is vicariously liable only under specific conditions provided in Section 141. The appellants' submissions are thus rejected, and the High Court s judgment is upheld. Appeal dismissed.

Issues Involved:

1. 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?

Issue-wise Detailed Analysis:

1. Leave Granted:
The Supreme Court granted leave to hear the appeals challenging the judgments and orders passed by the Bombay High Court.

2. Background of the Case:
The appellant company entered into agreements with Cane Agro Energy (India) Ltd. for the supply of sugar, making advance payments. Cane failed to supply the sugar and issued cheques which were dishonoured due to insufficient funds. The appellant then filed a complaint under Section 138 of the Negotiable Instruments Act (NI Act) and sought interim compensation under Section 143-A.

3. Judicial Proceedings:
The Judicial Magistrate directed interim compensation to be paid by the respondents, which was challenged in the High Court. The High Court set aside the order of interim compensation, leading to the present appeals.

4. High Court Observations:
The High Court made several observations:
- Obligation of the Drawer of the Cheque: The drawer, as defined under Section 7 of the NI Act, is the individual who issues the cheque and is primarily liable under Section 138.
- General Rule of Criminal Liability: Criminal liability is typically not vicarious unless specified by statute, such as under Section 141 of the NI Act, which extends liability to company officers.
- Authorized Signatory vs. Company: Authorized signatories act on behalf of the company but do not assume the company's legal identity.
- Interpretation of Section 143-A: The term 'drawer' in Section 143-A should be interpreted plainly, referring specifically to the person who issues the cheque, not authorized signatories.

5. Appellant's Submissions:
The appellant argued that directors or other individuals should be liable for interim compensation under Section 143-A, especially since the company was undergoing Corporate Insolvency Resolution Process (CIRP). They relied on the judgment in Aneeta Hada to support their argument.

6. Respondent's Submissions:
The respondents argued that an authorized signatory is not a drawer of the cheque, as established in N. Harihara Krishnan. They emphasized that penal provisions should be interpreted strictly, and liability under Section 143-A should not extend to authorized signatories.

7. Analysis by the Supreme Court:
- Interpretation of 'Drawer': The Supreme Court upheld the High Court's interpretation that the drawer is the individual who issues the cheque, emphasizing the primary liability of the drawer under Section 138.
- Vicarious Liability: The Court agreed that vicarious liability under Section 141 arises from the conduct of the individual involved, not merely their position within the company.
- Authorized Signatory Distinction: The Court reinforced that authorized signatories do not assume the company's legal identity.
- Statutory Interpretation: The Court emphasized the importance of plain language in statutory interpretation, rejecting the appellant's argument for a broader interpretation of 'drawer' under Section 143-A.
- Precedents: The Court relied on established legal precedents, including N. Harihara Krishnan and K.K. Ahuja, to support its interpretation.

8. Conclusion:
The Supreme Court concluded that the High Court's interpretation of 'drawer' as the issuer of the cheque, excluding authorized signatories, was correct. The primary liability for an offence under Section 138 lies with the company, and the company's management is vicariously liable only under specific conditions provided in Section 141. The appeals were dismissed, and the High Court's judgment was upheld.

9. Final Judgment:
The appeals were dismissed, and the pending applications were disposed of. The question of law was answered in the negative, maintaining the clarity and consistency of the law regarding cheque dishonour cases.

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