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TMI Blog2024 (7) TMI 1308X X X X Extracts X X X X X X X X Extracts X X X X ..... erved 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 uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emanding payment of dues. A notice was duly served on 30.06.2020. When the payments due were not made, the appellant preferred a complaint before the Judicial Magistrate, First Class, Kolhapur, which was registered as Summary Criminal Case No.2967 of 2020. On 11.08.2020, the Judicial Magistrate, First Class, Kolhapur issued process against respondent Nos. 1 to 3. In the meantime, Cane was admitted into Corporate Insolvency Resolution Process by order of National Company Law Tribunal, Mumbai. 6. Respondent Nos. 1 to 3 entered appearance before the Judicial Magistrate and subsequently preferred an application under Section 258, Code of Criminal Procedure, 1860 CrPC , seeking stoppage of proceedings in terms of the moratorium running against Cane. On 20.05.2021 an order imposing moratorium against Cane was passed under Section 14, Insolvency and Bankruptcy Code, 2016 IBC . Respondent Nos. 1 to 3, along with Cane, preferred another application under Section 258, CrPC seeking stoppage of proceedings before the Judicial Magistrate. 7. The Judicial Magistrate partly allowed the above application and held that the complaint shall not proceed against Cane in view of Section 14, IBC till the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein and set aside the order of interim compensation passed by the Judicial Magistrate on 27.04.2022. 13. The appellant has challenged the judgment and order of the High Court dated 29.03.2023 as well as the relied upon judgment and order dated 08.03.2023. The present Appeal is filed assailing the correctness of these orders vis- -vis the larger question of law, as framed by the High Court: 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? 14. The High Court, in its judgment dated 08.03.2023 in Criminal Application No.886 of 2022, answered the above question in the negative and upheld the same in its order dated 29.03.2023 in the case of the appellant before us. To answer the question of law and determine the correctness of its view it is imperative to look into the considerations before the High Court and its analysis. OBSERVATIONS MADE BY THE HIGH COURT 15. The High Court, while answering the above question in the negative, made several observations based on the interpretation of the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the framework of the NI Act. The Court observed that while individuals may sign cheques as authorized representatives of companies, they do not assume legal identity of the company itself. It clarified that a legal entity, such as a corporation or company, is an artificial creation of the law endowed with rights, duties, and the capacity to sue and be sued independently of the individuals who manage or represent it. The Court emphasized that an authorized signatory, despite acting on behalf of a company, remains distinct as an individual under the law. This distinction is crucial as it clarifies that the actions and obligations undertaken by an authorized signatory are attributable to the company they represent, but do not merge their legal status with that of the company itself. Thus, while an authorized signatory may bind the company through their actions, they do not transform into a legal entity in the eyes of law. 15.4. Interpretation of the Section 143-A and the legislative intent Moreover, the High Court highlighted the principle of statutory interpretation, particularly in relation to Sections 143A and 148 of the NI Act, which are under consideration. It discussed the dic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this interpretation. The High Court relied on the following judgments to emphasise on the literal interpretation warranted in the present case: i. Nazir Ahmad v. King Emperor AIR 1936 Privy Council 253 ii. Central Bank of India v. Ravindra (2002) 1 SCC 367 iii. Noor Mohammed v. Khurram Pasha (2022) 9 SCC 23 15.4.4. Contextually, the High Court stressed upon the finding that 'drawer' within the framework of the NI Act consistently refers to the party issuing the cheque. It dismissed the arguments seeking to expand this definition to include authorized signatories, citing the need for consistency in statutory interpretation. 15.4.5. The High Court also invoked principles of company law to support its interpretation. It affirms the separate legal identity of a company and its authorized signatories under the Companies Act, which prevents extending liability to signatories under Section 143A. 16. In conclusion, the High Court's analysis underscores the critical distinction between individuals acting as authorized signatories and the legal entities they represent under the NI Act. 17. Before we delve into the arguments presented by the counsels for the parties before us, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that in para 20 of the judgment, this Court has observed that an authorised signatory of a company becomes a drawer as he has been authorised to do so in respect of the account maintained by the company. 23. Lastly, it was submitted that since the company is in moratorium and that it is admitted by the respondents that their case is not that they are unable to pay compensation, the grant of a meagre four percent of the cheque amount by each of them is just and fair. That even such an amount in the form of interim payment would serve the purposes of the provision and would also help the business of the appellant. SUBMISSIONS OF THE RESPONDENTS 24. The learned senior counsel for the respondents, Mr. Siddharth Dave, vehemently argued that it is a well settled position of law that an authorised signatory of a company is not a drawer of the cheque. To substantiate this argument, he relied upon this Court s judgment in N. Harihara Krishnan (Supra) wherein it was held that, Every person signing the cheque on behalf of a company on whose account the cheque is drawn does not become the drawer of the cheque. Such a signatory is only a person duly authorised to sign the cheque on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 29. 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 appellants' attempt to extend this principle to Section 143A, to hold directors or other individuals personally liable for interim compensation, is unfounded. 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. 30. The distinction between legal entities and individuals acting as authorized signatories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extending the criminal liability as per Section 141. 34. The respondents correctly argued that an authorized signatory is not a drawer of the cheque, as established in N. Harihara Krishnan (Supra). (2018) 13 SCC 663 This judgment clarified that a signatory is merely authorized to sign on behalf of the company and does not become the drawer. The respondents' interpretation aligns with the principle that penal statutes should be interpreted strictly, particularly in determining vicarious liability. The judgment in K.K. Ahuja (Supra), (2009) 10 SCC 48 further supports this approach, emphasizing that penal provisions must be read strictly to determine liability. 35. In conclusion, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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