Bombay High Court Rules that an Authorised Signatory of a Cheque Issued on Behalf of a “Company”, is Not a “Drawer” in terms of Section 143A of the NI Act and Cannot be Directed to Pay Interim Compensation

The Hon’ble Bombay High Court in the recent case of Lyka Labs Limited & Anr. vs. The State of Maharashtra & Anr. & connected matters was faced with common questions of law arising under the Negotiable Instruments Act, 1881 (“NI Act”), pursuant to a batch of matters listed before it. The questions of law posed before the court for decision were as follows:

i)  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 NI Act leaving aside the company?

ii) Whether deposit of a minimum sum of 20% of the fine or compensation is necessary under Section 148 of NI Act in an appeal filed by persons other than “drawer” against the conviction and sentence under section 138 of the NI Act?

In view of the facts and circumstances discussed, and issues raised in the batch of matters before it, the Hon’ble High Court relied upon various judgements of the Hon’ble Supreme Court and thereby, held the following in its judgement pronounced on March 8, 2023:

a)  That the legislature’s purpose was to provide interim relief to the drawee by directing the “drawer” to pay temporary compensation in terms of section 143A of the NI Act. This compensation liability was specifically fastened on the cheque’s “drawer or issuer” excluding anyone else from being made liable to pay interim compensation, vicariously or severally. Therefore, the words of the enactment are clearly intended to be limited to “drawers”, be they natural persons or companies.

b) Under company law, the company’s liability is generally not transferred onto the directors. As per the Companies Act 2013, a company has a separate legal identity. The directors and members of the company act as representatives and mutually exist in a fiduciary relationship. Directors serve as an agent and hence are not liable personally for the acts and actions of the company. However, a director can be held personally responsible if he acts beyond his powers and duties. It is so done by lifting the corporate veil.

c) The relief under section 143A is an interim immediate relief which by literal interpretation of the provision has only been fastened to the drawer/issuer of the cheque. The same can be granted immediately after the stage of recording plea of the Accused by the magistrate. In case the provision is understood to include an ‘authorised signatory of the company’ being a defaulter in terms of section 141 of the NI Act, then such an enquiry as regards breach of fiduciary duty or instance of fraud would defeat the purpose of granting such immediate interim compensation to obviate delay in disposal of cheque dishonour case, which was not contemplated by the legislature while inserting section 143A. Therefore, the power to direct interim compensation cannot be traced under section 141 in addition to section 143(A) of the NI Act.

d) Every person signing a cheque on behalf of the company on whose account a cheque is drawn does not become a “drawer” of the cheque. Such a signatory is only a person duly authorized to sign the cheque on behalf of the company/drawer of the cheque.

e) Further, having held that the expression “drawer” in section 143A does not include the ‘authorized signatory of a company’, the amended section 148 also needs to be interpreted accordingly. The plain language of section 148 makes it clear that the Appellate Court is granted the power to direct deposit of a minimum sum of 20% of the fine or compensation awarded by the Trial Court “in an appeal by the drawer” only and no other person.

f) However, in an appeal filed by persons other than a “drawer”, the Appellate Court can exercise power under section 389 of Code of Criminal Procedure to direct deposit of amount in an appeal filed under section 148 of NI Act against conviction under section 138 of the NI Act, while considering the application for suspension of conviction or sentence.