Negotiable Instruments Act, 1881 – ss.138, 141, 143-A – Appellant company entered into several agreements with C Ltd. and made advance payments for supply of sugar – C failed to supply – In order to discharge the liability, two cheques were issued by respondent nos.1 to 3 (directors of C) in favour of the appellant and the same were dishonoured due to insufficiency of funds – Appellant issued notice – Again payments were not made – Appellant preferred a complaint before the Judicial Magistrate – In the meantime, C was admitted into CIRP – Appellant filed an application u/s. 143-A, NI Act against respondent Nos. 1 to 3 seeking interim compensation – Judicial Magistrate directed each of the respondents to pay 4% of the total cheque amount as interim compensation – The said order was challenged by the respondent nos.1 to 3 before the High Court – The High Court allowed the application preferred by the respondent Nos. 1 to 3 herein and set aside the order of interim compensation passed by the Judicial Magistrate – Correctness: Held: 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 u/s. 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 u/s. 143-A misinterprets the statutory language and intent – 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 143-A, to hold directors or other individuals personally liable for interim compensation, is unfounded – The High Court rightly emphasized that liability u/s. 141 arises from the conduct or omission of the individual involved, not merely their position within the company – The distinction between legal entities and individuals acting as authorized signatories is crucial – Authorized signatories act on behalf of the company but do not assume the company’s legal identity – This principle, fundamental to corporate law, ensures that while authorized signatories can bind the company through their actions, they do not merge their legal status with that of the company – This distinction supports the High Court’s interpretation that the drawer u/s. 143-A refers specifically to the issuer of the cheque, not the authorized signatories – 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 u/s. 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 – Thus, the question of law put before this Court is answered in negative. [Paras 28, 29, 30, 35]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Ankit Gyan [2017] 9 SCR 324 : (2018) 13 SCC 663 [2009] 9 SCR 1144 : (2009) 10 SCC 48. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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