Authorised signatory cannot be directed to pay interim compensation for dishonour of cheque: Bombay High Court

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The Bombay High Court recently held that a person authorised by a company to sign cheques on its behalf will not be considered as the “drawer of the cheque” for the purpose of interim compensation under the Negotiable Instruments (NI) Act. [Lyka Labs Limited & Anr v. State of Maharashtra & Anr]
Justice Amit Borkar held that consequently, in the case of dishonour of such cheques signed by authorised signatories, the signatory cannot be directed to pay interim compensation to the complainant under Section 143A (power to direct interim compensation) of the Act.

“The signatory of the cheque, authorized by a ‘company’, is not the drawer in terms of section 143A of the NI Act and cannot be directed to deposit any portion of interim compensation,” the order stated.

The order was passed in a clutch of petitions, including one by former Videocon chairperson Venugopal Dhoot.

The question of law was whether the authorised signatory of the cheque is the ‘drawer’ and whether he could be directed to pay interim compensation in an appeal.

Under Section 143A of the NI Act, courts are conferred with powers to direct the drawer in an appeal to deposit of a minimum sum of 20% of the fine or compensation awarded by the trial court.

This provision was introduce to provide relief to drawees from undue delay in the final resolution of the dishonoured cheque.

A pre-condition to attract penal action for dishonour of cheques under Section 138 of the NI Act is that a cheque must be drawn on an account maintained by the drawer, which can be an individual or legal entity. The principal liability is imposed on the drawer.

The Court interpreted Section 138 of NI Act and observed that the expression ‘drawer’ had not been interpreted to include signatory of the cheque.

Further, it was noted that the expression “drawer” in Section 143A does not include the authorized signatory of a company.

Justice Borkar also specified that in an appeal under Section 148 of NI Act filed by persons other than the drawer, against conviction under section 138 of the NI Act, a deposit of a minimum sum of 20% of the fine or compensation is not necessary.

However, in other appeals, such power to direct deposit of compensation is available with the appellate court while suspending sentence under Section 389 of the Code of Criminal Procedure, the Court said.

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