Primary Liability for Offence under S.138 of Negotiable Instruments Act, 1881

Primary Liability for Offence under S.138 of Negotiable Instruments Act, 1881

Scope of S.7 of NI Act, 1881

Distinction between legal entities and individuals acting as authorized entities

It was held in Gurudatta Sugars Mktg Pvt Ltd v. Prithviraj Sayajirao Deshmukh [2024] GCtR 3458 (SC) that "the primary liability for an offence under Section 138 of Negotiable Instruments Act, 1881 lies with the company, and the company’s management is vicariously liable only under specific conditions provided in Section 141. High Court’s decision to interpret 'drawer' strictly as the issuer of the cheque, excluding authorized signatories, is well-founded."

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 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 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 under Section 143A refers specifically to the issuer of the cheque, not the authorized signatories.