Obligations and Liabilities in Connection with Cheque Dishonour under S.138 of Negotiable Instruments Act, 1881

Obligations and Liabilities in Connection with Cheque Dishonour under Sec. 138 of Negotiable Instruments Act, 1881

2 Judges' Bench of Hon'ble Supreme Court in an important Judgment has observed that 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 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 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.

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.

The principle of statutory interpretation, particularly in relation to Sections 143A and 148, was also found to have been correctly applied by the High Court. The Court emphasized that when statutory language is clear and unambiguous, it should be given its natural and ordinary meaning. The legislative intent, as discerned from the plain language of the statute, aims to hold the drawer accountable. The argument for a broader interpretation to include authorized signatories under Section 143A contradicts this principle and would lead to an unjust extension of liability not supported by the statutory text.

This judgment nowhere lays down that directors or authorised signatories would come under the ambit of ‘drawer’ for the purposes of Section 143A. 

It was further explained that an authorized signatory is not a drawer of the cheque. 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. This decision maintains the clarity and consistency of the law regarding cheque dishonour cases, ensuring that liability is appropriately assigned to the responsible parties under the NI Act.

For more details refer Gurudatta Sugars Marketing Pvt Ltd v. Prithviraj Sayajirao Deshmukh [2024] GCtR 3458 (SC).