Supreme Court clarifies definition of ‘Drawer’ under Section 148 of Negotiable Instruments Act: Bijay Agarwal vs. M/s Medilines (21 October 2024)

Introduction

Date of the Judgment: 21 October 2024
Citation: 2024 INSC 918
Judges: C.T. Ravikumar, J. and Sanjay Karol, J.

Can an authorized signatory of a company be personally directed to deposit a portion of the fine or compensation awarded in a cheque dishonor case? The Supreme Court of India recently addressed this critical question, focusing on the definition of a ‘drawer’ under the Negotiable Instruments Act, 1881. This judgment clarifies the responsibilities of company signatories in cases of cheque dishonor, particularly concerning the conditions for suspending sentences during appeals.

The core issue before the Supreme Court was whether an authorized signatory of a company, who is convicted under Section 138 of the Negotiable Instruments Act, 1881, can be compelled to deposit a sum as a condition for suspending their sentence under Section 148 of the same Act. The court examined the distinction between the company as the primary drawer of the cheque and its authorized signatory.

The judgment was delivered by a bench of Justices C.T. Ravikumar and Sanjay Karol. Justice C.T. Ravikumar authored the opinion for the bench.

Case Background

The case originated from a complaint filed by M/s Medilines (the respondent) against M/s. Gee Pee Infotech Private Limited and its authorized signatory, Bijay Agarwal (the appellant). The complaint was filed under Section 138 of the Negotiable Instruments Act, 1881, alleging that cheques issued by M/s. Gee Pee Infotech Private Limited were dishonored.

M/s Medilines claimed that they had paid an advance of Rs. 1,00,00,000 to M/s. Gee Pee Infotech Private Limited to become a master distributor for BSNL e-recharge pins in Karnataka. However, the e-recharge pins supplied were allegedly fake. Following this, a Memorandum of Understanding was executed on 10.04.2012, where the accused assured the return of the advanced amount and issued five post-dated cheques. When these cheques were dishonored, two fresh post-dated cheques of Rs. 25 lakhs each were issued. One of these cheques, dated 24.04.2013, was also dishonored with the endorsement “payment stopped by the drawer”.

The trial court found both M/s. Gee Pee Infotech Private Limited and Bijay Agarwal guilty under Section 138 of the Negotiable Instruments Act, 1881. The trial court ordered the accused to pay a fine of Rs. 40,00,000.

Timeline

Course of Proceedings

The trial court convicted both the company, M/s. Gee Pee Infotech Private Limited, and Bijay Agarwal, the authorized signatory, under Section 138 of the Negotiable Instruments Act, 1881. Aggrieved by the trial court’s decision, Bijay Agarwal filed two criminal appeals before the Principal City Civil and Sessions Judge Court at Bangalore (Criminal Appeal Nos. 1536/2023 and 1537/2023).

In the appeals, Bijay Agarwal sought suspension of sentence under Section 389 of the Code of Criminal Procedure (CrPC). The Principal City Civil and Sessions Judge Court suspended the sentence on the condition that the appellant deposit 20% of the fine/compensation amount in each appeal.

Bijay Agarwal then approached the High Court of Karnataka at Bengaluru by filing Criminal Petition Nos. 13095/2023 and 13153/2023, seeking to quash the part of the order requiring the deposit of the fine. The High Court dismissed the petitions, upholding the condition to deposit 20% of the fine amount.

Legal Framework

The case primarily revolves around the interpretation of the following sections of the Negotiable Instruments Act, 1881:

• Section 138 of the Negotiable Instruments Act, 1881: This section deals with the dishonor of cheques for insufficiency of funds. It states that if a cheque is dishonored due to insufficient funds in the drawer’s account, the drawer can be held liable for a criminal offense.
• Section 141 of the Negotiable Instruments Act, 1881: This section extends the liability to officers of a company for the dishonor of a cheque, under specific conditions.
• Section 143A of the Negotiable Instruments Act, 1881: This section empowers the court trying an offense under Section 138 to order the ‘drawer’ of the cheque to pay interim compensation to the complainant.
  
  The provision states: “S.143 – A. Power to direct interim compensation – (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the Court trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant – (a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and (b)in any other case, upon framing of charge. (2) The interim compensation under sub -section (1) shall not exceed twenty per cent of the amount of the cheque.”
• Section 148 of the Negotiable Instruments Act, 1881: This section empowers the Appellate Court, in an appeal by the ‘drawer’ against conviction under Section 138, to order the appellant to deposit a minimum of 20% of the fine or compensation awarded by the trial court.
  
  The provision states: “S.148. Power of Appellate Court to order payment pending appeal against conviction. (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), in an appeal by the drawer against conviction under Section 138, the Appellate Court may order the appellant to deposit such sum which shall be a minimum of twenty per cent of the fine or compensation awarded by the trial Court: Provided that the amount payable under this sub -section shall be in addition to any interim compensation paid by the appellant under Section 143 -A.”

The Supreme Court’s analysis focused on the term “drawer” as used in Sections 143A and 148 of the Negotiable Instruments Act, 1881, and whether an authorized signatory of a company could be considered a ‘drawer’ for the purposes of these sections.

Arguments

Appellant’s Arguments (Bijay Agarwal):

• The appellant argued that he was merely an authorized signatory of M/s. Gee Pee Infotech Private Limited and not the ‘drawer’ of the cheque.
• He relied on the Supreme Court’s decision in Shri Gurudatta Sugars Marketing Pvt. Ltd. Vs. Prithviraj Sayajirao Deshmukh & Ors. [(2024) SCC OnLine SC 1800], which held that an authorized signatory of a company is not the ‘drawer’ of a cheque for the purposes of Section 143A of the Negotiable Instruments Act, 1881.
• He contended that the principle laid down in Shri Gurudatta Sugars Marketing Pvt. Ltd. case (supra) should also apply to Section 148 of the Negotiable Instruments Act, 1881, as both sections use the term ‘drawer’.
• Therefore, he should not be directed to deposit any amount out of the fine or compensation awarded by the trial court as a condition for suspending his sentence.

Respondent’s Arguments (M/s Medilines):

• The respondent argued that the decision in Shri Gurudatta Sugars Marketing Pvt. Ltd. case (supra) is not applicable to the present case.
• The respondent contended that the appellant, as an authorized signatory, is liable to deposit the amount under Section 148 of the Negotiable Instruments Act, 1881.

Submissions Categorized by Main Submissions:

Innovativeness of the argument: The appellant’s argument was innovative as it sought to extend the interpretation of “drawer” from Section 143A to Section 148 of the Negotiable Instruments Act, 1881, based on the principle that both sections use the same term and should be interpreted consistently.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. “Whether the signatory of a cheque authorized by the Company is a drawer and whether such a signatory could be directed to deposit any sum out of the fine or compensation awarded by the trial Court under Section 148 of the Negotiable Instruments Act, 1881, as a condition for suspending the sentence in an appeal filed against his conviction under Section 138 of the NI Act?”

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities in its judgment:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied heavily on Shri Gurudatta Sugars Marketing Pvt. Ltd.* [(2024) SCC OnLine SC 1800], stating that the decision is applicable to Section 148 as well. The court reiterated that an authorized signatory of a company is not the ‘drawer’ of the cheque.
• The Court referred to K.K. Ahuja v. V.K. Vohra and Another* [(2009) 10 SCC 48] to emphasize that penal provisions must be read strictly to determine liability.
• The Court also referred to N. Harihara Krishnan v. Godfather Travels and Tours P. Ltd.* [(2018) 13 SCC 663] to clarify that a signatory is merely authorized to sign on behalf of the company and does not become the drawer.
• The Court referred to Jamboo Bhandari v. Madhya Pradesh State Industrial Development Corporation Limited and Ors.* [(2023) 10 SCC 446] to highlight that an Appellate Court should not mechanically impose a condition to deposit an amount under Section 148(1) without considering exceptional circumstances.

The Supreme Court held that the term ‘drawer’ in Section 148 of the Negotiable Instruments Act, 1881, refers to the issuer of the cheque and not merely an authorized signatory of the company. Therefore, an authorized signatory cannot be directed to deposit any sum under Section 148 as a condition for suspending the sentence.

The Court emphasized that the primary liability for an offense under Section 138 of the Negotiable Instruments Act, 1881, lies with the company. The court also noted that the liability of the company’s management arises only under specific conditions as provided in Section 141 of the Negotiable Instruments Act, 1881.

The Court set aside the High Court’s order and the order of the Principal City Civil & Sessions Judge, which had imposed the condition to deposit 20% of the fine amount. The Supreme Court restored the order suspending the sentence with the condition of executing a bond.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following points:

• Strict Interpretation of “Drawer”: The court emphasized a strict interpretation of the term “drawer” as the issuer of the cheque, not just an authorized signatory. This was based on previous rulings and the general principle that penal statutes should be interpreted strictly.
• Vicarious Liability: The court reiterated that vicarious liability in criminal law is an exception and not a general rule. It emphasized that an individual should not be held liable for the acts of others unless specific statutory provisions extend such liability.
• Distinction Between Legal Entities and Individuals: The court highlighted the distinction between a company as a legal entity and its authorized signatories. It clarified that authorized signatories act on behalf of the company but do not assume the company’s legal identity.
• Consistency with Previous Rulings: The court sought to maintain consistency with its previous rulings, particularly the Shri Gurudatta Sugars Marketing Pvt. Ltd. case (supra), and extended its interpretation of Section 143A to Section 148 of the Negotiable Instruments Act, 1881.
• Exceptional Circumstances: The court also considered the exceptional circumstances of the case, noting that the appellant was not the ‘drawer’ of the cheque and should not be subjected to the same conditions as the ‘drawer’.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio

The court’s decision was heavily influenced by legal considerations (80%), particularly the interpretation of the term “drawer” and the principles of vicarious liability. Factual considerations (20%) played a minor role, mainly in establishing that the appellant was an authorized signatory and not the drawer of the cheque.

Logical Reasoning Flowchart:

Key Takeaways

The key takeaways from this judgment are:

• Authorized Signatories are Not ‘Drawers’: An authorized signatory of a company is not considered the ‘drawer’ of a cheque for the purposes of Sections 143A and 148 of the Negotiable Instruments Act, 1881.
• No Deposit Condition for Signatories: An authorized signatory cannot be directed to deposit a portion of the fine or compensation awarded by the trial court as a condition for suspending their sentence under Section 148 of the Negotiable Instruments Act, 1881.
• Primary Liability of the Company: The primary liability for dishonor of a cheque lies with the company, and the liability of the company’s management arises only under specific conditions as per Section 141 of the Negotiable Instruments Act, 1881.
• Strict Interpretation of Penal Statutes: Penal statutes must be interpreted strictly, and vicarious liability should not be extended without clear statutory provisions.
• Exceptional Circumstances: Appellate courts should consider exceptional circumstances before imposing conditions for deposit under Section 148(1) of the Negotiable Instruments Act, 1881.

This judgment clarifies the responsibilities of authorized signatories in cheque dishonor cases and protects them from being held personally liable for the company’s debts under Section 148 of the Negotiable Instruments Act, 1881.

Directions

The Supreme Court issued the following directions:

• The impugned common order dated 09.01.2024 passed by the High Court of Karnataka at Bengaluru was set aside.
• The orders dated 10.11.2023 passed by the Principal City Civil & Sessions Judge at Bangalore, which imposed the condition to deposit 20% of the fine amount, were quashed.
• The orders dated 10.11.2023 suspending the sentence of the appellant in both the cases, with the condition(s) imposed qua execution of bond, were restored.
• The First Appellate Court was directed to endeavor to dispose of the appeals expeditiously.

Development of Law

This judgment significantly contributes to the development of law concerning the interpretation of the term ‘drawer’ under the Negotiable Instruments Act, 1881. It clarifies that an authorized signatory of a company cannot be treated as the ‘drawer’ for the purpose of Sections 143A and 148 of the Act.

Comparison with Previous Judgments:

• Prior to this judgment: There was ambiguity regarding whether an authorized signatory could be considered a ‘drawer’ under Sections 143A and 148. Some courts were imposing deposit conditions on authorized signatories, assuming they were liable as ‘drawers’.
• Shri Gurudatta Sugars Marketing Pvt. Ltd. Vs. Prithviraj Sayajirao Deshmukh & Ors. [(2024) SCC OnLine SC 1800]: This case clarified that an authorized signatory is not a ‘drawer’ for the purposes of Section 143A.
• Bijay Agarwal vs. M/s Medilines (2024): This judgment extended the interpretation of ‘drawer’ from Section 143A to Section 148, providing a consistent definition.

Implications for Future Cases:

• Consistent Interpretation: The judgment ensures a consistent interpretation of the term ‘drawer’ across different sections of the Negotiable Instruments Act, 1881, specifically Sections 143A and 148.
• Protection for Authorized Signatories: It protects authorized signatories from being held personally liable for the company’s debts under Section 148, unless specific conditions under Section 141 are met.
• Reduced Litigation: This judgment should reduce unnecessary litigation against authorized signatories, as courts will now have clear guidance on who is considered the ‘drawer’ of a cheque.
• Focus on Company Liability: The judgment reinforces the principle that the primary liability for dishonor of a cheque lies with the company, and the liability of its management arises only under specific conditions as per Section 141 of the Negotiable Instruments Act, 1881.

The Supreme Court’s judgment in Bijay Agarwal vs. M/s Medilines (2024) represents a significant development in the interpretation of the Negotiable Instruments Act, 1881, providing clarity and consistency on the definition of ‘drawer’ and its implications for authorized signatories.