The Supreme Court upheld a strict interpretation of Section 143-A of the NI Act, ruling that authorized signatories are excluded from liability to pay interim compensation.
The Supreme Court Bench comprising Justice Vikram Nath and Justice Prashant Kumar Mishra reviewed the SLPs in Criminal Appeals and held that the term "drawer" under Section 143-A of the Negotiable Instruments Act, 1881, applies exclusively to the company issuing the cheque. The Court further ruled that interim compensation cannot be imposed on authorized signatories or directors, as penal provisions must be strictly interpreted, and vicarious liability requires explicit statutory backing.
The Supreme Court addressed appeals challenging the Bombay High Court's judgments that set aside an order of the Judicial Magistrate directing interim compensation under Section 143-A of the Negotiable Instruments Act, 1881 (NI Act), against the directors of Cane Agro Energy (India) Ltd. (Cane). The case arose from dishonoured cheques issued by Cane's directors to refund advances paid by the appellant company under agreements for sugar supply. The Judicial Magistrate had allowed the complaint under Section 138, NI Act, to proceed against the directors, while excluding Cane due to its Corporate Insolvency Resolution Process (CIRP), and directed interim compensation of 4% of the cheque amount against the directors, which was subsequently overturned by the High Court.
The High Court held that authorized signatories of cheques are not “drawers” under Section 143-A, NI Act, and thus cannot be directed to pay interim compensation. It emphasized that liability under Section 138 rests with the drawer of the cheque, which is distinct from signatories acting on the company’s behalf. Relying on Aneeta Hada v. Godfather Travels and Tours Private Limited, REEDLAW 2012 SC 04001 and N. Harihara Krishnan v. J. Thomas, REEDLAW 2017 SC 08001, the High Court underscored that the statutory framework distinguishes between the company as a legal entity and its officers or signatories, concluding that the term "drawer" under Section 143-A cannot be expanded to include authorized signatories.
The appellants argued that directors, as alter egos of the company during CIRP, should bear interim compensation liability to uphold the purpose of Section 143-A in providing interim relief to payees. However, the respondents contended that penal statutes require strict interpretation, and extending the term "drawer" to include signatories would contravene established legal principles. They relied on K.K. Ahuja v. V.K. Vora and Another, 2009(3) Bank CLR 70 (SC) to argue that vicarious liability under penal provisions cannot be presumed without explicit statutory backing.
The Supreme Court upheld the High Court’s interpretation, affirming that interim compensation under Section 143-A is payable only by the company as the drawer and not its officers or signatories. The Court rejected the appellant’s contention that a broader interpretation of "drawer" was necessary, maintaining that statutory clarity and the principles of strict interpretation govern the liabilities under Sections 138, 141, and 143-A of the NI Act. The appeals were dismissed, affirming the High Court’s judgment and ensuring consistency in the application of the NI Act. Pending applications, if any, were also disposed of.
Ms. Sonam Gupta, Advocate represented the Appellant.
Mr. Siddharth Dave, Senior Advocate appeared for the Respondent.
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