Supreme Court held that the drawer who issued the cheque is liable for interim compensation, not authorized signatories or company directors.
The Supreme Court Two-judge Bench of Justice Vikram Nath and Justice Prashant Kumar Mishra was hearing an appeal and observed that under Section 143-A of the Negotiable Instruments Act, 1881, only the drawer of the cheque, defined as the person or entity who issued the cheque is liable for interim compensation, and this liability does not extend to authorized signatories or directors of the company, as the term ‘drawer’ must be interpreted strictly to exclude them.
The Supreme Court addressed appeals challenging the Bombay High Court’s orders dated March 8 and March 29, 2023. These orders had overturned a Judicial Magistrate’s directive for interim compensation under Section 143-A of the Negotiable Instruments Act, 1881, to be paid by the directors of Cane Agro Energy (India) Ltd., the company responsible for dishonoured cheques.
The appellant company had entered into multiple agreements with Cane Agro Energy between September 2016 and June 2017, advancing ₹63.46 crores for sugar supplies. Cane failed to deliver the sugar and subsequently issued two cheques for ₹51.64 crores as a partial refund. When these cheques were dishonoured, the appellant filed a complaint. Despite the company being under a Corporate Insolvency Resolution Process (CIRP), the Judicial Magistrate directed the directors to pay interim compensation under Section 143-A. The High Court, however, ruled that the directors, as signatories, were not liable under this provision, leading to the present appeals.
The Supreme Court upheld the High Court's decision, confirming that "drawer" under Section 143-A specifically refers to the entity that issues the cheque, not individual signatories. The High Court had concluded that the term "drawer" should be interpreted strictly, meaning only the company, not its individual directors, is liable for interim compensation. This interpretation aligns with established legal precedents and the legislative intent to ensure clarity in liability for cheque dishonour cases. The Supreme Court found the High Court’s interpretation consistent with the Negotiable Instruments Act and dismissed the appeals, thereby reinforcing the High Court's position that authorized signatories do not bear liability for interim compensation under Section 143-A.
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