The Hon’ble High Court of Bombay while dealing with a batch of Petitions, decided a common question of law, being (i) Whether a signatory of a cheque, authorized by a “Company”, is the “drawer” and whether such signatory could be directed to pay interim compensation in terms of Section 143A of the Negotiable Instruments Act, 1881 (“NI Act”) living aside the company; and (ii) Whether a deposit of a minimum sum of 20% of the fine or compensation is necessary under Section 148 of NI Act in an appeal filed by persons other than “drawer” against the conviction and sentence under section 138 of the NI Act. The Hon’ble Court in its Order dated 8th March 2023 in Lyka Labs Limited & Anr. v/s State of Maharashtra & Anr. (2023 SCC Online Bom 560) and other connected cases held that the authorized signatory of the company is not a drawer of the cheque in terms of Section 143A of the NI Act and cannot be directed to pay interim compensation thereunder. It was further held that in an Appeal under Section 148 of NI Act filed by persons other than “drawer”, a deposit of minimum sum of 20% fine or compensation is not necessary. However, such power to direct deposit of compensation is available with the Appellate Court while suspending sentence under Section 389 of Code of Criminal Procedure.
The important provisions of the NI Act are reiterated hereinbelow for quick reference:
143A. Power to direct interim compensation.—(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, 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.
(3) The interim compensation shall be paid within sixty days from the date of the order under subsection (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque.
(4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.
(5) The interim compensation payable under this section may be recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973 (2 of 1974).
(6) The amount of fine imposed under section 138 or the amount of compensation awarded under section 357 of the Code of Criminal Procedure, 1973 (2 of 1974), shall be reduced by the amount paid or recovered as interim compensation under this section.
- 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 143A.
(2) The amount referred to in sub-section (1) shall be deposited within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the appellant.
(3) The Appellate Court may direct the release of the amount deposited by the appellant to the complainant at any time during the pendency of the appeal:
Provided that if the appellant is acquitted, the Court shall direct the complainant to repay to the appellant the amount so released, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.
Section 389 of Criminal Procedure Code, 1973 – Suspension of sentence pending the appeal :-
(1) Pending any appeal by a convicted person, the Appellate Court may, for reasons to be recorded by it in writing, order that the execution of the sentence or order appealed against be suspended and, also, if he is in confinement, that he be released on bail, or on his own bond.
(2) The power conferred by this section on an Appellate Court may be exercised also by the High Court in the case of an appeal by a convicted person to a Court subordinate thereto.
(3) Where the convicted person satisfies the Court by which he is convicted that he intends to present an appeal, the Court shall,-
(i) where such person, being on bail, is sentenced to imprisonment for a term not exceeding three years, or
(ii) where the offence of which such person has been convicted is a bailable one, and he is on bail, order that the convicted person be released on bail, unless there are special reasons for refusing bail, for such period as will afford sufficient time to present the appeal and obtain the orders of the Appellate Court under sub- section (1); and the sentence of imprisonment shall, so long as he is so released on bail, be deemed to be suspended.
(4) When the appellant is ultimately sentenced to imprisonment for a term or to imprisonment for life, the time during which he is so released shall be excluded in computing the term for which he is so sentenced.
Facts of the case: In one of the connected petitions (Writ Petition No. 3443 of 2022), there were only 2 (Two) Directors in the Appellant Company. One of the Directors had signed the cheque who was admittedly in charge of the day-to-day affairs of the Appellant Company. The Hon’ble Sessions Judge had directed the Director to pre-deposit 20% (Twenty percentage) of the amount of the cheque. Hence the present Petition.
For ease of reference the arguments of the parties and finding of the court are given in a tabular form below:
| Sr. no. | Arguments by Petitioner (Original Accused) | Arguments by Respondent (Original Complainant) | Finding of court |
| 1. | Under Section 143A, only a ‘drawer’ of the cheque is required to pay interim compensation and no one else. Further under the scheme of chapter XVII of the NI Act, the word ‘drawer’ can never be construed to mean signatory of a cheque from whose account the cheque is not drawn. There is no concept of joint or several liability under Section 143A, therefore only the drawer is liable to pay interim compensation. | The conjoint effect of Section 143A, read with Section 141 of the NI Act makes the authorized signatory of the cheque liable for payment of interim compensation. The legislative purpose was to ensure that the cheque is not dishonored and credibility of the transaction of business of bank is maintained. Therefore, the text and context of section 143A must be considered keeping in mind the mischief it intends to obliterate and the fundamental intention of the legislature with respect to social welfare. The consequences of not including an authorized signatory in the expression ‘drawer’ would defeat the main intendment and purpose of including the said provision. | A conjoint reading of Sections 30, 31 and 138 of the NI Act, clearly shows that the obligation to honour the cheque is on the drawer. It was held by the Hon’ble Court that object of the amendment was to make the payee of the cheque pay interim compensation. To arrive at the said conclusion reliance was placed on minutes of Lok Sabha Debates conducted when the Bill was introduced and passed. It was further observed by the court that by specifically fastening the liability on the drawer/issuer, the legislature excluded anyone else from being made liable to pay interim compensation. |
| 2. | Section 138 of the NI Act requires a cheque to be issued on an account maintained by the drawer in his personal capacity and Section 138 (b) thereunder mandates service of legal notice on drawer of the cheque, who in turn is liable to ensure that cheque is honoured. The above contention finds its base in the scheme of Sections 30 and 31 of the NI Act. There is no provision analogous to Section 141 of the NI Act found in section 143A thereunder to rope in individuals. | Absolving the authorized signatory of a company from the purview of section 148 of the NI Act will completely defeat the purpose of the said section. The definition of the drawer has been explained as the ‘act of making and preparing a cheque’ and, therefore, used in the expression maker. This is the underlying rationale for the authorized signatory of cheques issued by the companies. The term drawer used in section 148 includes all persons responsible for drawing the dishonored cheque and includes each and every person held guilty who, at the time of the offence committed, was in charge and was responsible to the company for the conduct of its business. | Reading Section 138 of the NI Act makes it clear
that the duty to maintain sufficient funds on the date of presentation of the cheque is cast on the drawer. Unless demand notice is served on the drawer, the offence under Section 138 of the NI Act is not complete. It is evident that the drawer of the cheque is the principal offender who alone is liable for the offence under section 138 of the NI Act.
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| 3. | The Petitioner placed reliance on the judgement of N. Hariharu Krishnan V/s J. Thomas and argued that the question whether the signatory of a cheque authorized by a company is the drawer, is already decided in the abovementioned judgement and is no longer res integra. The Petitioners further drew distinction between para 20 of Aneeta Hada Vs. Godfather Travels & Tours Private Limited and para 22 of N. Hariharu Krishnan (supra) and submitted that the observations made in para 22 constitute ratio and therefore, bind this Court. Whereas observations made in para 20 of Aneeta Hada (supra) were merely casual observations, which cannot be read in isolation but must be read alongwith para nos. 19, 39, 40 and 48 of the said judgment. | The Original Complainant placed reliance on the judgement of Aneeta Hada (supra) and submitted that it was observed in the said judgement that the authorized signatory of a company becomes drawer as contemplated by section 7 of the NI Act. It was further submitted that the observations of the Apex Court, which may not be strictly called the ratio decidendi of the judgment, are still binding on the High Court as obiter dictum in the absence of direct pronouncement on such question elsewhere by the Supreme Court. | It was held by the Hon’ble Court that in Aneeta Hada (supra), the question that whether the signatory can be termed as ‘drawer’ never arose for consideration. It was further observed by the Hon’ble Court that reading of paras 21 and 22 of the judgment in N. Harihara (supra), it is clear that the subsequent bench of the Apex Court, after noticing and relying on Aneeta Hada (supra), has observed that every person signing a cheque on behalf of a company on whose account a cheque is drawn does not become the drawer of the cheque and such signatory is only a person duly authorized to sign the cheque on behalf of the company/drawer of the cheque. |
| 4. | The word drawer in section 143A has a clear and unambiguous meaning. The word ‘drawer’ has obtained a fixed and legal connotation over the years, which has been consistently held to include only principal offenders and not vicariously liable persons. A purposive interpretation of the statute could be adopted only if a plain reading of the section
creates absurdity and unworkable consequences. Further reliance was placed on statements and objects of the Negotiable Instruments (Amendment Act) 2018, objective whereof was to make the drawer of the cheque pay interim compensation.
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Emphasized applying the rule of purposive construction. It was further argued that the development of law in relation to the interpretation of Section 138, shows that the apex court over the years have adapted liberal interpretation of Section 138 of the NI Act. It was further submitted that if the Petitioner’s interpretation is accepted, it will give an advantage to unscrupulous drawers who would not sign on the cheque to avoid liability under section 143A of the NI Act. | The Hon’ble Court adapted the Petitioner’s interpretation of law. It was held that it is a well-settled rule of interpretation of a statute that when a language of a provision is plain and unambiguous and capable of only one meaning, there is no question of the construction of a statute, as the provision speaks.
The language of section 143A allows for a plain interpretation to the exclusion of all other rules of interpretation. The legislature’s intention as to who should pay interim compensation is clear in plain and simple language. Accordingly, it was held that the expression “drawer” in Section 143A of the NI Act does not include the authorized signatory of the company and section 148 also needs to be interpreted accordingly. |
CONCLUSION
Thus, the judgement is divided into 2 (Two) parts. While the Hon’ble Bombay High Court has settled the law with regards to the liability to pay interim compensation under Sections 143A and 148 of the NI Act, which will be a relief to many employees, directors etc., who are authorized signatories of the Company. However, in an appeal where Directors or any person other than the drawer are convicted by trial Court, not much difference has arisen. The powers of Appellate Court to direct pre-deposit of compensation (partly or fully) before suspending the sentence or releasing the Director any person other than the drawer on bail under Section 389 of the Criminal Procedure Code, 1973 (Cr.PC) are unchanged and in fact, re-affirmed.
To conclude, in case of Company, drawer does not include Director/authorized signatory in the definition of a drawer. Under Section 143A of the NI Act, Complaints filed before Hon’ble Magistrate’s Court, the Complainant will not have any relief of deposit of interim compensation against the Director/authorized signatory of the cheque. Under Section 148 of the NI Act, pre-deposit of compensation is not necessary, if the Appellant is not a drawer. However, under Section 389 of Cr.PC, Appellate Court may direct pre-deposit of compensation even if the Appellant is not a drawer.
