Full Judgment Text
2024 INSC 551
Reportable
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS. OF 2024
(@ Special Leave to Petition (Crl.) Nos.8849-8850 of 2023)
SHRI GURUDATTA SUGARS MARKETING
PVT. LTD. …APPELLANT
VERSUS
PRITHVIRAJ SAYAJIRAO DESHMUKH
& ORS. …RESPONDENTS
J U D G M E N T
VIKRAM NATH, J.
1. Leave granted.
2. The present Appeals are filed challenging the
judgments and orders passed by the Bombay High
Court, dated 08.03.2023 and 29.03.2023 in CRLA
967/2022, whereby the High Court allowed
the Criminal Application filed by the present
respondents thereby setting aside the order of
the Judicial Magistrate directing the interim
payment under Section 143-A, Negotiable
1
Instruments Act, 1881 to be paid by the
Signature Not Verified
Digitally signed by
Neetu Khajuria
Date: 2024.07.25
17:28:04 IST
Reason:
1
In short, “NI Act”
SLP(Crl.) Nos. 8849-8850 of 2023 Page 1 of 22
respondents – directors of the company on whose
account the dishonoured cheque was drawn.
3. Appellant company entered into several
Agreements and Sale Orders with one Cane Agro
Energy (India) Ltd. (Cane hereinafter) between
September 2016 and June 2017. Under these
Agreements and Sale Orders, the appellant made
advance payments amounting to
Rs.63,46,00,000/- (Rupees sixty three crores forty
six lakhs) for supply of sugar by Cane. It is alleged
by the appellant that Cane failed to supply the
ordered quantities of sugar and also failed to
discharge its other obligations as agreed upon.
Cane agreed to refund the advance amount due and
payable to the Appellant. In part discharge of
liability, a sum of Rs.1,00,00,000/- (Rupees one
crore) was refunded by Cane on 30.01.2018.
4. Subsequently, respondent Nos. 1 to 3 issued two
cheques dated 30.03.2020 in favour of the
appellant, one for Rs.45,00,00,000/- (Rupees forty
five crores) and one for Rs.6,64,41,300/- (Rupees
six crores sixty four lakhs forty one thousand and
three hundred), amounting to a total amount of
Rs.51,64,41,300/- (Rupees fifty one crores sixty
four lakhs forty one thousand and three hundred).
SLP(Crl.) Nos. 8849-8850 of 2023 Page 2 of 22
These two cheques were signed by respondent No.1,
who is the Chairman of Cane.
5. The said cheques were presented to the Bank but
were dishonoured due to insufficiency of funds,
vide return memos dated 02.06.2020. Appellant
issued notice date 18.06.2020 to respondent Nos. 1
to 3 against the dishonour of cheques demanding
payment of dues. A notice was duly served on
30.06.2020. When the payments due were not
made, the appellant preferred a complaint before
the Judicial Magistrate, First Class, Kolhapur,
which was registered as Summary Criminal Case
No.2967 of 2020. On 11.08.2020, the Judicial
Magistrate, First Class, Kolhapur issued process
against respondent Nos. 1 to 3. In the meantime,
Cane was admitted into Corporate Insolvency
Resolution Process by order of National Company
Law Tribunal, Mumbai.
6. Respondent Nos. 1 to 3 entered appearance before
the Judicial Magistrate and subsequently preferred
an application under Section 258, Code of Criminal
2
Procedure, 1860 , seeking stoppage of proceedings
in terms of the moratorium running against Cane.
On 20.05.2021 an order imposing moratorium
against Cane was passed under Section 14,
2
CrPC
SLP(Crl.) Nos. 8849-8850 of 2023 Page 3 of 22
3
Insolvency and Bankruptcy Code, 2016 .
Respondent Nos. 1 to 3, along with Cane, preferred
another application under Section 258, CrPC
seeking stoppage of proceedings before the Judicial
Magistrate.
7. The Judicial Magistrate partly allowed the above
application and held that the complaint shall not
proceed against Cane in view of Section 14, IBC till
the order of moratorium is operative; but the
complaint was ordered to proceed ordinarily
against respondent Nos.1 to 3 herein. The Judicial
Magistrate observed that as per the scheme of
Section 14, IBC the proceedings for offences
punishable under Section 138, NI Act is withheld
by order of moratorium only for corporate debtors
and not against other natural persons arrayed as
respondents in representative capacity for the
accused company.
8. Appellant filed an application under Section 143-A,
NI Act against respondent Nos. 1 to 3 seeking
interim compensation from the respondents during
the pendency of the criminal proceedings before the
Judicial Magistrate. Vide order dated 27.04.2022,
the Judicial Magistrate directed each of the
respondents to pay 4% of the total cheque amount
3
IBC
SLP(Crl.) Nos. 8849-8850 of 2023 Page 4 of 22
as interim compensation to the appellant within 60
days. The respondents were granted an extension
till 26.07.2022 to pay the interim compensation
upon an application made by them.
9. Appellant preferred an application under Section
421, CrPC read with Section 143-A(5), NI Act
seeking execution of order dated 27.04.2022 and
thus recovery of interim compensation as if it were
a fine. The respondents filed their response to the
application, the same is pending before the Judicial
Magistrate.
10. Respondent Nos. 1 to 3 preferred Criminal
Application No. 967 of 2022 before the High Court
challenging the order of interim compensation
dated 27.04.2022 passed by the Judicial
Magistrate. The High Court, vide interim order
dated 23.09.2022, stayed the operation of the order
impugned therein.
11. During the pendency of the above application, the
High Court, in a batch of Writ Petitions and
Criminal Application dealing with the same issue
and the question of law that whether the signatory
of the cheque, authorized by the "Company", is the
"drawer" and whether such signatory could be
directed to pay interim compensation in terms of
section 143A, NI Act leaving aside the company,
SLP(Crl.) Nos. 8849-8850 of 2023 Page 5 of 22
vide its final judgment and order dated 08.03.2023
held that the signatory of the cheque is not a
‘drawer’ in terms of Section 143-A, NI Act and
cannot be directed to pay interim compensation
under Section 143A.
12. In light of the above judgment and order of the co-
ordinate bench in Criminal Application No. 886 of
2022, the High Court vide order dated 29.03.2023,
allowed the application preferred by the respondent
Nos. 1 to 3 herein and set aside the order of interim
compensation passed by the Judicial Magistrate on
27.04.2022.
13. The appellant has challenged the judgment and
order of the High Court dated 29.03.2023 as well as
the relied upon judgment and order dated
08.03.2023. The present Appeal is filed assailing
the correctness of these orders vis-à-vis the larger
question of law, as framed by the High Court:
“Whether the signatory of the cheque,
authorized by the "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 leaving aside the
company?”
14. The High Court, in its judgment dated 08.03.2023
in Criminal Application No.886 of 2022, answered
SLP(Crl.) Nos. 8849-8850 of 2023 Page 6 of 22
the above question in the negative and upheld the
same in its order dated 29.03.2023 in the case of
the appellant before us. To answer the question of
law and determine the correctness of its view it is
imperative to look into the considerations before
the High Court and its analysis.
OBSERVATIONS MADE BY THE HIGH COURT
15. The High Court, while answering the above
question in the negative, made several
observations based on the interpretation of the
relevant statutes under the NI Act as well as on the
judgments relied upon by the counsels in their
arguments before the High Court.
15.1. Obligation of the Drawer of the Cheque
The High Court observed that under Section 7 of
the NI Act, the maker of a bill of exchange or cheque
is termed the "drawer," and the person directed to
pay is called the "drawee." The drawer is the
individual who issues the cheque. Sections 138,
143A, and 148 of the NI Act fall under Chapter XVII,
which pertains to penalties for the dishonour of
certain cheques due to insufficient funds. A plain
reading of Section 138 highlights that the drawer
must have an account with sufficient funds to cover
the cheque. The primary liability under Section 138
SLP(Crl.) Nos. 8849-8850 of 2023 Page 7 of 22
is on the drawer, who must ensure that there are
adequate funds in the account at the time the
cheque is presented. Additionally, the offence
under Section 138 is not complete until a demand
notice is served on the drawer, emphasizing the
drawer's responsibility. The drawer is considered
the principal offender if the cheque is returned
unpaid, subject to the fulfilment of the necessary
conditions before and after the cheque is
dishonoured.
15.2. General Rule of Criminal Liability
The High Court noted the general rule against
vicarious liability in criminal cases, where
individuals are typically not held criminally liable
for acts committed by others. However, this
principle is subject to exceptions created by specific
statutory provisions extending liability to additional
parties. Section 141, NI Act is one such provision
that extends criminal liability for dishonour of a
cheque committed by a company to its officers. The
Court emphasized that liability under Section 141
arises from the conduct, act, or omission of the
person involved, not merely their position in the
company. The provision establishes vicarious
liability for officers of the company, such as
signatories of the cheque, managing directors, or
SLP(Crl.) Nos. 8849-8850 of 2023 Page 8 of 22
those in charge of its affairs, by legal fiction. Thus,
while the drawer of the cheque remains primarily
liable, Section 141 broadens liability to include
others associated with the company's management,
ensuring accountability beyond the drawer alone.
15.3. Authorised signatory cannot be equated to the
company
Further, the High Court delved into the distinction
between legal entities and individuals acting as
authorized signatories within the framework of the
NI Act. The Court observed that while individuals
may sign cheques as authorized representatives of
companies, they do not assume legal identity of the
company itself. It clarified that a legal entity, such
as a corporation or company, is an artificial
creation of the law endowed with rights, duties, and
the capacity to sue and be sued independently of
the individuals who manage or represent it. The
Court emphasized that an authorized signatory,
despite acting on behalf of a company, remains
distinct as an individual under the law. This
distinction is crucial as it clarifies that the actions
and obligations undertaken by an authorized
signatory are attributable to the company they
represent, but do not merge their legal status with
that of the company itself. Thus, while an
SLP(Crl.) Nos. 8849-8850 of 2023 Page 9 of 22
authorized signatory may bind the company
through their actions, they do not transform into a
legal entity in the eyes of law.
15.4. Interpretation of the Section 143-A and the
legislative intent
Moreover, the High Court highlighted the principle
of statutory interpretation, particularly in relation
to Sections 143A and 148 of the NI Act, which are
under consideration. It discussed the dichotomy
between interpreting statutes based on their plain
language versus applying purposive construction.
According to the Court, when the statutory
language is clear and unambiguous, it speaks for
itself, and there is no need for further
interpretation. The natural and ordinary meaning
of words should prevail unless the legal context
necessitates a different interpretation to align with
the legislative intent or to avoid absurd outcomes.
15.4.1. The Court further elucidated that legislative intent
should guide the interpretation of statutes, with all
parts of a statute considered together to discern the
overall purpose. It stressed that words and phrases
within a statute must be construed in context,
taking into account the legislative objectives and
the broader framework of the law. This holistic
approach ensures that statutory interpretation
SLP(Crl.) Nos. 8849-8850 of 2023 Page 10 of 22
remains faithful to the lawmakers' intentions and
avoids inconsistencies or injustices that may arise
from a literal reading of isolated provisions.
15.4.2. The High Court emphasized that Section 143A
should be interpreted plainly, without resorting to
other rules of interpretation. It asserted that the
term 'drawer' in Section 143A has a clear and
unambiguous meaning, referring specifically to the
person who issues the cheque. Referring to the
Statement of Objects and Purposes of the
Negotiable Instruments (Amendment) Act, 2018,
the High Court noted that the purpose of Section
143A is to provide interim relief to payees of
dishonoured cheques by imposing liability on the
drawer. This, according to the High Court, aligns
with the legislative intent to curb frivolous
litigations and expedite resolution of cheque
dishonour cases.
15.4.3. The High Court rejected the inclusion of
authorized signatories within the definition of
'drawer'. It pointed out that the legislature's choice
of words in Section 143A specifically targets the
drawer of the cheque, whether an individual or a
company, and does not extend liability to
authorized signatories. Drawing from established
legal precedents, the High Court underscored that
SLP(Crl.) Nos. 8849-8850 of 2023 Page 11 of 22
the term 'drawer' carries a specific legal meaning
within the NI Act. It highlighted the cases where
Courts consistently interpreted 'drawer' to refer
strictly to the issuer of the cheque, reinforcing its
decision to uphold this interpretation. The High
Court relied on the following judgments to
emphasise on the literal interpretation warranted
in the present case:
4
i. Nazir Ahmad v. King Emperor
5
ii. Central Bank of India v. Ravindra
6
iii. Noor Mohammed v. Khurram Pasha
15.4.4. Contextually, the High Court stressed upon the
finding that 'drawer' within the framework of the NI
Act consistently refers to the party issuing the
cheque. It dismissed the arguments seeking to
expand this definition to include authorized
signatories, citing the need for consistency in
statutory interpretation.
15.4.5. The High Court also invoked principles of
company law to support its interpretation. It
affirms the separate legal identity of a company and
its authorized signatories under the Companies
4
AIR 1936 Privy Council 253
5
(2002) 1 SCC 367
6
(2022) 9 SCC 23
SLP(Crl.) Nos. 8849-8850 of 2023 Page 12 of 22
Act, which prevents extending liability to
signatories under Section 143A.
16. In conclusion, the High Court's analysis
underscores the critical distinction between
individuals acting as authorized signatories and the
legal entities they represent under the NI Act.
17. Before we delve into the arguments presented by
the counsels for the parties before us, it is
imperative that we also look at the observations
made by the High Court with respect to the two
judgments heavily relied upon by the parties before
it as well as before us.
18. The High Court while addressing the reliance
placed upon Aneeta Hada v. godfather travels
7
and tours Pvt. Ltd. and N. Harihara Krishnan
8
v. J. Thomas, observed that while Aneeta Hada
(supra) underscored the necessity of involving the
company as an accused to maintain a prosecution
under Section 141 NI Act, N. Harihara Krishna
(supra) clarified that an authorized signatory is not
considered the "drawer" under Section 138 of the
NI Act. These judgments guided the High Court in
interpreting provisions of the NI Act regarding
7
(2012) 5 SCC 661
8
(2018) 13 SCC 663
SLP(Crl.) Nos. 8849-8850 of 2023 Page 13 of 22
vicarious liability and the definition of the term
"drawer" within the statutory framework.
SUBMISSIONS OF THE APPELLANT
19. The learned counsel for the appellant submitted
that if a director, managing director, chairman,
promotor of a company can be arrayed as accused
under Section 141, NI Act despite not being a
signatory to the cheque, then it is only fair that one
or more of such individuals be held liable to pay
interim compensation.
20. Relying upon the object of Section 143-A, NI Act, it
was submitted that for addressing the issue of
undue delay and for providing relief to the payees
of dishonoured cheque, it is only just and fair that
this be done through payment of interim
compensation by the director or any such person in
charge of the company. This would be in alignment
with the purposes and objectives of the provision.
21. Further, it was argued that in the present case the
company is admitted to CIRP, thus being its alter
ego, it is only the directors who can be directed to
pay interim compensation in furtherance of the
object of the provision in light of the CIRP
proceedings against the company, the payees of the
dishonoured cheque cannot be left with no interim
SLP(Crl.) Nos. 8849-8850 of 2023 Page 14 of 22
relief, thereby defeating the purpose of Section 143-
A and causing injustice to the payees already
suffering due to the pending litigation.
22. Learned counsel for the appellant further
submitted that any restrictive interpretation of the
provision would defeat the purpose of providing
interim compensation to the payee of a
dishonoured cheque. To further strengthen their
argument, they relied upon this Court’s judgment
9
in Aneeta Hada (Supra) and submitted that in
para 20 of the judgment, this Court has observed
that an authorised signatory of a company becomes
a drawer as he has been authorised to do so in
respect of the account maintained by the company.
23. Lastly, it was submitted that since the company is
in moratorium and that it is admitted by the
respondents that their case is not that they are
unable to pay compensation, the grant of a meagre
four percent of the cheque amount by each of them
is just and fair. That even such an amount in the
form of interim payment would serve the purposes
of the provision and would also help the business
of the appellant.
9
(2012) 5 SCC 661
SLP(Crl.) Nos. 8849-8850 of 2023 Page 15 of 22
SUBMISSIONS OF THE RESPONDENTS
24. The learned senior counsel for the respondents, Mr.
Siddharth Dave, vehemently argued that it is a well
settled position of law that an authorised signatory
of a company is not a drawer of the cheque. To
substantiate this argument, he relied upon this
Court’s judgment in N. Harihara Krishnan
(Supra) wherein it was held that, “Every person
signing the cheque on behalf of a company on whose
account the cheque is drawn does not become the
drawer of the cheque. Such a signatory is only a
person duly authorised to sign the cheque on behalf
of the company/drawer of the cheque.”
25. Further rejecting the submissions made by the
appellant with regard to the observations made in
the case of Aneeta Hada (Supra), it was submitted
by Mr. Dave that in this judgment this Court was
dealing with the question of extending criminal
liability on the officers of the company and it held
that the criminal liability for the dishonour of
cheque primarily falls on the drawer company and
is thereby extended to those in charge of it only
when the conditions provided under Section 141
are satisfied. Therefore, the Court did not hold that
the authorised signatory becomes a drawer but
only made a reference and an observation to this
SLP(Crl.) Nos. 8849-8850 of 2023 Page 16 of 22
effect to elucidate that the criminal liability extends
from the company to its directors and other officers
by virtue of the cheque drawn on the company’s
account by such authorised signatory.
26. It was further submitted that with respect to the
interpretation of the provision, the appellant’s
argument that the meaning of ‘drawer’ under
Section 143-A must be read liberally and
purposively is contrary to the position of law on
interpretation of statutes. Further submission is
that such an interpretation of penal statues is
contrary to the settled principles of criminal law, as
penal provisions are to be read strictly in order to
determine the liability of a party, more so where
vicarious liability is to be determined. To
substantiate this, he relied upon the judgment of
this Court in the case of K.K. Ahuja v. V.K.
10
Vohra.
27. In conclusion, it was submitted that the primary
liability for an offence under Section 138 is that of
the company itself and the company’s management
is only subsequently and vicariously liable. Thus, it
is only the company that is to be considered as the
drawer of the cheque. Consequently, a strict
interpretation of Section 143-A would mean that it
10
(2009) 10 SCC 48
SLP(Crl.) Nos. 8849-8850 of 2023 Page 17 of 22
is only the drawer-company’s liability to pay the
interim compensation as the provision does not
provide for an interim compensation to be paid by
the employees or the management or the signatory
of the company.
ANALYSIS
28. 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 appellants' 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.
29. 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
SLP(Crl.) Nos. 8849-8850 of 2023 Page 18 of 22
company's officers for the dishonour of a cheque.
The appellants' 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.
30. 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.
31. The principle of statutory interpretation, particularly
in relation to Sections 143A and 148, was also
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
SLP(Crl.) Nos. 8849-8850 of 2023 Page 19 of 22
discerned from the plain language of the statute,
aims to hold the drawer accountable. The appellants'
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.
32. The High Court’s reliance on established legal
precedents further reinforces its interpretation.
Judicial precedents relied upon in the impugned
judgment underscore the need for a literal
interpretation of the statutory provisions. These
precedents support the High Court's decision to limit
the definition of 'drawer' to the issuer of the cheque,
excluding authorized signatories.
33. The appellants’ reliance on the judgment in
11
Aneeta Hada (Supra), is misplaced and out of
context. While this case underscored the necessity
of involving the company as an accused to maintain
a prosecution under Section 141, it does not support
the extension of liability to authorized signatories
under Section 143A. The judgment nowhere lays
down that directors or authorised signatories would
come under the ambit of ‘drawer’ for the purposes of
Section 143A. The appellants' interpretation
11
(2012) 5 SCC 661
SLP(Crl.) Nos. 8849-8850 of 2023 Page 20 of 22
conflates the roles of authorized signatories and
drawers, which are distinct under the NI Act.
Appellants have relied upon a single paragraph,
which does not form part of the ratio therein, to
substantiate their argument. But in this relied upon
paragraph, the Court only made an observation that
the authorised signatory becomes a drawer for the
company, for the limited purpose of extending the
criminal liability as per Section 141.
34. The respondents correctly argued that an
authorized signatory is not a drawer of the cheque,
12
as established in N. Harihara Krishnan (Supra) .
This judgment clarified that a signatory is merely
authorized to sign on behalf of the company and
does not become the drawer. The respondents'
interpretation aligns with the principle that penal
statutes should be interpreted strictly, particularly
in determining vicarious liability. The judgment in
13
K.K. Ahuja (Supra), further supports this
approach, emphasizing that penal provisions must
be read strictly to determine liability.
35. In conclusion, the High Court’s decision to
interpret 'drawer' strictly as the issuer of the cheque,
excluding authorized signatories, is well-founded.
12
(2018) 13 SCC 663
13
(2009) 10 SCC 48
SLP(Crl.) Nos. 8849-8850 of 2023 Page 21 of 22
This interpretation aligns with the legislative intent,
established legal precedents, and principles of
statutory interpretation. 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. The appellants' submissions are thus rejected,
and the High Court’s judgment is upheld. 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. Therefore, the
question of law put before this Court is answered in
the negative.
36. The appeals are accordingly dismissed. Pending
application(s), if any, shall stand disposed of.
………………………………..……J
(VIKRAM NATH)
………………………………..……J
(PRASHANT KUMAR MISHRA)
NEW DELHI
JULY 24, 2024
SLP(Crl.) Nos. 8849-8850 of 2023 Page 22 of 22