Authorized Signatory of Company Cannot Be Ordered to Pay Compensation for Suspension of Sentence: Supreme Court
In a landmark judgment, the Supreme Court of India reaffirmed a pivotal legal principle concerning the liability of authorized signatories of companies in cheque bounce cases. The ruling, delivered in the case of Bijay Agarwal vs. M/s Medilines, clarified that an authorized signatory of a company is not considered the "drawer" of a cheque under Section 148 of the Negotiable Instruments Act, 1881 (N.I. Act). Consequently, such individuals cannot be held liable for compensatory payments or required to deposit funds for the suspension of a sentence.
Background of the Case
The case arose from a dispute involving dishonored cheques issued by a company, where the appellant, Bijay Agarwal, was the authorized signatory. The High Court had directed Agarwal to deposit 20% of the compensation amount as a condition for the suspension of the sentence under Section 148 of the N.I. Act. Challenging this order, the appellant contended that as an authorized signatory, he could not be considered the "drawer" of the cheque and thus could not be held liable for such deposits.
Supreme Court's Observations
The Supreme Court, in its judgment, emphasized the distinct roles and liabilities under the N.I. Act. The Court reiterated that:
1. Liability of the Drawer: Section 148 of the N.I. Act mandates that only the "drawer" of the cheque is liable for compensation and any required deposits for the suspension of a sentence.
2. Authorized Signatory Not a Drawer: An authorized signatory, acting on behalf of a company, does not assume the role of a "drawer" but merely executes the cheque as per the company’s instructions.
3. Judicial Precedent: The Court referred to Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh, where similar principles were upheld. The appellant argued that the reasoning applied in Section 143A, which exempts authorized signatories from compensatory deposits, should also apply to Section 148.
Agreeing with the appellant, the Supreme Court noted that Sections 143A and 148 treat the "drawer" of the cheque similarly, reinforcing that the authorized signatory’s liability does not extend to compensatory deposits.
Key Takeaways from the Judgment
Clarity on Roles: The Court’s decision underscores the clear distinction between the company’s liability and that of its authorized officers under the N.I. Act.
Guidance for Appellate Courts: The judgment cautions appellate courts against mechanically exercising their powers under Section 148(1). Courts must consider whether exceptional circumstances exist before directing any compensatory deposit.
Relief for Authorized Signatories: This ruling provides significant relief to authorized signatories, who often face undue liabilities for acts carried out in their professional capacities.
Implications for Corporate Practices
The decision serves as a critical reminder for businesses and legal practitioners. Companies must ensure compliance with financial and operational protocols to avoid legal entanglements. Moreover, authorized signatories can now operate with greater confidence, knowing that their liability is confined to their official duties and does not extend to personal compensatory obligations.
Conclusion
The Supreme Court’s ruling in Bijay Agarwal vs. M/s Medilines reinforces the principle that liability under Sections 143A and 148 of the N.I. Act is strictly limited to the drawer of the cheque. By upholding the distinction between the company and its authorized signatories, the judgment provides much-needed clarity and protection for professionals acting within their official roles. This landmark decision will undoubtedly influence future interpretations of corporate liability under the N.I. Act, setting a robust precedent for similar cases.