The Supreme Court has ruled that an individual authorized to sign and issue cheques on behalf of an organization can be treated as the “drawer” of the cheque and held liable under Section 138 of the Negotiable Instruments Act, 1881, in cases involving cheque dishonour.
A Bench comprising Justice Prashant Kumar Mishra and Justice N.V. Anjaria delivered the ruling while affirming the conviction of a treasurer of a non-governmental organization who had been designated as the NGO’s authorized signatory for issuing cheques and making payments under a Memorandum of Understanding (MoU) with a power distribution company.
The Court noted that the MoU specifically entrusted the appellant with the responsibility of signing cheques and ensuring payments to the respondent company. Since no other office-bearer was assigned a similar role under the agreement, the appellant alone bore responsibility for the consequences arising from those transactions.
According to the judgment, once an organization places an individual at the forefront of its financial dealings and empowers that person to execute negotiable instruments and discharge payment obligations, that individual cannot avoid liability when those instruments are dishonoured.
The appellant had relied on an earlier Supreme Court ruling to argue that merely being an authorized signatory does not automatically create personal liability for a company’s actions. The Court, however, found the reliance misplaced. It clarified that an authorized signatory may still fall within the definition of a “drawer” when the statutory requirements governing liability under the Negotiable Instruments Act are satisfied.
Emphasizing the appellant’s central role in executing the MoU and handling payments, the Bench observed that he was effectively the public face of the NGO in its dealings with the respondent company. As a result, there was little room for doubt regarding his status as the drawer of the dishonoured cheque.
While upholding the conviction, the Court took a more lenient view on sentencing. Considering that the appellant served only as the treasurer of the society, it modified the punishment and directed him to pay a fine of ₹1.5 crore to the power distribution company, now known as Southern Power Distribution Company of Telangana Limited (TSSPDCL), within two months.
Failure to make the payment within the stipulated period would result in one year of rigorous imprisonment.
The appeal was therefore partly allowed, solely to the extent of altering the sentence while maintaining the finding of guilt.
