Summary
The Supreme Court upheld the acquittal of a person prosecuted in his individual capacity under Section 138 of the Negotiable Instruments Act, 1881 for a dishonoured cheque he signed as director and authorised signatory on a company's account, holding that only the drawer who maintains the account is liable, that an authorised signatory is not the drawer, and that he could not be held vicariously liable under Section 141 without the company being arraigned; the complainant was left free to lodge an FIR for cheating.
Issues
- Whether a director who signs a cheque as authorised signatory on the company's bank account is the 'drawer' of a cheque drawn 'on an account maintained by him' within Section 138 of the NI Act.
- Whether such a person can be convicted under Section 138 in his individual capacity, without the company being arraigned, even if the cheque was issued to discharge his personal debt.
- Whether a director can be held vicariously liable under Section 141 of the NI Act when the company is not prosecuted.
Provisions considered
- Section 138, Negotiable Instruments Act, 1881The Court held that the section makes only the drawer of a cheque 'on an account maintained by him' liable; the expression describes the account holder-banker relationship and does not extend to an authorised signatory. Being penal, it is strictly construed, and its object may supplement but not supplant the text. A cheque on the company's account did not satisfy the section against the signatory prosecuted personally. (¶¶ 34, 36, 39, 42, 45, 66, 68, 69, 70, 71, 72, 73)
- Section 7, Negotiable Instruments Act, 1881The Court held that where an authorised signatory signs a cheque on the company's account, the company alone remains the maker and hence the drawer under Section 7; the signatory is only the physical limb acting for the company's incorporeal personality. (¶¶ 37, 43, 45, 46)
- Section 138 (expression 'any debt or other liability' and Explanation), Negotiable Instruments Act, 1881The Court held the expression covers any legally enforceable debt, not only one owed by the drawer to the payee; a cheque issued by one person in discharge of another's debt under an arrangement is covered. Hence, had the company been arraigned, the complainant could have relied on the Section 139 presumption even though the debt was the accused's personal debt. (¶¶ 52, 53, 54, 55)
- Section 141, Negotiable Instruments Act, 1881Following Aneeta Hada, the Court held that commission of the offence by the company is a condition precedent to vicarious liability of directors and persons in charge; arraigning the company is imperative save where legal impediment makes it impossible, which was not the case here. (¶¶ 39, 50, 55, 56, 59, 60, 61, 62)
Held
- Under the scheme of the NI Act only the drawer of the cheque can be held liable under Section 138; Section 141 is the exception creating vicarious liability of others where the drawer is a company. (¶¶ 39, 42, 44, 66)
- The expression 'on an account maintained by him with a banker' describes the relationship between the account holder and the banker and does not extend to a third party authorised to operate the account. An authorised signatory of a company is not the drawer of a cheque on the company's account; the company remains the drawer. A cheque drawn after closure of the drawer's own account is still on an account maintained by him. (¶¶ 45, 46, 48, 66)
- This reasoning does not apply to joint accounts: each joint holder holds an account with the banker, so each holder who signs a cheque on a joint account may be its drawer, consistent with Aparna A. Shah v. Sheth Developers. (¶ 47)
- The expression 'any debt or other liability' read with the Explanation covers any legally enforceable debt, including another person's debt assumed by the drawer under an arrangement; but the offence remains person specific to the drawer of the cheque. (¶¶ 52, 54, 55)
- A director or authorised signatory cannot be prosecuted under Section 138 read with Section 141 unless the company that drew the cheque is arraigned as an accused, and vicarious liability can be fastened only after the company is held liable; the only exception, based on lex non cogit ad impossibilia, applies where impleading the company is legally impossible. (¶¶ 50, 55, 56, 57, 62)
- Section 138, being penal, must be strictly construed; the object of the provision cannot be used to read authorised signatories into it. The Madras High Court's contrary view in P. Sarvana Kumar v. S.P. Vijaya Kumar, treating the signatory of a proprietorship concern's cheque as the drawer, was disapproved. (¶¶ 63, 64, 65, 66, 67, 68, 72, 73)
- As the accused was prosecuted in his individual capacity and the cheque was drawn on the hospital company's account, the requirements of Section 138 were not met, and the High Court rightly held that the prosecution could not proceed without the company, the principal offender, being arraigned. (¶¶ 69, 70, 71)
- Noting that civil remedies and a fresh Section 138 complaint against the company were time-barred, and that the encashment of the complainant's Rs. 7 lakh cheque was proved while the accused's conduct raised questions of dishonest intention, the Court observed that an act may constitute offences under more than one statute and that a possible offence of cheating could not be ruled out. (¶¶ 74, 75, 76, 77)
Result
Appeal dismissed and the acquittal upheld; liberty to the complainant to lodge an FIR against the accused at the jurisdictional police station, which shall investigate it in accordance with law.