Negotiable Instruments Act of 1881: Company’s Authorised Signatory’s Has No Obligation to Pay Interim Compensation

The Bombay High Court has ruled that a company’s authorised signatory who signs a cheque on the company’s behalf is not the “drawer” of the cheque and is thus not responsible for paying interim damages under section 143A of the Negotiable Instruments Act, 1881 in the event that the cheque is dishonoured. The problem results from conflicting findings in two Supreme Court decisions and the absence of a conclusive decision on the subject. When addressing a group of petitions, the Hon. High Court of Bombay reached a decision on a common legal issue, including

Whether a signatory of a cheque authorised by a “Company” is the “drawer” and whether such a signatory could be ordered to pay interim compensation under Section 143A of the Negotiable Instruments Act of 1881 (“NI Act”) living apart from the company; and
Whether a deposit of at least 20% of the fine or compensation is required under Section 148 of the NI Act in an appeal brought by someone other than the “drawer” against the conviction and punishment under Section 138 of the NI Act.

The authorised signatory of the company is not a drawer of the cheque in accordance with Section 143A of the NI Act and cannot be ordered to pay interim compensation under that section, according to the Hon’ble Court’s order from March 8, 2023 in Lyka Labs Limited & Anr. v/s State of Maharashtra & Anr. (2023 SCC Online Bom 560) and other connected cases. Furthermore, it was decided that a deposit of at least 20% in the form of a fine or compensation is not required when an appeal under Section 148 of the NI Act is submitted by someone other than the “drawer”. However, under Section 389 of the Code of Criminal Procedure, the Appellate Court has the authority to direct deposit compensation while the sentence is suspended.

Relevant Provisions Of Law:

Section 389 of CRPC – Suspension of sentence pending the appeal.
Section 148 Of NI Act – Power of Appellate Court to order payment pending appeal against conviction.
Section 143AOf NI Act – Power to direct interim compensation

The final view of the court is that many employees, directors, etc. who are authorised signatories of the Company would feel relieved that the law regarding the obligation to pay interim compensation under Sections 143A and 148 of the NI Act has been decided by the Hon’ble Bombay High Court. However, there hasn’t been much of a difference in an appeal where Directors or anybody else but the drawer has been found guilty by the trial court. The Appellate Court’s authority under Section 389 of the Criminal Procedure Code, 1973 (Cr.PC) to order the pre-deposit of compensation4 (partially or wholly) before suspending the sentence or releasing the Director anyone other than the drawer on bail is unaffected and is indeed reiterated.

The Director or authorised signatory is not a drawer in the context of the Company. The Director or authorised signatory of the cheque is not subject to the Complainant’s right to deposit interim compensation under Section 143A of the NI Act in complaints brought before an Hon’ble Magistrate’s Court. Pre-deposit of compensation is not required under Section 148 of the NI Act if the appellant is not a drawer. However, even if the appellant is not a drawer, the appellate court may order pre-deposit of compensation under Section 389 of the Cr.PC.