Appeal against the order of interim payment
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 Instruments Act, 18811 to be paid by the respondents – directors of the company on whose account the dishonoured cheque was drawn.
Contract between appellant company and Cane Agro Enerty (India) Ltd
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.
Respondent issued two cheques to the appellant which were signed by the chairman of cane
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). These two cheques were signed by respondent No.1, who is the Chairman of Cane.
Cheques have presented and were dishonoured subsequently complaint was filed
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.
Petition filed under section 258 Cr.P.C was partly allowed by the Judicial magistrate
6. Respondent Nos. 1 to 3 entered appearance before the Judicial Magistrate and subsequently preferred an application under Section 258, Code of Criminal Procedure, 18602, 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 4 of 22 Insolvency and Bankruptcy Code, 20163. Respondent Nos. 1 to 3, along with Cane, preferred another application under Section 258, CrPC seeking stoppage of proceedings before the Judicial Magistrate.
Proceedings against the company was withheld due to moratorium is operative as per section 14 IBC
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.
Judicial Magistrate directed Interim compensation of 4% to be paid by the respondents
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 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.
An application under section 421 crpc preferred and was pending
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.
Respondents preferred application before High Corut against the interim compensation order and obtained stay
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.
Question of law preferred
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?”
Hon’ble High Court answered the above question in negative
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.
Who is the drawer of cheque explained
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.
Individuals are not held criminally liable for vicarious liability unless statute expresses it
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 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.
Authorized signatory is acting on behalf of the company but is not company’s legal identity
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.
Broader interpretation that Authorized signatory is accountable for sections 143A and 148 N.I Act would lead to unjust liability not supported by the statute
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 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.
33. The appellants’ reliance on the judgment in Aneeta Hada (Supra) [(2012) 5 SCC 661] 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 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, as established in N. Harihara Krishnan ((2018) 13 SCC 663) 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 K.K. Ahuja ((2009) 10 SCC 48) further supports this approach, emphasizing that penal provisions must be read strictly to determine liability.
Drawer of cheque excludes authorized signatories
35. In conclusion, the High Court’s decision to interpret ‘drawer’ strictly as the issuer of the cheque, excluding authorized signatories, is well-founded. 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.
Party
Shri Gurudatta Sugars Marketing Pvt. Ltd. … Appellant versus Prithviraj Sayajirao Deshmukh & Ors. … Respondents – Criminal Appeal Nos. 3070-3071 Of 2024 (@ Special Leave To Petition (Crl.) Nos.8849-8850 Of 2023) – 2024 INSC 551
Shri. Gurudatta Sugars Marketing vs. Prithviraj Sayajirao Deshmukh 254942023_2024-07-24
