Are you the authorised signatory of your company? What happens if a cheque you signed on its behalf bounces? Would you personally be held liable for it?
The Bombay High Court came to the aid of authorised signatories in a case decided in 2023. The Court held that the authorised signatory of a company who signs a cheque on its behalf is not the "drawer" of the cheque, thereby relieving the signatory from liability for interim compensation under Section 143A of the Negotiable Instruments Act, 1881.
The Statutory Framework
Section 7 of the Negotiable Instruments Act defines the drawer as the maker of a bill of exchange or cheque. Section 143A follows from the penal liability set out under Section 138 of the Act. One of the essential conditions for Section 138 to apply is that the cheque must be drawn on an account maintained by the drawer, which makes it clear from the wording of the section that the drawer is the principal offender.
It is the drawer's own duty to maintain sufficient funds, and the drawer alone would have been the offender under the Act if it did not also contain Section 141. Section 141 extends penal liability under Section 138 to other persons connected with the company, which means there is no need to stretch the meaning of "drawer" to include an authorised signatory. It is plausible for the drawer to be a legal entity, an artificial person, in which case the general rule of vicarious liability would ordinarily apply.
What the Court Held
The High Court held that, keeping the legislative intent in mind, the mere act of signing a cheque on behalf of a company does not make a person its drawer, since that would not serve the legislative purpose of ensuring credibility. Liability arises from a person's conduct, act or omission, not merely from holding an office or a position within a company.
Case Title: Lyka Labs Limited & Anr. v. State of Maharashtra & Anr. and connected cases
Citation: Criminal Writ Petition (ST.) No. 1436 of 2021
Disclaimer: The content of this article is intended to provide general guidance on the subject matter. Specialist advice should be sought about your specific circumstances.