In a significant judgment, the Supreme Court of India has clarified that an authorized signatory of a company, who signs a cheque on behalf of the company, cannot be directed to pay interim compensation under Section 143A of the Negotiable Instruments Act, 1881.
Background
The case pertains to a cheque bounce dispute, where the appellant, an authorized signatory of a company, was directed by the trial court to pay interim compensation under Section 143A of the NI Act. The appellant challenged this order, arguing that as an authorized signatory, they cannot be held personally liable for the company’s debts.
Supreme Court’s Verdict
The Supreme Court, in its judgment, held that an authorized signatory of a company, who signs a cheque on behalf of the company, is not the “drawer” of the cheque within the meaning of Section 143A of the NI Act. Therefore, such an individual cannot be directed to pay interim compensation.
The Court observed that the “drawer” of a cheque is the person who draws the cheque, i.e., the account holder, and not the person who signs the cheque on behalf of the account holder. In this case, the company was the account holder, and the authorized signatory was merely signing on its behalf.
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Implications
This judgment has significant implications for cheque bounce cases, where companies are involved. It clarifies that authorized signatories of companies cannot be held personally liable for interim compensation under Section 143A of the NI Act.
Key Quotes
“The ‘drawer’ of a cheque is the person who draws the cheque, i.e., the account holder, and not the person who signs the cheque on behalf of the account holder.” – Supreme Court
“An authorized signatory of a company, who signs a cheque on behalf of the company, cannot be directed to pay interim compensation under Section 143A of the NI Act.” – Supreme Court
Conclusion
The Supreme Court’s judgment provides clarity on the interpretation of Section 143A of the NI Act and protects authorized signatories of companies from personal liability for interim compensation in cheque bounce cases.