Authorized Signatory Not Liable Under Section 138 NI Act Without Company Being Accused: Supreme Court's Precedent Established in Bijoy Kumar Moni v. Paresh Manna

Introduction

The Supreme Court of India, in its landmark judgment dated December 20, 2024, in the case of Bijoy Kumar Moni v. Paresh Manna (2024 INSC 1024), has set a significant precedent concerning the criminal liability of authorized signatories under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The Court held that an authorized signatory of a company cannot be held criminally liable under Section 138 unless the company itself is made an accused. This ruling clarifies the extent of liability for dishonored cheques and underscores the importance of strict adherence to procedural requirements when prosecuting such offences.

Background of the Case

Parties Involved:

Appellant/Complainant: Mr. Bijoy Kumar Moni, a construction entrepreneur from Raghunathpur, Purulia District, West Bengal.
Respondent/Accused: Mr. Paresh Manna, Director of Shilabati Hospital Pvt. Ltd., Ghatal, East Midnapur District, West Bengal.

Key Issues:

Whether an authorized signatory of a company can be held personally liable under Section 138 of the NI Act when the company is not made an accused.
Interpretation of the expression "drawer" and "on an account maintained by him" in Section 138.
The applicability of vicarious liability under Section 141 of the NI Act in such circumstances.

Case Overview

Mr. Moni, the complainant, alleged that he had extended a loan of Rs. 8,45,000 to Mr. Manna, who issued a cheque drawn on the account of Shilabati Hospital Pvt. Ltd. The cheque was dishonored due to insufficient funds. The complainant initiated proceedings against the accused under Section 138 of the NI Act. The primary contention was whether the accused, who signed the cheque as an authorized signatory on behalf of the company, could be held personally liable when the company was not made a party to the proceedings.

Summary of the Judgment

The Supreme Court dismissed the appeal filed by the complainant, upholding the Calcutta High Court's decision to acquit the accused. The Court held that:

An authorized signatory signing a cheque on behalf of a company cannot be held liable under Section 138 of the NI Act if the company is not made an accused.
The company, being the "drawer" of the cheque and the holder of the account on which the cheque was drawn, must be prosecuted for vicarious liability to be extended to its officers under Section 141.
The expression "on an account maintained by him" in Section 138 strictly refers to the account holder, not an individual authorized to operate the account on behalf of an entity.
Vicarious liability under Section 141 cannot be imposed on a director or authorized signatory in the absence of the company's prosecution.

The Court left open the possibility for the complainant to pursue other legal remedies, such as lodging a complaint for cheating under the Indian Penal Code.

Analysis

Precedents Cited

The Supreme Court relied on several precedents to arrive at its decision:

P.J. Agro Tech Ltd. v. Water Base Ltd. (2010) 12 SCC 146: The Court held that only the drawer of the cheque can be prosecuted under Section 138 of the NI Act. If the cheque is drawn on an account not maintained by the accused, prosecution under Section 138 is not maintainable.
Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. (2012) 5 SCC 661: A three-judge bench clarified that for vicarious liability to be imposed under Section 141 of the NI Act, prosecution of the company (the principal offender) is imperative. Directors or officers cannot be held liable if the company is not made an accused.
Himanshu v. B. Shivamurthy and Another (2019) 3 SCC 797: This case reinforced the principle that the company must be prosecuted for its officers to be held vicariously liable under Section 141.
N. Harihara Krishnan v. J. Thomas (2018) 13 SCC 663: The Court emphasized that the offense under Section 138 is person-specific and reiterated the necessity of prosecuting the drawer of the cheque.
Mainuddin Abdul Sattar Shaikh v. Vijay D. Salvi (2015) 9 SCC 622: It was observed that an individual who draws a cheque on his personal account for discharging the debt of a company can be held liable under Section 138.
Shri Gurudatta Sugars Marketing (P) Ltd. v. Prithviraj Sayajirao Deshmukh (2024 SCC OnLine SC 1800): The Court held that an authorized signatory is not the "drawer" of the cheque and cannot be held liable as such under Section 138.

Influence on the Court's Decision

The Supreme Court applied the principles established in these cases to determine that the accused could not be held personally liable under Section 138 when the cheque was drawn on a company's account, and the company was not prosecuted. The precedents underscored the necessity of strict adherence to statutory requirements, emphasizing that penal provisions must be strictly construed.

Legal Reasoning

Interpretation of "Drawer" and "Account Maintained by Him"

The Court analyzed the language of Section 138, highlighting the importance of the terms "drawer" and "on an account maintained by him." It was observed that:

A "drawer" is defined under Section 7 of the NI Act as the maker of a bill of exchange or cheque.
Section 138 envisages strict liability on the "drawer" who draws a cheque on an account maintained by him that is dishonored due to insufficient funds.
An authorized signatory, although empowered to sign cheques on behalf of a company, does not become the "drawer" in his personal capacity.

Vicarious Liability Under Section 141

The Court elaborated on the conditions under which vicarious liability can be imposed:

Section 141 extends liability to persons in charge of and responsible for the conduct of the company's business when the company commits an offense under Section 138.
Vicarious liability is predicated on the prosecution and conviction of the company as the principal offender.
In the absence of the company as an accused, directors or officers cannot be held vicariously liable for the offense.

Strict Construction of Penal Statutes

The Court emphasized the principle that penal statutes must be strictly construed:

The language of Section 138 must be interpreted in its literal sense without expanding its scope beyond the clear wording.
The legislative intent is to penalize the drawer of the cheque, not individuals who act on behalf of the drawer unless specific conditions under Section 141 are met.
Extending liability to authorized signatories without the company being prosecuted would contravene the statutory framework.

Impact of the Judgment

This judgment has significant implications for future cases involving dishonored cheques issued on behalf of companies:

Clarification of Liability: It definitively clarifies that authorized signatories cannot be held personally liable under Section 138 unless the company is prosecuted, ensuring that liability is correctly attributed.
Procedural Compliance: Emphasizes the necessity for complainants to meticulously follow procedural requirements, including making the company an accused when cheques are drawn on company accounts.
Limitation on Prosecution: Limits the scope of prosecution under Section 138 to prevent individuals from being unjustly penalized for corporate defaults where procedural prerequisites are not met.
Legislative Consistency: Reinforces adherence to statutory interpretation principles, promoting consistency and predictability in the application of the NI Act.

Complex Concepts Simplified

Understanding Vicarious Liability Under Section 141 NI Act

Vicarious liability refers to a situation where one person is held responsible for the actions or omissions of another person. Under Section 141 of the NI Act, if a company commits an offense under Section 138, not only the company but also every person who was in charge of and responsible for the conduct of its business at the time may be deemed guilty.

However, for vicarious liability to apply:

The company must be prosecuted as the principal offender.
There must be specific allegations that the person was in charge of and responsible for the conduct of the company's business.

In essence, individuals can be held liable for company offenses only when the company itself is made a party to the proceedings.

Meaning of "Drawer" and "On an Account Maintained by Him"

The "drawer" is the person who makes or executes a cheque. The expression "on an account maintained by him" denotes that the drawer must have an account with a bank on which the cheque is drawn. This term is crucial because it defines the scope of who can be held liable under Section 138.

An authorized signatory signs the cheque on behalf of the account holder (e.g., a company) but does not become the drawer in his personal capacity. Therefore, unless the account is maintained by the signatory personally, he cannot be deemed as the drawer for the purposes of Section 138.

Conclusion

The Supreme Court's judgment in Bijoy Kumar Moni v. Paresh Manna establishes a crucial precedent in the interpretation of liability under Section 138 of the NI Act. The Court reaffirmed that:

Only the drawer of the cheque, who maintains the account from which the cheque is drawn, can be held liable under Section 138.
An authorized signatory of a company cannot be prosecuted under Section 138 in his personal capacity if the company is not made an accused.
Vicarious liability under Section 141 can only be imposed when the company is prosecuted as the principal offender.

This judgment underscores the importance of precise legal procedures in prosecuting offenses under the NI Act. It protects individuals from unjust liability while ensuring that accountability is appropriately assigned. The decision balances the need for strict enforcement of financial obligations with the principles of legal clarity and fairness.

For legal practitioners and stakeholders, this judgment serves as a vital reference point in cases involving dishonored cheques drawn on company accounts. It highlights the necessity of including all necessary parties in legal proceedings and adhering strictly to statutory requirements to uphold the integrity of the legal process.