S. 138 NI Act | Authorised Signatory Who Signed Cheque On NGO's Behalf Deemed As 'Drawer', Liable For Dishonour : Supreme Court
The Supreme Court has observed that when the company authorizes a particular individual to sign, issue cheques on the company's behalf, including the responsibility of making a payment, then such an individual would be treated as a 'drawer', attracting liability under Section 138 of the Negotiable Instruments Act, 1881.
A bench of Justice Prashant Kumar Mishra and Justice NV Anjaria upheld the conviction of an NGO's Treasurer, who was appointed as an authorised signatory of the NGO to issue and sign cheques as well as make payment to the Respondent company under the Memorandum of Understanding (“MoU”). Further, noting that since the MoU casts no liability on any other office bearer except the Appellant, the Court found the Appellant as the only person who shall be responsible for all the consequences thereof.
“If the NGO i.e. TIMES has made the appellant as its front face by authorizing him to sign all the negotiable instruments and to make payment of the account to APCPDCL (Presently Telangana CPDCL) through cheque/RTGS online transaction, it is only the appellant who shall be responsible for all the consequences thereof.”, the Court observed.
The Appellant's reliance on Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh & Ors., (2024) 7 SCR 1211, to contend that mere designation of an authorised signatory of the company would not make him personally liable for the company's act was rejected by the Court, noting that the reliance on aforesaid case was misplaced, as even the authorised signatories of the company may be categorised as a 'drawer' of cheque, when the conditions stipulated under Section 141 of the NI Act gets fulfilled.
Since the Appellant was the face of the NGO while executing the MoU with the Respondent company, having been vested with the responsibility of signing, issuing the cheque, and also making a payment, thus, there remains no doubt over the Appellant's position being a 'drawer' of the cheque, the court said.
However, taking note of the fact that the appellant was only the Treasurer of the society, the Court modified the sentence. It directed him to pay the fine amount of ₹1.5 crore to Telangana CPDCL, now known as Southern Power Distribution Company of Telangana Limited (TSSPDCL), within two months. In default, he would have to undergo rigorous imprisonment for one year.
Accordingly, the appeal was partly allowed to the limited extent of modifying the sentence.
Cause Title: K RANGANAYAKULU VERSUS STATE OF TELANGANA & ORS.
Citation : 2026 LiveLaw (SC) 605
Appearance:
Mr. Santosh Kumar, Sr. Adv. for the appellant
Mr. Ravi Shankar Jandhyala, Sr. Adv. for Respondent No.2