Introduction 

• This is a landmark judgment which lays down that an authorized signatory cannot be held liable to pay compensation under Section 143A of Negotiable Instruments Act, 1881.  
• The Judgment was delivered by a 2- judge Bench consisting of Justice Vikram Nath and Justice Prashant Kumar Mishra. 

Facts   

• The original case involves dishonored cheques worth ₹51.64 crores issued by Cane Agro Energy Ltd. to the appellant company, signed by Respondent No. 1 (Chairman of Cane) in March 2020, against advance payments made for sugar supply. 
• After the cheques bounced, the appellant filed a complaint with the Judicial Magistrate, who ordered the three respondents (directors) to each pay 4% interim compensation under Section 143-A of the Negotiable Instruments Act during pending proceedings. 
• During this time, Cane Agro entered the Corporate Insolvency Resolution Process, leading to a moratorium. While proceedings against the company were halted, they continued against the individual respondents (directors). 
• The respondents challenged the interim compensation order in Bombay High Court, which ruled in their favor on March 8 and 29, 2023, stating that a cheque signatory authorized by a company is not a 'drawer' under Section 143-A and cannot be directed to pay interim compensation separately from the company. 
• Hence, the matter was before the Supreme Court. 

Issues Involved  

• Whether the authorized signatory on the behalf of a company can be held liable to pay compensation under Section 143A of NI Act as drawer of the cheque? 

Observation 

• The Court held that the High Court correctly interpreted Section 7 of NI Act and accurately identified the ‘drawer’ as an individual who issues the cheque.  
• Thus, the primary liability rests on the drawer emphasizing the liability of the drawer to maintain sufficient funds in his account. 
• The Court further held that the distinction between the legal entities and the 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. 
• The Court further 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. 
• Thus, it was held by the Court that the term ‘drawer’ should be interpreted strictly as the issuer of the cheque excluding authorized signatories. 
• Conclusively, the law was laid down that an authorized signatory of the company cannot be held liable to pay compensation under Section 143A of NIA.

Conclusion

• The Court laid down in this case that an authorized signatory of a company cannot be held liable to pay compensation under Section 143 A of NIA.