Background of the Dispute
The Supreme Court recently addressed a pivotal question concerning the liability of an authorised signatory under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), specifically when the signatory acts on behalf of a non-governmental organisation (NGO). The case involved K RANGANAYAKULU, who served as the Treasurer and authorised signatory of an NGO named TIMES. This NGO had entered into a Memorandum of Understanding (MoU) with the respondent company, APCPDCL (Presently Telangana CPDCL / Southern Power Distribution Company of Telangana Limited (TSSPDCL)), for which cheques were issued by Mr. Ranganayakulu.
Following the dishonour of these cheques, proceedings were initiated, leading to the conviction of the appellant, Mr. Ranganayakulu. The core legal contention revolved around whether an individual signing cheques as an authorised signatory for an organisation could be held personally liable as a 'drawer' under Section 138 of the NI Act.
Judicial Analysis and Interpretation of 'Drawer'
A Bench comprising Justice Prashant Kumar Mishra and Justice NV Anjaria meticulously examined the scope of Section 138 of the NI Act in conjunction with Section 141, which deals with offences by companies. The Court observed that when an organisation explicitly authorises an individual to sign and issue cheques on its behalf, and vests upon them the responsibility of making payments, such an individual essentially functions as the 'drawer' for the purpose of the NI Act.
The Court particularly noted that the MoU in this specific case imposed no liability on any other office bearer apart from the appellant. This clear delineation of responsibility was crucial to the Court’s determination. The Supreme Court rejected the appellant's reliance on the precedent of Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh & Ors., (2024) 7 SCR 1211, distinguishing it by clarifying that authorised signatories can indeed be categorised as a 'drawer' when conditions under Section 141 of the NI Act are met. The Court reiterated that the appellant was the "front face" of the NGO in its financial dealings with the respondent.
Ratio Decidendi and Sentence Modification
The Supreme Court definitively held that since the appellant was explicitly authorised to sign, issue cheques, and make payments on behalf of the NGO, he squarely fit the description of a 'drawer' and was thus liable for the cheque's dishonour. The bench stated: "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." This pronouncement clarifies the direct liability of authorised signatories in such circumstances.
While upholding the conviction, the Court took into consideration the appellant's position as merely the Treasurer of the society and modified the sentence. Mr. Ranganayakulu was directed to pay a fine of ₹1.5 crore to Telangana CPDCL within two months, with a default stipulation of one year of rigorous imprisonment. This partial allowance of the appeal underscores the Court's balanced approach to justice, acknowledging both culpability and mitigating circumstances.
