Lyka Labs Limited & Anr V/s. The State of Maharashtra & Anr.
DATE OF ORDER:
Amit Borkar, J.
Petitioner: Maharashtra State Electricity Distribution Company Limited
Respondent: The State of Maharashtra & Anr.
The Bombay High Court recently ruled that a company's authorized signatory who signs a check on the company's behalf is not the "drawer" of the check and is therefore not obligated to pay interim damages under section 143A of the Negotiable Instruments Act, 1881 if a check is dishonored.
Additionally, Justice Amit Borkar ruled that, when appealing a conviction under Section 138 of the NI Act, those who are not the check's drawers do not have to make the deposit required under Section 148 of the Act.
1. Whether the cheque's authorized signer, who is also the drawer, has the authority to order payment of interim compensation under section 143A of the Negotiable Instruments Act of 1881.
2. Whether Section 148 of the NI Act requires a deposit of a minimum of 20% of the fine or compensation in an appeal filed by persons other than "drawer" against the conviction and sentence under Section 138 of the NI Act.
ANALYSIS OF COURT
- The creator of a bill of exchange or check is referred to as the "drawer" by section 7 of the NI Act. In the case of cheque dishonor, the drawer is liable under section 138 of the Act.
- If a firm violates Section 138, Section 141 makes its officers vicariously liable. The trial court may, by section 143A, order the drawer to give the complaint interim compensation while the case is pending.
- According to the court, the word "drawer" in section 143A has a distinct and unmistakable meaning. The law specifically prohibited anybody else from being held responsible for making interim compensation payments by placing the duty on the drawer/issuer... If a firm issues a check, the drawer is the primary violator of Section 138. (company). Without § 141 of the Act, Drawer would have been the only one in violation. Other people associated with the company are now subject to Section 138's criminal culpability thanks to Section 141 of the Act. Hence, the word "drawer" need not be read to include an authorized signature, the court ruled.
- The court went on to say that the term "drawer" has developed a technical sense through time that should not be changed. The court emphasized that the legislature has never altered the term "drawer," and that it is always understood to refer solely to the primary perpetrator and not to those who are vicariously accountable.
- The court further noted that the Insolvency and Bankruptcy Code, 2016, was passed in 2016 and that Sections 143A and 148 of the NI Act were passed in 2018. As a result, legislators were aware that drawer companies could not be ordered to make interim payments because of the moratorium placed on businesses undertaking corporate bankruptcy resolution processes by section 14 of the IBC. Despite this, the court found that the legislature's choice of language restricts the drawer's duty for interim compensation and does not extend it vicariously to any other party.
- The court further cited the Apex Court's repeated exclusion of the signing of the check from the definition of "drawer" in section 138. "Neither the signatory of the check nor the signatory director has been included in the interpretation of the term "drawer" in section 138. Notwithstanding the word "drawer" appearing in section 138, the court found that both check signers and the in-charge director were held vicariously accountable under section 141. The court stated that section 141 of the NI Act does not provide it authority to order the payment of interim compensation.
- The appellate court may order the drawer to deposit at least 20% of the fine or compensation awarded by the trial court in an appeal filed by the drawer against a conviction under section 138 under section 148 of the NI Act. The court ruled that the appellate court cannot direct deposit the sum in an appeal filed by an authorized signatory because in the case of a firm, "drawer" does not include an "authorized signatory".
- The court made it clear that an appellate court may direct deposit funds in an appeal under Section 148 of the NIA by people other than the drawer under Section 389 of the Cr.P.C.
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