Signatory cannot be prosecuted but the company
An authorised signatory of a company or firm will not be liable for prosecution in a cheque case, under section 138 of the Negotiable Instrument Act (NI Act) without the companies arraigned as an accused. This is what the High Court of Kerala says in Velayudhan Pilla S v Chellath Franklin and Another (2021 (1) KLD 753).
That means the signatory of a cheque of a company or firm cannot be prosecuted for a cheque dishonour case, under Section 138 of the NI Act, without the company being impleaded as an accused.
Liability of the signatory is statutory
In the case of a cheque drawn on account maintain by a company or a firm and signed by an authorised signatory, the liability of the signatory is only statutory in nature. Hence, he does not become the drawer of the cheque as described under the Section 141 (1) of the NI Act. Such a person is signing the cheque as an authorised signatory, as duly authorised by the company and on its behalf. Here the actual offence is committed by the company but not by the authorised signatory.
Company is the accused in company cheques
The Section 141 of NI Act says that the liability for the offence punishable under Section 138 of the NI Act, when the authorised signatory commits the crime, is to be the company or the firm. Therefore, it is the company that needs to be proceeded against when a cheque issued by the company is dishonoured.
Every responsible person has liability
In the case of a dishonoured cheque issued by a corporate firm, every person responsible to the company for the conduct of its business and the persons whose negligence has led to the commission of the offence can be held vicariously liable for the offence, under Section 138 of the NI Act.
However, if the accused person successfully establishes that such offence was committed without his knowledge or despite his exercise of due diligence, then such person shall not be held liable for the offence.
Persons with no control cannot be prosecuted
In order to establish that an accused was vicariously liable, it would be necessary to prove that when the cheque was issued, he was in control of the daily affairs of the business, or the cheque was issued with his consent or connivance or because of his negligence.
Additional reading
- Dilip Hariramani v Bank of Baroda: Criminal Appeal No. 767 of 2022 before the Supreme Court of India
