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Case Name: Vijay Agarwal vs. M/s Medilines  

Case Number: Criminal Appeal (s) @ SLP (Crl.) Nos. 2695 & 2696 of 2024

Date: October 21, 2024

Quorum: Hon'ble Mr. Justice C.T. Ravikumar, Hon'ble Mr. Justice Sanjay Karol

  

FACTS OF THE CASE 

The appellant, Vijay Agarwal, being the authorized signatory and director of the business M/s Gee Pee Infotech Pvt. Ltd., entered into a contract with the respondent M/s Medilines for issuing BSNL e-recharge pins. The respondent paid ₹1 crore as advance to become the master distributor in Karnataka under the agreement. But the respondent afterwards, found out that the appellant's company's supply of the e-recharge pins was actually 99% false, thus rendering them inoperative for retail deliveries to customers. After negotiating the issue, in April 2012, a Memorandum of Understanding (MoU) was entered into by the respondent and the appellant's firm whereby the latter agreed to return the advance. In pursuance of this commitment, the firm issued an array of postdated cheques which, it appears, were on presentation returned unpaid after the order had been placed to stop payment.

 

In accordance with Section 138 of the Negotiable Instruments Act, 1881, a trial was instituted; the respondent, inter alia, arrayed the appellant, who along with the company was the authorized signatory of the cheques that were dishonored. The trial judge found the appellant guilty and sentenced him to imprisonment for six months with a fine of ₹40,00,000. The appellate court imposed a condition of deposit of 20% of the compensation amount under Section 148 of the Act for suspending the sentence pending appeal to object to the order. The appeal contended that he was an authorized signatory who was not the drawer of the check and hence not personally liable. The High Court upheld the order of the appellate court, and this condition was sought to be set aside by the appellant by invoking the Supreme Court.

 

ISSUE OF THE CASE 

Whether an authorized signatory can be termed drawer of the check and hence liable personally for payment of compensation under Sections 143A and 148 of the Negotiable Instruments Act, 1881?

LEGAL PROVISIONS 

1. Section 138, Negotiable Instruments Act, 1881 – Imposes punishment for dishonoring a check due to a shortage of funds or other circumstances.

2. Section 141, Negotiable Instruments Act, 1881 – Imposes vicarious responsibility on company directors under certain conditions.

3. Section 143A, Negotiable Instruments Act, 1881 – Allows judges to make an order requesting temporary reimbursement from the drawer of a dishonored check.

4. Section 148, Negotiable Instruments Act, 1881 – Allows appellate courts to order the drawer to make a further payment deposit before suspending the sentencing.

ARGUMENTS

Arguments of Appellant (Vijay Agarwal)

The appellant contended that he was never the actual drawer of the dishonored cheques and merely represented an authorized signatory of M/s Gee Pee Infotech Pvt. Ltd. Counsel referred to the ruling of the Supreme Court in Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh arguing that the functions of an authorized signatory are purely administrative in nature and thus Sections 143A and 148 do not impose upon him personal liability for payment. Absent any specific statutory limitations, counsel insisted that to his credit the usage of "authorized signature" must not extend to personal liability, as penal statutes like the Negotiable Instruments Act must be given strict interpretation. 

Arguments of the Respondent (M/S Medilines)

The respondent alleges that since the appellant is an authorized signatory and director in charge of all the dealings of the company, he must be held liable for the payments of compensation of the dishonored cheques.The respondent says that since the appellant had the power and knowledge to have the cheques released, it would not be unreasonable in the court of appeal to require a 20% deposit of the total compensation amount. Regardless of whether the appellant was the drawer in a strict sense, the respondent contends that there is adequate ground to find that he was liable for the company's action under the Negotiable Instruments Act.

ANALYSIS

The requirements of the Negotiable Instruments Act and the different between authorized signatories and check drawers were closely examined by the Court. It stated that liability under Sections 143A and 148 is made only against the check drawer, as was cited in Shri Gurudatta Sugars Marketing Pvt. Ltd. The Court reiterated that, to avoid vicarious liability imposed beyond the sanction of the statute, the criminal provisions had to be narrowly interpreted. The order of the appeal court directing deposit of compensation was questioned by the Court, and as an authorized signatory, the appellant could not be termed as the drawer of the check.

JUDGEMENT 

Supreme Court reversed the order of the appellate court and of the High Court directing the appellant to deposit 20% of the compensation order. It held that an authorized signatory is not a drawer under Sections 143A and 148. The appellate court was directed to expedite the disposal of the pending appeals, and the suspension of the appellant from sentence was restored.

CONCLUSION

In its determination of liability under the Negotiable Instruments Act of 1881, this ruling is historic. The ruling distinguishes clearly between the two functions of authorized signatures and drawers such that the personal liability is not unduly imposed on executive officers of companies, thus removing an undue burden. The ruling hopes to establish accountability and equity in Company Management. This great step also strengthens: protection of due process and shielding individuals from unreasonable liability, and it reiterates the need for a strict interpretation toward legislation in penal law. It marks a significant shift in the fusion between individual rights against corporate accountability in the Indian legal space.

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WRITTEN BY: ADV ANIK