What was the key issue before the Supreme Court?
In the case of Bijoy Kumar Moni Vs. Paresh Manna and Anr brought before the Court of Justice JB Pardiwala and Justice R Mahadevan on 21st December, 2024, the issue raised was whether an authorized signatory can be held personally liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), for a dishonoured cheque if the company itself was not made an accused. The Court investigated whether the liability of the signatory is contingent upon the company’s participation as a party.
What is the principle of corporate personality, and how does it relate to this case?
The principle of corporate personality establishes that a company is a separate legal entity that is different from its directors or authorized signatories, and they cannot be clubbed together. The Supreme Court underscored that Section 138 of the NI Act permits liability to be assigned solely to the cheque’s recipient. The director of the company issued the cheque on the company’s account in this instance. The Court established that unless the company (Shilabati Hospital Pvt. Ltd.) is prosecuted as the principal offender, the authorized signatory cannot be held vicariously liable under Section 141 of the NI Act.
How did the Supreme Court interpret Section 138 of the NI Act?
Section 138 of the NI Act may seem narrow when only reading its statutory provisions. In order to maintain the statute’s intended purpose Courts have adopted a broader perspective over time. Here, the Court underscored that Section 138, being a penal provision, must be interpreted strictly. The section mandates that liability arises only if the cheque is drawn on an account maintained by the accused. In this case, the account was maintained by the company, not the accused personally. The Court thus held that extending liability to a signatory without arraigning the company would violate the clear language of the statute.
What is the significance of Section 141 in this context?
Section 141 of the NI Act, in this specific context deals with vicarious liability which implies that those individuals responsible for the conduct of a company’s business can also be prosecuted. However, this provision applies solely when the company is arraigned as the principal accused. The Court clarified that without the company being prosecuted, vicarious liability under Section 141 cannot be invoked against its directors or signatories.
What precedent did the Supreme Court rely on, and what was its rationale?
The Court relied on established precedents affirming that the “drawer” of the cheque must be the account holder. Delegating signing authority does not transfer the status of the drawer to the signatory. The Court rejected the argument that penalising only the company would contradict the purpose of Section 138. The rationale behind this was that penalizing the company saying would distort the statute’s text and lead to an incorrect interpretation of S138’s intent.
What alternative remedies did the Court suggest for the complainant?
Although the Court dismissed the appeal under Section 138, it acknowledged the complainant’s grievance. It suggested the complainant to pursue criminal charges for fraud or cheating under general penal statutes, as the dishonoured cheque could still indicate fraudulent behaviour, but would still not fall under the ambit of S138 of the NI Act.
