Judges deliver split verdict on cheque bounce issue

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In Aneeta Hada v Godfather Travels & Tours (P) Ltd, the Supreme Court of India dealt with the issue of whether a company’s authorized signatory alone could be prosecuted in a cheque bounce case if a complainant chooses not to proceed against the organization.

The appellant, Hada, an authorized signatory of Intel Travels, issued a cheque to Godfather Travels on behalf of her company. The cheque was dishonoured leading Godfather Travels to file a complaint against Hada under section 138 of the Negotiable Instruments Act. Intel Travels was not considered an offender and the magistrate issued a notice to Hada alone.

Hada challenged the summons issued to her on the grounds that she was a mere signatory to the cheque, arguing that she alone could not be prosecuted since the financial instrument was issued on behalf of the company. Hada claimed that the owners of the company, not her, were liable for prosecution.

Cheque_-_Gold_tonedThe high court rejected her plea, upon which she appealed in the apex court. A two-judge bench of Justices SB Sinha and VS Sirpurkar offered differing views on the matter. Justice Sinha maintained that if the bounced cheque was issued on behalf of the company, it was not simply the individual signatory, but the organization which was liable for criminal prosecution. Interpreting section 7 of the act, Justice Sinha said the legislation defines “drawer” to mean the maker of a bill of exchange or a cheque.

“The authorized signatory of a company does not become the drawer of the cheque only because he has been authorized to do so for the purpose of banking operations. Admittedly, the bank account was also in the name of the company. The account was, therefore, maintained by the company,” Justice Sinha observed.

However, presenting a contrary view, Justice Sirpurkar said there was nothing wrong if the complainant chose to proceed only against the individual signatory. Since Hada had the authority to use the cheque book and had issued the cheque, she was liable for prosecution.

“In the present case, the account was being maintained by Intel Travels and the appellant [Hada] had the authority to sign the cheque of that amount. Therefore, there will be a clear liability if the appellant used the cheque which she had the authority to use, and that too for discharging the debt,” Justice Sirpurkar said.

In view of the differences in opinions, the bench requested the Chief Justice of India to refer the matter to a larger bench for its opinion.

The update of court judgments is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at [email protected] or [email protected] Readers should not act on the basis of this information without seeking professional legal advice.