Dishonour of a Cheque And Sec 138 Of NI Act- SC Judgement

Whether the dishonour of a cheque on the ground that the signatures of the drawer of the cheque do not match the specimen signatures available with the bank, would not attract the penal provisions of Section 138 of the Negotiable Instruments Act.?=

Thus, dishonour of cheques simpliciter for the reasons stated in Section 138 of the NI Act although is sufficient for commission of offence since the presumption of law on this point is no longer res integra,Thus although a petition under Section 482 of the Cr.P.C. may not be entertained by the High Court for quashing such proceedings,= 

The instant matter however do not relate to a case of ‘stop payment’ instruction to the bank as the cheque in question had been returned due to mismatching of the signatures but more than that the petitioner having neither raised nor proved to the contrary as envisaged under Section 139 of the NI Act that the cheques were not for the discharge of a lawful debt nor making the payment within fifteen days of the notice assigning any reason as to why the cheques had at all been issued if the amount had not been settled, obviously the plea of rebuttal envisaged under Section 139 does not come to his rescue so as to hold that the same would fall within the realm of rebuttable presumption envisaged under Section 139 of the Act.

 I, therefore, concur with the judgment and order of learned Brother Justice Thakur subject to my views on the dishonour of cheques arising out of cases of ‘stop payment’ instruction to the bank in spite of sufficiency of funds on account of bonafide dispute between the drawer and drawee of the cheque. 

This is in view of the legal position that presumption in favour of the holder of a cheque under Section 139 of the NI Act has been held by the NI Act as also by this Court to be a rebuttable presumption to be discharged by the accused/drawee of the cheque which may be discharged even at the threshold where the magistrate examines a case at the stage of taking cognizance as to whether a prima facie case has been made out or not against the drawer of the cheque.= 

In the result, we allow these appeals, set aside the judgment and orders passed by the High Court and dismiss the special criminal applications filed by the respondents. 

The trial Court shall now proceed with the trial of the complaints filed by the appellants expeditiously. We make it clear that nothing said in this judgment shall be taken as an expression of any final opinion on the merits of the case which the trial Court shall be free to examine on its own. 

No costs.

POSTED BY ADVOCATEMMMOHAN ⋅ NOVEMBER 30, 2012

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. 1870-1909 OF 2012
(Arising out S.L.P. (Crl.) Nos. 1740-1779 of 2011)

M/s Laxmi Dyechem …Appellant
Versus
State of Gujarat & Ors. …Respondents
With
CRIMINAL APPEAL NOS. 1910-1949 OF 2012
(Arising out S.L.P. (Crl.) Nos.1780-1819 of 2011)

J U D G M E N T
T.S. THAKUR, J.
1. Leave granted.
2. These appeals are directed against orders dated 19th April, 2010
and 27th August, 2010 passed by the High Court of Gujarat at Ahmedabad
whereby the High Court has quashed 40 different complaints under Section
138 of the Negotiable Instruments Act, 1881 filed by the appellant against
the respondents.

Relying upon the decision of this Court in Vinod Tanna &
Anr. v. Zaher Siddiqui & Ors. (2002) 7 SCC 541,

the High Court has taken
the view that dishonour of a cheque on the ground that the signatures of
the drawer of the cheque do not match the specimen signatures available
with the bank, would not attract the penal provisions of Section 138 of the
Negotiable Instruments Act.

According to the High Court,

the provisions of
Section 138 are attracted only in cases where a cheque is dishonoured
either because the amount of money standing to the credit to the account
maintained by the drawer is insufficient to pay the cheque amount or the
cheque amount exceeds the amount arranged to be paid from account
maintained by the drawer by an agreement made with the bank.

Dishonour of
a cheque on the ground that the signatures of the drawer do not match the
specimen signatures available with the bank does not, according to the High
Court, fall in either of these two contingencies, thereby rendering the
prosecution of the respondents legally impermissible.

Before we advert to
the merits of the contentions urged at the Bar by the learned counsels for
the parties, we may briefly set out the factual backdrop in which the
controversy arises.
3. The appellant is a proprietorship firm engaged in the sale of
chemicals.

It has over the past few years supplied Naphthalene Chemicals
to the respondent-company against various invoices and bills issued in that
regard.

The appellant’s case is that a running account was opened in the
books of account of the appellant in the name of the respondent-company in
which the value of the goods supplied was debited from time to time as per
the standard accounting practice.

A sum of Rs.4,91,91,035/- (Rupees Four
Crore Ninety One Lac Ninety One Thousand Thirty Five only) was according to
the appellant outstanding against the respondent-company in the former’s
books of accounts towards the supplies made to the latter.

The appellant’s
further case is that the respondent-company issued under the signatures of
its authorised signatories several post dated cheques towards the payment
of the amount aforementioned.

Several of these cheques (one hundred and
seventeen to be precise) when presented were dishonoured by the bank on
which the same were drawn, on the ground that the drawers’ signatures were
incomplete or that no image was found or that the signatures did not match.

The appellant informed the respondents about the dishonour in terms of a
statutory notice sent under Section 138 and called upon them to pay the
amount covered by the cheques.

It is common ground that the amount covered
by the cheques was not paid by the respondents although according to the
respondents the company had by a letter dated 30.12.2008, informed the
appellant about the change of the mandate and requested the appellant to
return the cheques in exchange of fresh cheques.

It is also not in dispute
that fresh cheques signed by the authorised signatories, according to the
new mandate to the Bank, were never issued to the appellant ostensibly
because the offer to issue such cheques was subject to settlement of
accounts, which had according to the respondent been bungled by the
outgoing authorised signatories.

The long and short of the matter is that
the cheques remained unpaid despite notice served upon the respondents that
culminated in the filing of forty different complaints against the
respondents under Section 138 of the Negotiable Instruments Act before the
learned trial court who took cognizance of the offence and directed issue
of summons to the respondents for their appearance.

It was at this stage
that Special Criminal Applications No.2118 to 2143 of 2009 were filed by
Shri Mustafa Surka accused No.5 who happened to be one of the signatories
to the cheques in question.

The principal contention urged before the High
Court in support of the prayer for quashing of the proceedings against the
signatory to the cheques was that the dishonour of cheques on account of
the signatures ‘not being complete’ or ‘no image found’ was not a dishonour
that could constitute an offence under Section 138 of the Negotiable
Instrument Act.
4. By a common order dated 19th April, 2010,

the High Court allowed
the said petitions, relying upon the decision of this Court

in Vinod
Tanna’s case (supra) and a decision delivered by a Single Judge Bench of
the High Court of Judicature at Bombay in Criminal Application No.4434 of
2009 and connected matters.

The Court observed:
“In the instant case, there is no dispute about the endorsement
that “drawers signature differs from the specimen supplied”
and/or “no image found-signature” and/or “incomplete
signature/illegible” and for return/dishonour of cheque on the
above endorsement will not attract ingredients of Section 138 of
the Act and insufficient fund as a ground for dishonouring
cheque cannot be extended so as to cover the endorsement
“signature differed from the specimen supplied” or likewise. If
the cheque is returned/bounced/dishonoured on the endorsement of
“drawers signature differs from the specimen supplied” and/or
“no image found-signature” and/or “incomplete signature /
illegible”, the complaint filed under Section 138 of the Act is
not maintainable. Hence, a case is made out to exercise powers
under Section 482 of the Code of Criminal Procedure, 1973 in
favour of the petitioner”.
5. Special Criminal Applications No.896 to 935 of 2010 were then filed
by the remaining accused persons challenging the proceedings initiated
against them in the complaints filed by the petitioner on the very same
ground as was taken by Mustafa Surka.

Reliance was placed by the
petitioners in the said petitions also upon the decision of this Court in
Vinod Tanna’s case (supra) and the decision of the Single Judge Bench of
High Court of Bombay in Mustafa Surka v. M/s. Jay Ambe Enterprise & Anr.
[2010 (1) Bombay Cases Reporter (Crl.) 758].

The High Court has, on the
analogy of its order dated 19th April, 2010 passed in the earlier batch of
cases which order is the subject matter of SLP Nos.1780-1819 of 2011,
quashed the proceedings and the complaints even qua the remaining accused
persons, respondents herein.

The present appeals, as noticed above, assail
the correctness of both the orders passed by the High Court in the two
batch of cases referred to above.
6. Chapter XVII comprising Sections 138 to 142 of the Negotiable
Instruments Act was introduced in the statute by Act 66 of 1988.

The object
underlying the provision contained in the said Chapter was aimed at
inculcating faith in the efficacy of banking operations and giving
credibility to negotiable instruments in business and day to day
transactions by making dishonour of such instruments an offence.

A
negotiable instrument whether the same is in the form of a promissory note
or a cheque is by its very nature a solemn document that carries with it
not only a representation to the holder in due course of any such
instrument but also a promise that the same shall be honoured for payment.
To that end Section 139 of the Act raises a statutory presumption that the
cheque is issued in discharge of a lawfully recoverable debt or other
liability.

This presumption is no doubt rebuttable at trial but there is
no gainsaying that the same favours the complainant and shifts the burden
to the drawer of the instrument (in case the same is dishonoured) to prove
that the instrument was without any lawful consideration.

It is also
noteworthy that Section 138 while making dishonour of a cheque an offence
punishable with imprisonment and fine also provides for safeguards to
protect drawers of such instruments where dishonour may take place for
reasons other than those arising out of dishonest intentions.

It envisages
service of a notice upon the drawer of the instrument calling upon him to
make the payment covered by the cheque and permits prosecution only after
the expiry of the statutory period and upon failure of the drawer to make
the payment within the said period.
7. The question that falls for our determination is

whether dishonour
of a cheque would constitute an offence only in one of the two
contingencies envisaged under Section 138 of the Act, which to the extent
the same is relevant for our purposes reads as under :
“138. Dishonour of cheque for insufficiency, etc., of funds in
the account.—

Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any amount of
money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability,
is returned by the bank unpaid,

either because of the amount of
money standing to the credit of that account is insufficient to
honour the cheque

or that it exceeds the amount arranged to be
paid from that account by an agreement made with that bank,

such
person shall be deemed to have committed an offence and shall,
without prejudice to any other provision of this Act, be
punished with imprisonment of a term which may extend to one

year, or with fine which may extend to twice the amount of the
cheque, or with both.”
8. From the above, it is manifest that a dishonour would constitute an
offence only

if the cheque is retuned by the bank ‘unpaid’

either because
the amount of money standing to the credit of the drawer’s account is
insufficient to honour the cheque

or that the amount exceeds the amount
arranged to be paid from that account by an agreement with that bank.

The
High Court was of the view and so was the submission made on behalf of the
respondent before us that the dishonour would constitute an offence only in
the two contingencies referred to in Section 138 and none else. The
contention was that Section 138 being a penal provision has to be construed
strictly. When so construed, the dishonour must necessarily be for one of
the two reasons stipulated under Section 138 & none else.

The argument no
doubt sounds attractive on the first blush but does not survive closer
scrutiny.

At any rate, there is nothing new or ingenious about the
submission, for the same has been noticed in several cases and repelled in
numerous decisions delivered by this Court over the past more than a
decade.

We need not burden this judgment by referring to all those
pronouncements. Reference to only some of the said decisions should, in our
opinion, suffice.

9. In NEPC Micon Ltd. v. Magma Leasing Ltd. (1999) 4 SCC 253,

the
cheques issued by the appellant-company in discharge of its liability were
retuned by the company with the comments ‘account closed’. The question
was whether a dishonour on that ground for that reason was culpable under
Section 138 of the Negotiable Instruments Act.

The contention of the
company that issued the cheque was that Section 138 being a penal provision
ought to be strictly construed and when so interpreted, dishonour of a
cheque on ground that the account was closed was not punishable as the same
did not fall in any of the two contingencies referred to in Section 138.
This Court noticed the prevalent cleavage in the judicial opinion,
expressed by different High Courts in the country and rejected the
contention that Section 138 must be interpreted strictly or in disregard of
the object sought to be achieved by the statute.

Relying upon the decision
of this Court in Kanwar Singh v. Delhi Administration (AIR 1965 SC 871),
and Swantraj v. State of Maharashtra (1975) 3 SCC 322

this Court held that
a narrow interpretation of Section 138 as suggested by the drawer of the
cheque would defeat the legislative intent underlying the provision.
Relying upon the decision in State of Tamil Nadu v. M.K. Kandaswami (1975)
4 SCC 745, this Court declared that

while interpreting a penal provision
which is also remedial in nature a construction that would defeat its
purpose or have the effect of obliterating it from the statute book should
be eschewed and that if more than one constructions are possible the Court
ought to choose a construction that would preserve the workability and
efficacy of the statute rather than an interpretation that would render the
law otiose or sterile.

The Court relied upon the much quoted passage from
the Seaford Court Estates Ltd. v. Asher (1949 2 All E.R. 155) wherein Lord
Denning, L.J. observed:
“The English language is not an instrument of mathematical
precision. Our literature would be much poorer if it were. This
is where the draftsmen of Acts of Parliament have often been
unfairly criticised. A judge, believing himself to be fettered
by the supposed rule that he must look to the language and
nothing else, laments that the draftsmen have not provided for
this or that, or have been guilty of some or other ambiguity. It
would certainly save the judges trouble if Acts of Parliament
were drafted with divine prescience and perfect clarity. In the
absence of it, when a defect appears a judge cannot simply fold
his hands and blame the draftsman. He must set to work on the
constructive task of finding the intention of Parliament, and he
must do this not only from the language of the statute, but also
from a consideration of the social conditions which gave rise to
it and of the mischief which it was passed to remedy, and then
he must supplement the written word so as to give ‘force and
life’ to the intention of the legislature. … A judge should
ask himself the question how, if the makers of the Act had
themselves come across this ruck in the texture of it, they
would have straightened it out? He must then do so as they would
have done. A judge must not alter the material of which the Act
is woven, but he can and should iron out the creases.”
10. Relying upon a three-Judge Bench decision of this Court in Modi
Cements Ltd. v. Kuchil Kumar Nandi (1998) 3 SCC 249,

this Court held that
the expression “the amount of money …………. is insufficient to honour the
cheque” is a genus of which the expression ‘account being closed’ is a
specie.
11. In Modi Cements Ltd. (supra) a similar question had arisen for the
consideration of this Court.

The question was

whether dishonour of a
cheque on the ground that the drawer had stopped payment was a dishonour
punishable under Section 138 of the Act.

Relying upon two earlier
decisions of this Court in Electronics Trade & Technology Development
Corporation Ltd. v. Indian Technologists and Engineers (Electronics) (P)
Ltd. (1996) 2 SCC 739 and K.K Sidharthan v. T.P. Praveena Chandran (1996) 6
SCC 369,

it was contended by the drawer of the cheque that if the payment
was stopped by the drawer, the dishonour of the cheque could not constitute
an offence under Section 138 of the Act.

That contention was specifically
rejected by this Court.

Not only that, the decision in Electronics Trade &
Technology Development Corporation Ltd. (supra) to the extent the same

held
that dishonour of the cheque by the bank after the drawer had issued a
notice to the holder not to present the same would not constitute an
offence, was overruled.

This Court observed:
“18. The aforesaid propositions in both these reported
judgments,

in our considered view,

with great respect are
contrary to the spirit and object of Sections 138 and 139 of the
Act.

If we are to accept this proposition

it will make Section
138 a dead letter, for, by giving instructions to the bank to
stop payment immediately after issuing a cheque against a debt
or liability the drawer can easily get rid of the penal
consequences notwithstanding the fact that a deemed offence was
committed.

Further the following observations in para 6 in
Electronics Trade & Technology Development Corpn. Ltd.

“Section
138 intended to prevent dishonesty on the part of the drawer of
negotiable instrument to draw a cheque without sufficient funds
in his account maintained by him in a bank and induce the payee
or holder in due course to act upon it. Section 138 draws
presumption that one commits the offence if he issues the cheque
dishonestly” (emphasis supplied) in our opinion, do not also lay
down the law correctly.
20. On a careful reading of Section 138 of the Act,

we are
unable to subscribe to the view that Section 138 of the Act
draws presumption of dishonesty against drawer of the cheque

if
he without sufficient funds to his credit in his bank account to
honour the cheque issues the same and, therefore, this amounts
to an offence under Section 138 of the Act.

For the reasons
stated hereinabove, we are unable to share the views expressed
by this Court in the above two cases and

we respectfully differ
with the same regarding interpretation of Section 138 of the Act
to the limited extent as indicated above.”
12. We may also at this stage refer to the decisions of this Court in
M.M.T.C. Ltd. and Anr. v. Medchl Chemicals and Pharma (P) Ltd. and Anr.
(2002) 1 SCC 234,

where too this Court considering an analogous question
held that even in cases where the dishonour was on account of “stop

payment” instructions of the drawer, a presumption regarding the cheque
being for consideration would arise under Section 139 of the Act.

The
Court observed:
“19. Just such a contention has been negatived by this Court in
the case of Modi Cements Ltd. v. Kuchil Kumar Nandi.

It has been
held that even though the cheque is dishonoured by reason of
“stop-payment” instruction an offence under Section 138 could
still be made out.

It is held that the presumption under Section
139 is attracted in such a case also.

The authority shows that
even when the cheque is dishonoured by reason of stop-payment
instructions by virtue of Section 139 the court has to presume
that the cheque was received by the holder for the discharge, in
whole or in part, of any debt or liability.

Of course this is a
rebuttable presumption.

The accused can thus show that the “stop-
payment” instructions were not issued because of insufficiency
or paucity of funds. If the accused shows that in his account
there were sufficient funds to clear the amount of the cheque at
the time of presentation of the cheque for encashment at the
drawer bank and that the stop-payment notice had been issued
because of other valid causes including that there was no
existing debt or liability at the time of presentation of cheque
for encashment, then offence under Section 138 would not be made
out. The important thing is that the burden of so proving would
be on the accused. Thus a court cannot quash a complaint on this
ground.”
13. To the same effect is the decision of this Court in Goaplast (P)
Ltd. v. Chico Ursula D’souza and Anr. (2003) 3 SCC 232,

where this Court
held that ‘stop payment instructions’ and consequent dishonour of the
cheque of a post-dated cheque attracts provision of Section 138.

This
Court observed :
“Chapter XVII containing Sections 138 to 142 was introduced in
the Act by Act 66 of 1988 with the object of inculcating faith
in the efficacy of banking operations and giving credibility to
negotiable instruments in business transactions. The said
provisions were intended to discourage people from not honouring
their commitments by way of payment through cheques. The court
should lean in favour of an interpretation which serves the
object of the statute. A post-dated cheque will lose its
credibility and acceptability if its payment can be stopped
routinely. The purpose of a post-dated cheque is to provide some
accommodation to the drawer of the cheque. Therefore, it is all
the more necessary that the drawer of the cheque should not be
allowed to abuse the accommodation given to him by a creditor by
way of acceptance of a post-dated cheque.
In view of Section 139, it has to be presumed that a cheque is
issued in discharge of any debt or other liability. The
presumption can be rebutted by adducing evidence and the burden
of proof is on the person who wants to rebut the presumption.
This presumption coupled with the object of Chapter XVII of the
Act leads to the conclusion that by countermanding payment of
post-dated cheque, a party should not be allowed to get away
from the penal provision of Section 138 of the Act. A contrary
view would render Section 138 a dead letter and will provide a
handle to persons trying to avoid payment under legal
obligations undertaken by them through their own acts which in
other words can be said to be taking advantage of one’s own
wrong.”
(emphasis supplied)
14. A three-Judge Bench of this Court in Rangappa v. Sri Mohan (2010)
11 SCC 441 has approved the above decision and

held that failure of the
drawer of the cheque to put up a probable defence for rebutting the
presumption that arises under Section 139 would justify conviction even
when the appellant drawer may have alleged that the cheque in question had
been lost and was being misused by the complainant.
15. The above line of decisions leaves no room for holding that the two
contingencies envisaged under Section 138 of the Act must be interpreted
strictly or literally. We find ourselves in respectful agreement with the
decision in NEPC Micon Ltd. (supra) that the expression

“amount of money
…………. is insufficient” appearing in Section 138 of the Act is a genus and
dishonour for reasons such “as account closed”, “payment stopped”,
“referred to the drawer” are only species of that genus.

Just as dishonour
of a cheque on the ground that the account has been closed is a dishonour
falling in the first contingency referred to in Section 138, so also
dishonour on the ground that the “signatures do not match” or that the
“image is not found”, which too implies that the specimen signatures do not
match the signatures on the cheque would constitute a dishonour within the
meaning of Section 138 of the Act.

This Court has in the decisions
referred to above taken note of situations and contingencies arising out of
deliberate acts of omission or commission on the part of the drawers of the
cheques which would inevitably result in the dishonour of the cheque issued
by them.

For instance this Court has held that if after issue of the cheque
the drawer closes the account it must be presumed that the amount in the
account was nil hence insufficient to meet the demand of the cheque. A
similar result can be brought about by the drawer changing his specimen
signature given to the bank or in the case of a company by the company
changing the mandate of those authorised to sign the cheques on its behalf.
Such changes or alteration in the mandate may be dishonest or fraudulent
and that would inevitably result in dishonour of all cheques signed by the
previously authorised signatories. There is in our view no qualitative
difference between a situation where the dishonour takes place on account
of the substitution by a new set of authorised signatories resulting in the
dishonour of the cheques already issued and another situation in which the
drawer of the cheque changes his own signatures or closes the account or
issues instructions to the bank not to make the payment. So long as the
change is brought about with a view to preventing the cheque being honoured
the dishonour would become an offence under Section 138 subject to other
conditions prescribed being satisfied. There may indeed be situations where
a mismatch between the signatories on the cheque drawn by the drawer and
the specimen available with the bank may result in dishonour of the cheque
even when the drawer never intended to invite such a dishonour. We are
also conscious of the fact that an authorised signatory may in the ordinary
course of business be replaced by a new signatory ending the earlier
mandate to the bank. Dishonour on account of such changes that may occur
in the course of ordinary business of a company, partnership or an
individual may not constitute an offence by itself because such a dishonour
in order to qualify for prosecution under Section 138 shall have to be
preceded by a statutory notice where the drawer is called upon and has the
opportunity to arrange the payment of the amount covered by the cheque. It
is only when the drawer despite receipt of such a notice and despite the
opportunity to make the payment within the time stipulated under the
statute does not pay the amount that the dishonour would be considered a
dishonour constituting an offence, hence punishable. Even in such cases,
the question whether or not there was a lawfully recoverable debt or
liability for discharge whereof the cheque was issued would be a matter
that the trial Court will examine having regard to the evidence adduced
before it and keeping in view the statutory presumption that unless
rebutted the cheque is presumed to have been issued for a valid
consideration.
16. In the case at hand, the High Court relied upon a decision of this
Court in Vinod Tanna’s case (supra) in support of its view. We have
carefully gone through the said decision which relies upon the decision of
this Court in Electronics Trade & Technology Development Corporation Ltd.
(supra). The view expressed by this Court in Electronics Trade & Technology
Development Corporation Ltd. (supra) that a dishonour of the cheque by the
drawer after issue of a notice to the holder asking him not to present a
cheque would not attract Section 138 has been specifically overruled in
Modi Cements Ltd. case (supra). The net effect is that dishonour on the
ground that the payment has been stopped, regardless whether such stoppage
is with or without notice to the drawer, and regardless whether the
stoppage of payment is on the ground that the amount lying in the account
was not sufficient to meet the requirement of the cheque, would attract the
provisions of Section 138.
17. It was contended by learned counsel for the respondent that the
respondent-company had offered to issue new cheques to the appellant upon
settlement of the accounts and that a substantial payment has been made
towards the outstanding amount. We do not think that such an offer would
render illegal a prosecution that is otherwise lawful. The offer made by
the respondent-company was in any case conditional and subject to the
settlement of accounts. So also whether the cheques were issued
fraudulently by the authorised signatory for amounts in excess of what was
actually payable to the appellant is a matter for examination at the trial.
That the cheques were issued under the signature of the persons who were
authorised to do so on behalf of the respondent-company being admitted
would give rise to a presumption that they were meant to discharge a lawful
debt or liability. Allegations of fraud and the like are matters that
cannot be investigated by a Court under Section 482 Cr.P.C. and shall have
to be left to be determined at the trial after the evidence is adduced by
the parties.
18. On behalf of the signatories of the cheques dishonoured it was
argued that the dishonour had taken place after they had resigned from
their positions and that the failure of the company to honour the
commitment implicit in the cheques cannot be construed an act of dishonesty
on the part of the signatories of the cheques. We do not think so. Just
because the authorised signatories of the cheques have taken a different
line of defence than the one taken by by the company does not in our view
justify quashing of the proceedings against them. The decisions of this
Court in National Small Industries Corporation Limited v. Harmeet Singh
Paintal and Anr. (2010) 3 SCC 330 and S.M.S. Pharmaceuticals Ltd. v. Neeta
Bhalla & Anr. (2005) 8 SCC 89 render the authorised signatory liable to be
prosecuted along with the company. In the National Small Industries
Corporation Limited’s case (supra) this Court observed:
“19. xxxx
(c) The answer to Question (c) has to be in the affirmative. The
question notes that the managing director or joint managing
director would be admittedly in charge of the company and
responsible to the company for the conduct of its business. When
that is so, holders of such positions in a company become liable
under Section 141 of the Act. By virtue of the office they hold
as managing director or joint managing director, these persons
are in charge of and responsible for the conduct of business of
the company. Therefore, they get covered under Section 141. So
far as the signatory of a cheque which is dishonoured is
concerned, he is clearly responsible for the incriminating act
and will be covered under sub-section (2) of Section 141.”
19. In the result, we allow these appeals, set aside the judgment and
orders passed by the High Court and dismiss the special criminal
applications filed by the respondents. The trial Court shall now proceed
with the trial of the complaints filed by the appellants expeditiously. We
make it clear that nothing said in this judgment shall be taken as an
expression of any final opinion on the merits of the case which the trial
Court shall be free to examine on its own. No costs.

……………………….……..……J.
(T.S. THAKUR)
………………………….…..……J.
(GYAN SUDHA MISRA)
New Delhi
November 27, 2012