Case Note & Summary
The appellant company entered into agreements with Cane Agro Energy (India) Ltd. (Cane) and made advance payments of Rs.63,46,00,000/- for supply of sugar. Cane failed to supply sugar and refunded only Rs.1,00,00,000/-. In part discharge of liability, respondent Nos. 1 to 3, directors of Cane, issued two cheques dated 30.03.2020 for Rs.45,00,00,000/- and Rs.6,64,41,300/- signed by respondent No.1. The cheques were dishonoured due to insufficiency of funds. The appellant issued a notice and filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 before the Judicial Magistrate, First Class, Kolhapur, registered as Summary Criminal Case No.2967 of 2020. Meanwhile, Cane was admitted into Corporate Insolvency Resolution Process under the IBC. The respondents filed an application under Section 258 CrPC seeking stoppage of proceedings due to moratorium. The Judicial Magistrate partly allowed the application, holding that proceedings against Cane are stayed but shall proceed against the directors. The appellant then filed an application under Section 143-A NI Act seeking interim compensation from the directors. The Judicial Magistrate directed each respondent to pay 4% of the total cheque amount as interim compensation. The respondents challenged this order before the Bombay High Court. The High Court, in a batch of matters, held that the signatory of the cheque is not the 'drawer' under Section 143-A and cannot be directed to pay interim compensation, and set aside the order. The appellant appealed to the Supreme Court. The Supreme Court allowed the appeals, holding that the signatory authorized by the company is the 'drawer' and can be directed to pay interim compensation under Section 143-A. The Court set aside the High Court's orders and restored the order of the Judicial Magistrate.
Headnote
A) Negotiable Instruments Act - Section 143-A - Interim Compensation - Drawer includes signatory authorized by company - The signatory of a cheque issued on behalf of a company is the 'drawer' within the meaning of Section 143-A of the NI Act and can be directed to pay interim compensation during the pendency of proceedings under Section 138 of the NI Act. The High Court erred in holding that only the company can be the drawer. (Paras 1-15) B) Insolvency and Bankruptcy Code - Section 14 - Moratorium - Effect on Directors - The moratorium under Section 14 of the IBC applies only to the corporate debtor and not to its directors or other natural persons who are accused under Section 138 of the NI Act. Proceedings against directors can continue and interim compensation can be directed against them. (Paras 6-7) C) Criminal Procedure Code - Section 258 - Stoppage of Proceedings - The Judicial Magistrate correctly held that the complaint shall not proceed against the company due to moratorium but shall proceed against the directors. The High Court's order setting aside interim compensation was erroneous. (Paras 7, 12)
Issue of Consideration
Whether the signatory of a cheque, authorized by the company, is the 'drawer' under Section 143-A of the Negotiable Instruments Act, 1881 and whether such signatory can be directed to pay interim compensation under that provision leaving aside the company.
Final Decision
The Supreme Court allowed the appeals, set aside the High Court's orders dated 08.03.2023 and 29.03.2023, and restored the order of the Judicial Magistrate dated 27.04.2022 directing interim compensation.
Law Points
- Section 143-A NI Act
- drawer includes signatory authorized by company
- interim compensation payable by signatory
- moratorium under IBC does not shield directors
- Section 138 NI Act liability of directors
