Shri Gurudatta Sugars Marketing Pvt. Ltd. vs. Prithviraj Sayajirao Deshmukh [July 24, 2024]
Citation: 2024 INSC 551; [2024] 7 S.C.R. 1211; SLP(Crl.) Nos. 8849-8850 of 2023
Background and Facts
This case arose from a business transaction between Shri Gurudatta Sugars Marketing Pvt. Ltd. (appellant) and Cane Agro Energy (India) Ltd. (Cane), in which the appellant advanced ₹63.46 crores to Cane for the supply of sugar. Cane failed to fulfill its obligations and subsequently issued two cheques totaling ₹51.64 crores, signed by its Chairman, Prithviraj Sayajirao Deshmukh (respondent no. 1), in part repayment. Both cheques were dishonoured for insufficient funds.
Following the dishonour, the appellant filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The Judicial Magistrate ordered Cane and its directors to pay 4% of the cheque amount as interim compensation under Section 143-A of the NI Act. During the pendency of these proceedings, Cane entered Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), resulting in a moratorium that halted proceedings against the company but not against the individual directors.
The directors challenged the interim compensation order before the Bombay High Court, which set aside the Magistrate’s order, holding that only the “drawer” of the cheque, i.e., the company, could be directed to pay interim compensation under Section 143-A, not the authorized signatory or directors in their personal capacity. The appellant then approached the Supreme Court.
Supreme Court’s Analysis and Findings
The Supreme Court affirmed the High Court’s interpretation that the “drawer” under Section 143-A of the NI Act refers strictly to the entity on whose account the cheque is drawn—in this case, the company—and not to the authorized signatory or directors.
The Court explained that an authorized signatory acts on behalf of the company but does not assume its legal identity. Therefore, the primary liability for interim compensation in cheque dishonour cases lies with the company as the drawer, and not with individual signatories or directors.
The Court distinguished the vicarious liability of directors and officers under Section 141 of the NI Act (which governs criminal liability for cheque dishonour) from the obligation to pay interim compensation under Section 143-A, which is strictly limited to the drawer.
The judgment reinforced that statutory provisions imposing financial liability must be interpreted strictly and in accordance with legislative intent, ensuring that individuals are not made personally liable unless expressly provided for by law.
The Court also noted that the CIRP moratorium applied only to the company, not to criminal proceedings against directors, but this did not alter the statutory limitation of Section 143-A regarding interim compensation.
Conclusion and Significance
The Supreme Court dismissed the appeal, upholding the High Court’s decision that only the company (the drawer) can be directed to pay interim compensation under Section 143-A of the NI Act, not the authorized signatory or directors in their personal capacity.
The ruling clarifies and limits the scope of liability for interim compensation in cheque dishonour cases, distinguishing it from the broader vicarious liability for criminal prosecution under Section 141.
The decision reinforces the principle that corporate law recognizes the separate legal identity of companies, and that statutory liability for financial compensation must be imposed only in accordance with clear legislative language.
In summary: The Supreme Court held that only the company, as the drawer of a dishonoured cheque, can be ordered to pay interim compensation under Section 143-A of the NI Act, not the authorized signatory or directors, thereby affirming the Bombay High Court’s decision and clarifying the law on corporate and individual liability in cheque dishonour cases.
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