Cannot Haul up Authorized Signatories for Cheque Bounce: Karnataka High Court

The Karnataka High Court observed that every person who signs a cheque on behalf of a firm cannot be hauled up in case of bouncing of the financial instrument. The court made the observation while quashing criminal proceedings against two persons in a case of cheque bouncing.

“Every person signing a cheque on behalf of the company on whose account the cheque is drawn does not become the drawer of the cheque. He is only an authorized signatory,” Justice HP Sandesh said.

In the instant case, the judge said that the liability against the duo – Shaju K Nair and Riya Nair – was vicarious in nature due to their legal status as MD and Director of Clariya Marketing Services Ltd., Hospet, Ballari. Without making their company a party to the proceedings, they cannot be prosecuted, the judge said.

An Anantpur, Andhra Pradesh-based company, SLV Steel Alloys Pvt Ltd, alleged that Shaju and Riya issued a cheque of Rs 53.7 lakh dated January 2, 2012 which came to be dishonored. The duo failed to adhere to the terms of the oral contract, the complainant said, and lodged a private complaint before the JMFC court in Ballari, which initiated proceedings against the two under Section 138 of the Negotiable Instruments Act.