Supreme Court: Authorised Signatory of NGO Held Liable for Cheque Dishonour Under Section 138 NI Act
THE BEYOND OBITER LAW BLOG: Legal News
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In a significant ruling on liability for cheque dishonour, the Supreme Court has held that an authorised signatory who is empowered to issue and sign cheques on behalf of a company or organisation may be treated as the “drawer” of the cheque for the purposes of Section 138 of the Negotiable Instruments Act, 1881.
A Bench comprising Justice Prashant Kumar Mishra and Justice N.V. Anjaria upheld the conviction of the Treasurer of an NGO, finding him personally liable for the dishonour of a cheque issued on behalf of the organisation. The Court, however, modified the sentence by directing payment of a fine of Rs. 1.5 crore, with a default sentence of one year’s rigorous imprisonment.
Background
The dispute arose from a Memorandum of Understanding (MoU) executed between the NGO, M/s TIMES, and the electricity distribution company, then known as APCPDCL (now Telangana Southern Power Distribution Company Limited). Under the arrangement, the NGO was entrusted with the collection of electricity bills from consumers and the subsequent remittance of those amounts to the distribution company.
The appellant, serving as Treasurer of the NGO, had signed the MoU and was authorised to handle all financial transactions, including issuing cheques and making payments through RTGS and other electronic modes.
When a cheque issued by the NGO was dishonoured, proceedings were initiated under Section 138 of the NI Act. The appellant challenged his conviction, contending that he could not be treated as the “drawer” merely because he had signed the cheque in his capacity as an authorised signatory.
Supreme Court’s Findings
Rejecting the appellant’s contention, the Supreme Court observed that the MoU placed responsibility for all rights and liabilities arising from the transaction upon the appellant. The Court noted that no corresponding responsibility had been assigned to the Chairman or any other office-bearer of the NGO.
The Bench emphasised that where an organisation authorises a particular individual to act as its representative for financial transactions and to issue negotiable instruments on its behalf, such an individual assumes responsibility for the legal consequences flowing from those transactions.
According to the Court, the appellant had effectively become the face of the NGO in its dealings with the electricity distribution company. Since he was exclusively authorised to sign cheques and make payments, he could not evade liability arising from the dishonour of those cheques.
The Court therefore concluded that, in the facts of the case, the appellant was rightly treated as the “drawer” of the cheque and was liable under Section 138 of the NI Act.
Case Citation: K. Ranganayakulu v. State of Telangana & Ors. (2026 INSC 555)