Authorised Signatory Who Signs Cheque on Organisation's Behalf is 'Drawer'

Source: Supreme Court 

Why in News? 

A bench of Justice Prashant Kumar Mishra and Justice NV Anjaria of the Supreme Court, in the case of K. Ranganayakulu v. State of Telangana & Ors. (2026), held that an individual specifically authorised by an organisation to sign and issue cheques and make payments on its behalf qualifies as the 'drawer' of the cheque under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).  

• The court upheld the conviction of an NGO's Treasurer who had been designated as the authorised signatory under a Memorandum of Understanding (MoU), while partly allowing the appeal to the extent of modifying the sentence awarded.

What was the Background of K. Ranganayakulu v. State of Telangana & Ors. (2026) Case? 

• The appellant was the Treasurer of an NGO named TIMES and had been appointed as its authorised signatory for the purpose of signing and issuing cheques, as well as making payments to the respondent company — APCPDCL (now Telangana CPDCL, presently Southern Power Distribution Company of Telangana Limited/TSSPDCL) — under an MoU executed between the parties. 
• The cheque issued by the appellant on behalf of the NGO was dishonoured, leading to a complaint under Section 138 of the NI Act. 
• The appellant was convicted by the trial court, and the conviction was challenged in appeal before the Supreme Court. 
• The appellant relied on the Supreme Court's earlier judgment in Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh & Ors., (2024), contending that the mere designation of a person as an authorised signatory of a company or organisation does not render him personally liable for the organisation's acts. 
• The respondent contended that the MoU specifically cast all responsibility for signing instruments and making payments upon the appellant alone, with no liability cast on any other office bearer of the NGO.

What were the Court's Observations? 

• On the concept of 'drawer' under Section 138 NI Act: The court held that when a company or organisation specifically authorises an individual to sign and issue cheques on its behalf and to discharge the responsibility of making payments, that individual assumes the position of a 'drawer' of the cheque within the meaning of Section 138 of the NI Act, attracting personal liability upon dishonour. 
• On the appellant being the 'front face' of the NGO: The court observed that the NGO had made the appellant its front face for all financial transactions with the respondent. Since the MoU cast no liability on any other office bearer of the NGO except the appellant, it necessarily followed that the appellant alone was responsible for all consequences arising from the dishonour of the cheque. 
• On the rejection of the precedent relied upon: The court rejected the appellant's reliance on Shri Gurudatta Sugars Marketing Pvt. Ltd. as misplaced, clarifying that even authorised signatories of a company may be categorised as 'drawers' of a cheque when the conditions stipulated under Section 141 of the NI Act are fulfilled. The earlier judgment did not lay down a blanket rule immunising all authorised signatories from personal liability. 
• On modification of sentence: Taking into account that the appellant was only the Treasurer of the society — and not a principal office bearer — the court modified the sentence. It directed the appellant to pay a fine of ₹1.5 crore to TSSPDCL within two months. In default of such payment, the appellant would be required to undergo rigorous imprisonment for one year.

What is Section 138 of the Negotiable Instruments Act, 1881? 

About: 

• Section 138 creates a statutory offence for dishonour of cheques due to insufficient funds or exceeding the arranged amount.  
• The essential elements that must be satisfied for constituting an offence under this section are: 
  • Primary Requirement: A cheque drawn by a person on his account with a banker for payment of money to another person must be returned unpaid by the bank due to insufficient funds or exceeding the arranged overdraft limit. 

Three Mandatory Conditions under the Proviso: 

• The cheque must be presented to the bank within six months from the date it was drawn or within its validity period, whichever is earlier. 
• The payee or holder in due course must issue a written demand notice to the drawer within thirty days of receiving information from the bank about the cheque being returned unpaid. 
• The drawer must fail to make payment of the cheque amount within fifteen days of receiving the demand notice. 
• Penalty Provision: Upon satisfaction of these conditions, the drawer commits an offence punishable with imprisonment up to two years, or fine up to twice the cheque amount, or both. 
• Scope Limitation: The debt or liability must be legally enforceable as clarified in the Explanation to the section.