Introduction:

The Supreme Court of India, in K. Ranganayakulu v. State of Telangana & Ors., reported as 2026 LiveLaw (SC) 605, delivered an important judgment clarifying the liability of an authorized signatory under the Negotiable Instruments Act, 1881. The decision was rendered by a Bench comprising Justice Prashant Kumar Mishra and Justice N.V. Anjaria.

The case arose from a dispute involving an NGO known as TIMES and the power distribution company APCPDCL, presently known as Telangana State Southern Power Distribution Company Limited (TSSPDCL). The controversy centered around dishonour of cheques issued pursuant to a Memorandum of Understanding (MoU) executed between the parties. The appellant, who served as the Treasurer of the NGO, had been specifically authorized to sign and issue cheques on behalf of the organization and was also entrusted with the responsibility of making payments under the MoU.

The cheque issued towards discharge of liability was dishonoured, resulting in prosecution under Section 138 of the Negotiable Instruments Act. The appellant challenged his conviction on the ground that he was merely an authorized signatory of the NGO and could not be personally treated as the drawer of the cheque. According to him, the liability, if any, was that of the organization and not of the individual who signed the cheque on its behalf.

The dispute thus raised an important legal question regarding the extent of criminal liability of an authorized signatory when a cheque issued on behalf of a company, society, or organization is dishonoured. The Supreme Court was called upon to determine whether an individual specifically empowered to sign cheques and make payments on behalf of an entity could be treated as a “drawer” under Section 138 and consequently be held criminally liable.

The judgment assumes significance because dishonour of cheques remains one of the most frequently litigated issues in commercial and financial transactions. The ruling provides guidance on how courts should identify the person responsible when negotiable instruments are issued on behalf of organizations through designated office bearers.

Arguments of the Parties:

The appellant contended that his conviction was legally unsustainable because he had acted merely as an authorized signatory of the NGO. It was argued that the cheque in question was issued on behalf of the organization and not in his personal capacity. Therefore, he could not be held personally liable for the dishonour of the cheque.

The appellant emphasized that the legal liability under Section 138 of the Negotiable Instruments Act primarily rests upon the drawer of the cheque. Since the account belonged to the NGO and not to him personally, he argued that he did not satisfy the statutory description of a drawer. According to him, his role was confined to signing the cheque as part of his official duties as Treasurer of the organization.

In support of his submissions, the appellant placed strong reliance on the Supreme Court’s earlier decision in Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh & Ors., (2024) 7 SCR 1211. He argued that the said judgment recognized that mere designation as an authorized signatory does not automatically fasten criminal liability for acts undertaken by a company or organization. The appellant submitted that criminal liability under Section 138 could not be imposed solely because an individual happened to sign a cheque on behalf of a legal entity.

It was further argued that the prosecution had failed to establish any independent liability against him. Since the NGO was the principal entity involved in the transaction, any consequences flowing from dishonour of the cheque should attach to the organization and not to an office bearer acting in a representative capacity.

On the other hand, the respondent company and the State opposed the appeal. They contended that the appellant’s role went far beyond that of a routine signatory. The MoU executed between the parties specifically vested in him the responsibility of signing negotiable instruments and ensuring payment of dues to the respondent company.

The respondents argued that the appellant was the face of the NGO in relation to the transaction. He was not merely performing clerical functions but was entrusted with the authority to issue cheques and undertake payment obligations. Consequently, he occupied a position that directly attracted liability under the provisions of the Negotiable Instruments Act.

The respondents further submitted that the terms of the MoU clearly indicated that the appellant was the person responsible for financial transactions concerning the respondent company. No other office bearer of the NGO had been assigned similar obligations. Therefore, when the cheque issued under his authority was dishonoured, he could not escape liability by claiming that he acted only as an authorized representative.

The respondents also argued that the precedent cited by the appellant had been misunderstood. According to them, the law does not grant blanket immunity to authorized signatories. Where an individual is specifically entrusted with issuing cheques and making payments, and where the statutory requirements under Section 141 are fulfilled, such a person can be treated as a drawer and held accountable for the consequences of cheque dishonour.

In light of these circumstances, the respondents urged the Court to uphold the conviction and reaffirm the principle that individuals who assume responsibility for issuing negotiable instruments on behalf of organizations cannot avoid liability when those instruments are dishonoured.

Court’s Judgment:

The Supreme Court carefully examined the statutory framework of Sections 138 and 141 of the Negotiable Instruments Act and the factual circumstances surrounding the transaction. The Court ultimately upheld the conviction of the appellant while modifying the sentence imposed upon him.

At the outset, the Court noted that the determination of liability in cheque dishonour cases cannot be based merely on an individual’s designation within an organization. Instead, courts must examine the actual responsibilities assigned to that person and the nature of authority exercised by him in relation to the transaction.

The Bench observed that the NGO had consciously chosen the appellant as its representative for financial dealings with the respondent company. The Memorandum of Understanding expressly empowered him to sign and issue cheques and to make payments through cheque, RTGS, or online transactions. These powers were not shared with any other office bearer.

According to the Court, the appellant was not a passive functionary acting under instructions. Rather, he was entrusted with a central and active role in implementing the financial obligations undertaken by the NGO. The organization had effectively projected him as its “front face” for the purposes of payment and financial accountability.

The Court emphasized that when an entity authorizes a particular individual to issue negotiable instruments and entrusts him with the responsibility of making payments, such authorization carries legal consequences. The person cannot subsequently disclaim responsibility when the cheque issued under his authority is dishonoured.

The Bench observed that the appellant’s authority extended beyond merely affixing a signature on a cheque. He was specifically entrusted with ensuring payment to the respondent company. The MoU itself made him the focal point of the transaction. Therefore, the legal consequences arising from failure of payment necessarily attached to him.

While addressing the appellant’s reliance on Shri Gurudatta Sugars Marketing Pvt. Ltd. v. Prithviraj Sayajirao Deshmukh & Ors., the Court held that the reliance was misplaced. The earlier judgment did not establish an absolute rule that authorized signatories can never be held liable. Rather, liability depends on the factual matrix and compliance with the requirements contemplated under Section 141 of the Negotiable Instruments Act.

The Court clarified that an authorized signatory may, in appropriate circumstances, fall within the category of a “drawer” for the purpose of Section 138. This is particularly true where the signatory is vested with authority not only to sign the cheque but also to undertake and discharge the payment obligations underlying the transaction.

The judgment underscores that substance must prevail over form. Courts are required to examine who actually controlled and executed the payment process instead of focusing solely on formal titles or positions. If a person is entrusted with the responsibility of issuing cheques and making payments on behalf of an entity, he may attract criminal liability when the cheque is dishonoured.

The Supreme Court found that the appellant’s role squarely satisfied these requirements. He had executed the obligations under the MoU, issued the cheque, and was responsible for ensuring payment to the respondent company. No ambiguity existed regarding his position in the transaction. Consequently, the Court concluded that he was rightly treated as a drawer for the purposes of Section 138.

The Court further observed that the MoU did not cast corresponding liability upon any other office bearer of the NGO. Since the appellant alone was entrusted with the relevant financial responsibilities, he alone had to bear the consequences arising from failure to honour the cheque.

Having upheld the conviction, the Court then considered the question of sentence. The Bench took note of the fact that the appellant was serving as Treasurer of a society and that the interests of justice could be adequately served through payment of compensation rather than prolonged incarceration.

Accordingly, while maintaining the finding of guilt, the Supreme Court modified the sentence imposed by the lower courts. The appellant was directed to pay a fine of ₹1.5 crore to Telangana CPDCL, presently known as Southern Power Distribution Company of Telangana Limited (TSSPDCL), within a period of two months.

The Court further directed that if the appellant failed to deposit the fine amount within the stipulated period, he would undergo rigorous imprisonment for one year. This modification balanced the objective of compensating the aggrieved party with the need to enforce accountability under the Negotiable Instruments Act.

The appeal was therefore partly allowed only to the extent of modification of sentence, while the conviction under Section 138 of the Negotiable Instruments Act was affirmed.

The ruling serves as a significant precedent in cheque dishonour jurisprudence. It reiterates that criminal liability under the Negotiable Instruments Act depends not merely on official designation but on the actual role and responsibility assumed by an individual. Where a company, society, or organization entrusts a person with authority to sign cheques and discharge payment obligations, such person may be treated as a drawer and held liable for the consequences of dishonour. The judgment reinforces accountability in commercial transactions and ensures that organizations cannot shield responsible individuals behind technical distinctions regarding designation or office.