Supreme Court Upholds Liability of NGO Treasurer Under Negotiable Instruments Act, Treasurer Held Responsible for Cheque Dishonour Despite Not Being the Owner or Chairman
In a significant judgment, the Supreme Court of India has upheld the conviction of K. Ranganayakulu, Treasurer of TIMES NGO, under Section 138 of the Negotiable Instruments Act, 1881. The apex court, comprising Justices Prashant Kumar Mishra and N.V. Anjaria, ruled that the appellant, as the authorized signatory, bears responsibility for the dishonour of a cheque issued under a Memorandum of Understanding (MOU) with the Southern Power Distribution Company of Telangana Limited (TSSPDCL).
The case originated from an agreement dated July 30, 2009, between TIMES NGO and TSSPDCL, under which TIMES was tasked with collecting electricity bill payments. The MOU vested the treasurer, Mr. Ranganayakulu, with the authority to issue cheques for the remittance of collections. The court emphasized that the MOU clearly defined the treasurer's role as the responsible entity for the NGO's financial transactions, thereby attributing liability for the dishonoured cheque to him.
Despite arguments from Mr. Santosh Kumar, counsel for the appellant, asserting that an authorized signatory cannot be deemed the drawer of a cheque, the court found that the terms of the MOU effectively made the treasurer the accountable party for all rights and liabilities. The judgment clarified that the appellant's role as the front face of the NGO for financial dealings under the MOU rendered him liable under the Negotiable Instruments Act.
The Supreme Court, while modifying the sentence, directed Mr. Ranganayakulu to pay a fine of Rs. 1.5 crore to TSSPDCL, with a default sentence of one year's rigorous imprisonment if the fine is not paid within two months. The decision underscores the importance of understanding the legal implications of authorized signatory roles in contractual and financial agreements.
Bottom Line:
Treasurer of an NGO, who is the authorized signatory of negotiable instruments under an MOU, can be held liable under Section 138 of the Negotiable Instruments Act, 1881, if the MOU and accompanying circumstances attribute responsibility to him as the drawer of the cheque.
Statutory provision(s): Section 138 of the Negotiable Instruments Act, 1881
K. Ranganayakulu v. State of Telangana, (SC) : Law Finder Doc id # 2907111
