Cheque Signed by an Authorised Signatory: Who Is Liable?

Your name is on the cheque, but the bank account belongs to the company. That one fact decides most of what follows when a cheque signed by an authorised signatory bounces, and it explains why a finance manager who signed under a board resolution can still be dragged into a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881. Payees and their lawyers routinely name the company, every director they can trace and the person whose signature appears on the instrument, then leave each accused to explain his own role. The law does draw a line, but it draws it through Section 141, not through the signature itself.

Who Is the Drawer When an Employee Signs for a Company

Section 7 of the Negotiable Instruments Act, 1881 defines the drawer as the maker of the cheque. Section 138 punishes the drawer when a cheque is returned unpaid for insufficiency of funds or because it exceeds the arrangement with the bank. Where the account stands in a company's name and an employee signs under an authority, the maker is the company. The signature is only the physical act of execution.

Sections 26 and 27 of the Act recognise that an instrument may be drawn through a duly authorised agent, and Section 141 expressly treats a company as a separate accused. A regional sales head, an accountant or a CFO signing under a board resolution or a power of attorney does not become the drawer merely because his pen touched the paper.

The position changes if the signatory signed on his own account, signed a personal cheque, or stood as a co-obligant or guarantor. Then he is the drawer in his own right, Section 138 applies to him directly, and Section 141 is irrelevant.

When an Authorised Signatory Attracts Personal Liability

Section 141 is the only route into a company's cheque bounce case for someone who is not the account holder. Sub-section (1) deems guilty every person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of its business. The proviso gives that person an exit: he is not liable if he proves the offence was committed without his knowledge, or that he exercised all due diligence to prevent it. Sub-section (2) catches a director, manager, secretary or other officer where the offence happened with his consent or connivance, or is attributable to his neglect.

Two points matter for a signatory. First, authority to sign a cheque is not the same as authority to run the business. A person may be the only person authorised to sign and still have nothing to do with procurement, payables or cash flow. Second, the complaint must actually plead the signatory's role; a designation in the cause title is not enough. Mere signing, without more, is a weak basis for vicarious liability, and the Supreme Court in Ashutosh Ashok Parasrampuria v. Gharkul Solvents Pvt. Ltd. set aside proceedings against a signatory who was not shown to be in charge of the business.

A worked scenario

Take Ravikant Textiles Pvt. Ltd., a Pune garment exporter with a current account at a public sector bank. Its manager (finance), S. Deshpande, signs cheques under a board resolution dated 2 April 2024, subject to the managing director's approval of each payment. On 12 March 2026 he signs a cheque for Rs 9,75,000 in favour of a Noida fabric supplier against invoices already approved. The bank returns it on 18 March 2026 with the remark "insufficient funds". The supplier's advocate issues a demand notice on 10 April 2026 to the company, both directors and Deshpande. The fifteen-day payment window closes on 26 April 2026 with no payment, and a complaint is filed within the one month allowed thereafter.

The company and the directors who controlled the purse are exposed. Deshpande's defence is documentary: the resolution limits his authority, the payment file shows the managing director withheld funds, and his emails record that he flagged the shortfall on 10 March 2026. On those facts he has a genuine case under the proviso to Section 141(1), and an alternative ground that he was never in charge of the conduct of the business.

Naming the Company, Directors and the Signatory in the Complaint

The company must be arraigned as an accused. In Aneeta Hada v. Godfather Travels & Tours (P) Ltd., the Supreme Court held that proceedings against directors cannot stand where the company itself has not been made an accused. A complaint that names only the signatory and the board is, for that reason alone, open to challenge.

On the content of the complaint, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla requires specific averments that each accused was in charge of and responsible for the conduct of the business at the time of the offence. A bald repetition of the statutory phrase, without facts about what the person actually did, is vulnerable to quashing. For an authorised signatory this cuts both ways: if the complaint says only that he signed, it is thin; if it spells out that he controlled payments and deliberately released an unfunded cheque, it is serious.

Timelines sit on the payee's side and are strict. The demand notice must be issued within 30 days of receiving the bank's return memo, the drawer then has 15 days to pay, and the complaint must be filed within one month of the cause of action arising. A signatory reading the complaint should check each date against the postal proof, because a late notice is a complete answer for everyone.

Defences Open to the Signatory

What you can raise depends on whether you signed for the company or in your own name.

If you signed for the company

• You are not the drawer; the company is, and Section 141 needs a pleaded case against you.
• You were not in charge of, or responsible for, the conduct of the business at the relevant time.
• The proviso to Section 141(1): the offence was committed without your knowledge, and you exercised all due diligence.
• You exceeded or departed from your authority, so the instrument was never the company's act and cannot be yours.

If you signed personally

• There was no legally enforceable debt or liability, since Section 138 covers only a cheque issued for the discharge, in whole or part, of a debt or other liability.
• The cheque was not presented within its validity period, or was presented by a person who is not the holder in due course.
• Notice defects, or a complaint barred by limitation.
• Rebuttal of the Section 139 presumption, which places the initial burden on the accused.

One practical warning. Section 143A allows the magistrate to order interim compensation of up to 20% of the cheque amount during trial, and Section 148 allows the appellate court to require a deposit of at least 20% of the fine or compensation awarded by the trial court before an appeal is heard. Both provisions bite on the company as much as on individuals, but they explain why a signatory wants his name out of the array of accused early rather than after a conviction.

Documents That Decide Responsibility

These cases turn on paper, not on testimony. A signatory who assembles a clean file in the first fortnight usually exits at the stage of summoning or discharge.

• Board resolution or power of attorney authorising you to sign, read with its monetary and purpose limits

• Cheque requisition slip and payment voucher showing who approved the payment, and on what date

• Bank statement for the account, showing the balance position on the date of presentation

• Written or email escalation recording that you flagged the fund shortfall before the cheque was presented

• Appointment letter, job description and reporting line, to show whether you were in charge of the conduct of the business

• Copy of the demand notice with postal proof, and the bank return memo, to test the 30-15-30 day timeline

• Board minutes or delegation records showing that the decision to withhold payment sat with someone else

Common mistakes

Signatories damage themselves in three predictable ways. They ignore the demand notice because the company's lawyer is handling it, and lose the chance to put their limited role on record in a reply. They adopt the company's defence without checking whether it is also their own; a company may admit the debt and negotiate a settlement while the signatory's only defence is that he was never in charge. And they sign fresh cheques or revival letters to buy time, which can create a fresh cause of action and restart the clock against everyone on the array.

If you have been named personally, reply to the demand notice through your own advocate within the fifteen-day window, stating your signing authority, your reporting line and the dates on which you escalated the fund position. Do not wait for the company's reply to cover you, because it usually will not.

This article is for general information only and is not legal advice. Consult a qualified professional for your specific facts.