Authorised Signatory Who Signs All Cheques on NGO's Behalf Is the Drawer Under Section 138 NI Act
A Supreme Court bench of Justices Prashant Kumar Mishra and N.V. Anjaria upholds conviction of an NGO treasurer under Section 138, finding the MOU made him the effective drawer.
The Supreme Court on 12 May 2026 dismissed a challenge to the conviction of K Ranganayakulu, Treasurer of an NGO called TIMES, under Section 138 of the Negotiable Instruments Act, 1881. The High Court had sentenced him to rigorous imprisonment for one year and a fine of Rs 1.5 crore. He argued that as a mere authorised signatory, he was not the “drawer” of the cheque and could not be held liable. The Court rejected that argument, holding that where an MOU exclusively vests in one individual the authority to sign all negotiable instruments and make all payments on behalf of the organisation, that individual becomes the drawer in practical and legal terms. The Court did, however, modify the sentence to remove the substantive imprisonment, retaining only the fine with a default clause.
How the Dispute Reached the Court
TIMES NGO had entered into a Memorandum of Understanding dated 30 July 2009 with APCPDCL (now Telangana CPDCL / Southern Power Distribution Company of Telangana Limited — TSSPDCL) for the collection of electricity bill payments from domestic consumers. Ranganayakulu signed the MOU as Treasurer of TIMES. Under the arrangement, TIMES was required to remit collections to APCPDCL through cheque or RTGS on the next working day.
A cheque issued in this context was dishonoured. Respondent No. 2, the power distribution company, initiated proceedings under Section 138 of the NI Act. The trial court and then the High Court convicted Ranganayakulu. The High Court sentenced him to rigorous imprisonment for one year, imposed a fine of Rs 1,50,00,000, and directed that in default of payment of the fine he undergo an additional year of rigorous imprisonment. The High Court further directed that he be produced and sent to prison to serve the remaining sentence.
Ranganayakulu approached the Supreme Court by way of Special Leave Petition, which was converted into Criminal Appeal No. 2472 of 2026.
The Argument: Authorised Signatory Is Not the Drawer
Senior counsel Mr Santosh Kumar, appearing for the appellant, pressed a strict-construction argument. Penal statutes, he submitted, must be interpreted strictly, particularly when determining vicarious liability. An authorised signatory, he argued, merely signs on behalf of the company or organisation and does not thereby become the drawer of the cheque. Since Ranganayakulu was only the Treasurer — not the owner or Chairman of TIMES — he could not be held personally guilty under Section 138. Counsel relied on the judgment of this Court reported at (2024) 7 SCR 1211: 2024 INSC 551 in support.
Senior counsel Mr Ravi Shankar Jandhyala, appearing for Respondent No. 2, countered that Ranganayakulu had signed the cheque as Treasurer of TIMES, the entity that had contracted with the power company. Given the terms of the MOU, the appellant bore the statutory consequences under the NI Act.
What the MOU Actually Said
The Court examined three clauses of the MOU in detail.
Clause 7 required TIMES to remit all collections to APCPDCL through cheque or RTGS on the next working day. Clause 20 made TIMES the guarantor for any financial loss arising from fraud, misappropriation, or theft in the transfer of collected amounts, and empowered APCPDCL's CMD or a designated authority to recover such amounts from transaction fees payable to TIMES. Clause 28 reserved APCPDCL's right to terminate the MOU on 15 days' notice if TIMES's performance was unsatisfactory, covering a range of defaults including delays in remittance and suppression of transactions.
Critically, the Court found that the MOU was signed by Ranganayakulu as Treasurer and that the document did not recognise any other individual within TIMES as responsible for transactions with APCPDCL. No liability was cast on the Chairman of the NGO anywhere in the MOU.
The Court's Reasoning: Practical Reality Over Formal Title
The Court held that although Ranganayakulu was only the Treasurer and not the owner or Chairman of TIMES, the MOU exclusively made him responsible for all rights and liabilities arising from the arrangement. The document did not recognise any other entity within TIMES as accountable for transactions with APCPDCL.
The Court reasoned that if TIMES chose to make Ranganayakulu its “front face” by authorising him alone to sign all negotiable instruments and make all payments, it was only he who would bear the consequences. In the Court's words, by virtue of the terms of the MOU, Ranganayakulu became the drawer of the cheque on behalf of TIMES, because the document recognised no other person as responsible for any action in its transactions with APCPDCL.
The Court declined to accept the strict-construction argument. The question was not merely whether Ranganayakulu held the formal title of drawer, but whether the contractual framework made him the person responsible for the cheque. The MOU answered that question unambiguously in his favour — or rather, against him.
Sentence Modified: Imprisonment Removed, Fine Retained
While the Court found no ground to interfere with the conviction, it considered the fact that Ranganayakulu was only the Treasurer of the society — not its owner or principal officer — a relevant circumstance for sentencing. The Court modified the sentence accordingly.
The substantive rigorous imprisonment of one year imposed by the High Court was set aside. In its place, the Court directed that Ranganayakulu pay the fine of Rs 1.5 crore to Respondent No. 2 (Telangana CPDCL or TSSPDCL) within two months from 12 May 2026. If the amount is not paid within that period, he shall immediately surrender or be taken into custody to undergo rigorous imprisonment of one year as the default sentence.
Outcome
The appeal was allowed in part. The conviction under Section 138 of the Negotiable Instruments Act, 1881 stands. The sentence of substantive rigorous imprisonment for one year is set aside. The fine of Rs 1,50,00,000 is to be paid to Respondent No. 2 within two months of 12 May 2026, failing which the appellant shall undergo rigorous imprisonment of one year. All pending applications were disposed of.