2011 (2) TMI 1278 - SC - Companies Law

Director not liable under s.138 read with s.141 for cheques issued after resignation, resignation recorded and Form 32 filed

Harshendra Kumar D. Versus Rebatilata Koley

SC allowed the appeals and quashed criminal proceedings under s.138 read with s.141 against the director-appellant. The court found the dishonoured ... Vicarious liability of a director post-resignation - Quashing of proceedings initiated by the complainants u/s 138 read with section 141 - Managing Director and the two Directors (including the appellant) were responsible for day-to-day affairs of the Company - However, company failed to deliver ordered products and complainants asked company for return of their money - Cheques were issued by company on 30-4-2004 in favour of complainants but same were dishonoured on presentation. Held that:- Dishonoured cheques were issued by the Company on 30-4-2004, i.e., much after the appellant had resigned from the post of Director of the Company. The acceptance of appellant’s resignation is duly reflected in the resolution dated 2-3-2004. Then in the prescribed form (Form No. 32), the Company informed to the Registrar of Companies on 4-3-2004 about appellant’s resignation. It is not even the case of the complainants that the dishonoured cheques were issued by the appellant. These facts leave no manner of doubt that on the date the offence was committed by the Company, the appellant was not the Director; he had nothing to do with the affairs of the Company. appeals are, accordingly, allowed Issues Involved:1. Quashing of proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881.2. Determination of vicarious liability of a director post-resignation.3. Applicability of judicial precedents and High Court's revisional jurisdiction.Issue-wise Detailed Analysis:1. Quashing of Proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881:The Supreme Court addressed 18 appeals against the Calcutta High Court's judgment dismissing criminal revision applications for quashing proceedings initiated under Section 138 read with Section 141 of the NI Act. The complainants alleged that the Company issued 18 cheques which were dishonored. The appellant, a former director, was implicated as being responsible for the company's affairs when the cheques were issued and dishonored.2. Determination of Vicarious Liability of a Director Post-Resignation:The appellant contended that he resigned from the directorship on 2-3-2004, prior to the issuance and dishonor of the cheques on 30-4-2004. The resignation was accepted by the Board and recorded in Form No. 32 filed with the Registrar of Companies. The Court held that a director whose resignation has been accepted and duly notified to the Registrar cannot be held liable for actions of the company post-resignation. The Court emphasized the significance of the wording 'every person who, at the time the offence was committed' in Section 141(1) of the NI Act, indicating that liability must be determined based on the director's status at the time of the offence.3. Applicability of Judicial Precedents and High Court's Revisional Jurisdiction:The High Court relied on the precedent set in Fateh Chand Bhansali v. Hindustan Development Corporation Ltd., which held that resignation is a defense matter to be considered at trial. However, the Supreme Court distinguished this by referencing multiple precedents, including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, which clarified that specific averments are necessary to establish a director's liability under Section 141. The Court noted that the High Court erred by not considering uncontroverted public documents evidencing the appellant's resignation. The Supreme Court emphasized that in cases where documents are beyond suspicion or doubt, the High Court can consider them to prevent injustice and abuse of process.Conclusion:The Supreme Court concluded that the High Court made a grave error by not considering the appellant's resignation documents, which clearly indicated that he was not a director at the time the cheques were issued and dishonored. Consequently, the Court allowed the appeals, set aside the High Court's judgment and the summons issued by the Metropolitan Magistrate, and quashed the complaints against the appellant.