Court quashes order for non-compliance with law, Applicant not Director at dishonor

The High Court quashed the order due to non-compliance with Section 138(b) of the Negotiable Instruments Act and the Applicant not being a Director at the time of the cheque's dishonor. The Application was allowed, setting aside the process issued against the Applicant by the Metropolitan Magistrate.

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Issues Involved:
1. Issuance of process against the Applicant.
2. Compliance with Section 138 of the Negotiable Instruments Act (NI Act).
3. Applicant's resignation from the directorship.
4. Liability under Section 141 of the NI Act.
5. Requirement of notice to the drawer under Section 138 of the NI Act.

Detailed Analysis:

1. Issuance of Process Against the Applicant:
The Applicant, a former Director of Landmark Real Estate Developers Limited, challenged the issuance of process against him by the Metropolitan Magistrate, which was upheld by the Appellate Court. The process was issued under Sections 138 and 142 of the NI Act due to the dishonor of a cheque.

2. Compliance with Section 138 of the NI Act:
The Complainant issued notices to three individuals, including the Applicant, but not to the Company, which was the drawer of the cheque. The Court emphasized that Section 138(b) of the NI Act mandates that the notice must be addressed to the drawer of the cheque. The failure to issue a notice to the Company, which was the drawer, rendered the process non-compliant with Section 138, thereby invalidating the proceedings.

3. Applicant's Resignation from the Directorship:
The Applicant resigned from his directorship on 28/12/2016, and this resignation was accepted and recorded officially. Since the cheque was dishonored on 31/01/2017, after the Applicant had ceased to be a Director, he could not be held liable under Section 141 of the NI Act, which imposes vicarious liability on those in charge of the Company at the time of the offence.

4. Liability Under Section 141 of the NI Act:
Section 141 of the NI Act holds that every person in charge of and responsible to the Company at the time of the offence is liable. However, since the Applicant had resigned before the cheque was dishonored, he was not responsible for the Company’s affairs at that time. Therefore, vicarious liability under Section 141 could not be imposed on him.

5. Requirement of Notice to the Drawer Under Section 138 of the NI Act:
The Court underscored that Section 138 requires the notice to be given to the drawer of the cheque. The Supreme Court in Krishna Texport and Capital Markets Limited v. ILA A. Agrawal & Others clarified that the notice must be issued to the drawer, and not to individual Directors. The absence of a notice to the Company, which was the drawer, meant that the statutory requirement was not met, leading to the failure of the proceedings under Section 138.

Conclusion:
The High Court quashed the impugned order due to non-compliance with Section 138(b) of the NI Act and the fact that the Applicant was not a Director at the time of the cheque's dishonor. The Court allowed the Application, setting aside the issuance of process against the Applicant.

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