2019 (8) TMI 1825 - HC - Indian Laws

Court allows petition to set aside cognizance order in N.I. Act case against director.

The court allowed the petition and set aside the order of cognizance against the petitioner. It held that criminal proceedings under Section 138 of the ... Dishonor of Cheque - petitioner is the Director of the company - company is being let off and under liquidation - simultaneous criminal proceedings of Section 138 of N.I. Act can be proceeded continuously against the company and its director/managing director/employees or not - petitioner/accused/Director of company can be prosecuted for the offence under Section 138 of N.I. Act. in pursuant to business transaction of company or not - Director of company has resigned from his post prior to issuance of cheque - such resigned director can be prosecuted for the offence punishable under section 138 of N.I. Act or not? - vicarious liability of a Director. When the company is being let off and under liquidation, in these circumstances proceedings of criminal Court under Section 138 of N.I. Act against the company and its Director/Managing Director/officials shall be continued or not? - HELD THAT:- It is found that the company is under liquidation for the purpose of winding up its affairs and distributing assets of company. Nowtherefore, this Court has to read Sections 279, 372 and 373 of Company Act 2013 (Section 446, 586 and 587 of old Company Act, 1956) to resolve this issue as to whether, company can be prosecuted or not? On reading of the above mentioned Sections, it is provided that where an order has been made for winding up, or a provisional Liquidator has been appointed for, a company registered in pursuance of this part, no suit or other legal proceeding shall be proceeded with or commenced against the company or any contributory of the company in respect of any debt of the company, except by leave of the tribunal and except on such terms as the tribunal may imposed - thus, the criminal Court has power to take cognizance on the complaint filed by an aggrieved person to institute proceedings under Section 138 of N.I Act against the Directors of company even if the company is under liquidation and merely on the basis of appointment of liquidator, power of criminal Court could not be curtailed. Whether the petitioner/accused/Director of company can be prosecuted for the offence under Section 138 of N.I. Act. in pursuant to business transaction of company or not? - HELD THAT:- Section 141 of the Negotiable Instruments Act, 1881 deals with the offences committed by the companies and say that if an offence is committed by a company under Section 138 Negotiable Instruments Act, 1881, every person, at the time, the offence was committed, was in-charge and responsible to the company in the conduct of the business of the company, is liable alongwith the company to be proceeded against and punished accordingly. Further, it is provided that no person shall liable to punishment if he proved that an offence was not committed under his knowledge or he has exercised all dues diligence to prevent to commission of such offence. Looking to the trend set up by the complainants to implead all the Directors, company secretaries, etc., of the accused company, irrespective of whether they were actually involved in the commission of alleged offence or not, the Hon'ble Apex Court has issued several pronouncements to settle the issues. In the case of Aneeta Hada Vs. Godfather Travels and Tours Private Ltd., [2012 (5) TMI 83 - SUPREME COURT], it has been held that when the company would be prosecuted then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments made in the complaint. To summarize, there cannot be any vicarious liability unless there is prosecution against the company. Thus, the Director of company shall be prosecuted for business transaction of company under Section 138 of N.I. Act subject to the specific averments in the complaint and after arraying the company, as an accused in complaint. At this stage, it is necessary to be noted that the complainant has made the company as respondent No. 1/accused No. 1 in his complaint. Whether petitioner/Director namely Santosh can be prosecuted when he has resigned from company prior to issuance of alleged cheques and same were not signed by him? - HELD THAT:- If the Director has already resigned from the company, in such cases, Form 32, under the Companies Act, 1956 comes to an aid. Form 32 is filed with the Registrar of Companies and it indicates the status of the Directors. Thus when a Director resigns and his resignation is accepted by the Company, the Company become obliged to file a Form 32 indicating change in status of the Directors - In the present case the petitioner-Santosh has filed the certified copy of Form 32 u/s. 399 of Companies Act, 2013, dated 06.12.2013, date of issuance is 23.06.2016 (Annexure-D). Further on perusal of Form 32, it is reflected that petitioner has submitted his resignation on 06.11.2013. It has held in the case of MRS. ANITA MALHOTRA VERSUS APPAREL EXPORT PROMOTION COUNCIL (APPAREL EXPORT PROMOTION COUNCIL) [2011 (11) TMI 532 - SUPREME COURT] that if the person has proved his resignation on the relevant date when the offence has occurred, then the proceedings against such a person are liable to be quashed. It has also been held by the Court that the certified copy of annual return coupled with simple copy of Form 32 should have been accepted as a proof of petitioner's resignation and proceedings against him be quashed. In almost similar circumstances, in the case of HARSHENDRA KUMAR D. VERSUS REBATILATA KOLEY [2011 (2) TMI 1278 - SUPREME COURT], Hon'ble the Apex Court found that director of that case has resigned prior to issuance of dishonoured cheques. The acceptance of the appellant's resignation is duly reflected in the resolution of company and in the prescribed form (Form 32), the company informed to the Registrar of the Company about his resignation. The Hon'ble Court has found that the cheques were not issued by the appellant/director of that case and he has resigned prior to issuance of alleged cheques. The Hon'ble Court has observed that if in such circumstances, the criminal complaints are allowed to proceed against the appellant, it would result in gross injustice to the appellant. Thus, if the director of company is succeeded to prove his resignation that he gave the same prior to issuance of alleged cheques, and in the absence of the specific allegations in the averments of the complaint against him, cannot be prosecuted. There is no specific allegations against the petitioner that he was responsible for business affairs of company in day to day manner. There is only allegation against him that he had knowledge about disputed transaction. In the present case, petitioner is succeeded to prove his resignation prior to issuance of cheque and apart from that it is found that he is not the signatory of the alleged cheques and also no specific averments in the complaint against him, therefore, in the present case, complainant has failed to specify the act of the director Santosh in day to affairs, thus, he is entitled to get relief from this court. Petition allowed. Issues Involved:1. Whether criminal proceedings under Section 138 of the N.I. Act can continue against a company and its directors when the company is under liquidation.2. Whether the petitioner, as a director of the company, can be prosecuted for the offence under Section 138 of the N.I. Act.3. Whether a director who has resigned before the issuance of the cheque can be prosecuted under Section 138 of the N.I. Act.Issue-wise Detailed Analysis:1. Continuation of Criminal Proceedings under Section 138 of the N.I. Act against a Company under Liquidation:The court examined whether criminal proceedings under Section 138 of the Negotiable Instruments Act could continue against a company and its directors when the company is under liquidation. The court referred to Sections 279, 372, and 373 of the Companies Act 2013 (Sections 446, 586, and 587 of the old Companies Act, 1956), which restrict suits or legal proceedings against a company under liquidation without the tribunal's leave. However, it was clarified that these provisions do not apply to criminal proceedings under Section 138 of the N.I. Act, as they are not related to the company's assets but to the criminal liability for dishonored cheques. The court cited precedents, including the case of Jose Antony Kokkad vs. Official Liquidators, which established that criminal proceedings under Section 138 are not stayed under Section 446 of the Companies Act. Therefore, the court concluded that the criminal court has the power to take cognizance of complaints under Section 138 of the N.I. Act against directors even if the company is under liquidation.2. Prosecution of the Petitioner as a Director under Section 138 of the N.I. Act:The court examined the provisions of Sections 138 and 141 of the N.I. Act, which deal with the offence of dishonoring cheques and the liability of directors. Section 141 states that if an offence is committed by a company, every person in charge and responsible for the conduct of the company's business at the time of the offence is liable. The court referred to several Supreme Court judgments, including S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla, which emphasized the need for specific averments in the complaint about the director's role in the company's business. The court noted that merely being a director is insufficient to establish liability under Section 141; there must be specific allegations that the director was responsible for the conduct of the company's business. The court found that in this case, the complaint lacked specific averments about the petitioner's role in the company's day-to-day affairs, which is required to establish liability under Section 141.3. Prosecution of a Director Who Resigned Before the Issuance of the Cheque:The court considered whether a director who resigned before the issuance of the cheque could be prosecuted under Section 138 of the N.I. Act. The petitioner provided evidence of his resignation, including Form 32 filed with the Registrar of Companies, indicating his resignation on 06.11.2013, before the cheques were issued in 2014. The court referred to the Supreme Court's judgment in Harshendra Kumar D. vs. Rebatilata Koley, which held that if a director has resigned before the issuance of the dishonored cheques, he cannot be held liable under Section 138. The court also noted that the petitioner was not the signatory of the cheques and that the complaint lacked specific allegations against him. The court concluded that the petitioner had successfully proved his resignation before the issuance of the cheques and that there were no specific allegations against him in the complaint. Therefore, the court set aside the order of cognizance against the petitioner.Conclusion:The court allowed the petition and set aside the order of cognizance dated 08.09.2015, passed by the Judicial Magistrate First Class, Burhanpur, against the petitioner. The court held that criminal proceedings under Section 138 of the N.I. Act could continue against directors even if the company is under liquidation. However, the petitioner could not be prosecuted as he had resigned before the issuance of the cheques, and the complaint lacked specific allegations about his role in the company's day-to-day affairs.