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Issues: (i) whether criminal proceedings under Section 138 of the Negotiable Instruments Act can continue against a company and its directors when the company is under liquidation; (ii) whether a director can be prosecuted under Sections 138 and 141 of the Negotiable Instruments Act without specific averments showing that he was in charge of and responsible for the conduct of the company's business; and (iii) whether a director who resigned before issuance of the cheque can be proceeded against.
Issue (i): whether criminal proceedings under Section 138 of the Negotiable Instruments Act can continue against a company and its directors when the company is under liquidation.
Analysis: Proceedings under Section 138 are criminal in nature and are not proceedings for recovery of the company's assets. The bar applicable to winding-up proceedings under the Companies Act is intended to protect and control company assets, whereas prosecution for cheque dishonour concerns penal liability. The appointment of a liquidator or the fact of liquidation does not by itself extinguish the criminal court's jurisdiction to take cognizance of an offence under the Negotiable Instruments Act.
Conclusion: The criminal prosecution under Section 138 is not barred merely because the company is under liquidation.
Issue (ii): whether a director can be prosecuted under Sections 138 and 141 of the Negotiable Instruments Act without specific averments showing that he was in charge of and responsible for the conduct of the company's business.
Analysis: Vicarious liability of a director arises only when the complaint contains the necessary averment that, at the relevant time, the accused was in charge of and responsible for the conduct of the company's business. Mere designation as a director is insufficient. However, where the complaint contains the basic statutory averment, the complaint is ordinarily not to be quashed at the threshold unless sterling material is produced to show that no offence is made out.
Conclusion: A director is liable only if the complaint contains the requisite averments under Section 141, and mere directorship does not create liability.
Issue (iii): whether a director who resigned before issuance of the cheque can be proceeded against.
Analysis: Where credible documentary material shows that the accused had resigned before the cheques were issued, and he was not the signatory of the cheques, the foundation for vicarious liability is removed. In such circumstances, continuation of prosecution would be unjust where the complaint also lacks specific allegations showing active responsibility in the day-to-day affairs of the company.
Conclusion: The petitioner, having resigned prior to issuance of the cheques, cannot be prosecuted in the present case.
Final Conclusion: The prosecution was liable to be quashed as against the petitioner because the resignation preceded the cheque transactions and the complaint did not contain sufficient specific averments to sustain vicarious criminal liability.
Ratio Decidendi: Vicarious liability under Section 141 of the Negotiable Instruments Act arises only against a director who was, at the relevant time, in charge of and responsible for the company's business, and a resignation proved to have occurred before issuance of the dishonoured cheque negatives such liability.
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