2020 (9) TMI 1274 - HC - Indian Laws

Court quashes case against ex-director in Section 138 complaint, stresses need for conclusive proof

Nimal Nithyanandam S/o. Nithyanandam Versus M/s. Krishna Corporationrep. by Authorised AgentK. Karthick Ragunath, S/o. L.R. Kalyanasundaram,

The court quashed the proceedings against the petitioner, a former director of a company, in a case involving a complaint under Section 138 of the ... Dishonor of Cheque - petitioner was director of the company during the relevant time or not - vicarious liability of the director - Section 141 of NI Act - HELD THAT:- The petitioner was a Director of the 1st accused company till 07.04.2015. The business transaction between the 1st accused company and the respondent/complainant was during the year 2012-2013. The cheque had been issued for the liability for the said business. During the relevant point of time, the petitioner was a Director. The other two Directors are none other than his parents. The petitioner had resigned three months prior to the date of the cheque. Further, the petitioner's resignation being registered with the ROC has not been conclusively proved. In view of the same, the petitioner's contention that he was not the Director of the company during the relevant period cannot be accepted. From the complaint, it is seen that the cheque has been issued by the 1st accused company and the cheque has been signed by A2 as a Director and Authorised Signatory. Admittedly, the petitioner had not signed the cheque and from the complaint, it is seen that except for a bald averment, there is no specific averment to show that at the time of the offence committed, the petitioner was in charge and responsible for the conduct of the business of the company. This averment is an essential requirement to attract Section 141 of the Negotiable Instruments Act. Without this averment made in the complaint the requirement of Section 141 cannot be said to be satisfied. From the complaint, it is seen that there is no such averment to rope in the petitioner. The Director would not automatically become vigorously liable. Merely being the Director of the company could not make such person liabile under Section 141 of the Negotiable Instruments Act - Petition allowed. Issues involved:Private complaint under Section 138 of Negotiable Instruments Act, 1881 against four persons, including a company and its directors. Allegations of non-payment for goods purchased, issuance of cheques, and subsequent dishonor leading to legal proceedings. Dispute regarding liability of a director after resignation and his role in the company's affairs.Analysis:The case involves a private complaint for an offense under Section 138 of the Negotiable Instruments Act, 1881, against four individuals, with the first accused being a company and the second to fourth accused being its directors. The complainant, a partnership firm trading in Cotton waste, alleged non-payment by the company for goods purchased during 2012-2013, leading to a total due amount of Rs. 4,87,883/-. After several requests, the accused issued cheques for part payment, which were subsequently dishonored due to 'Account Closed' reasons.The petitioner, one of the accused directors, argued that he had resigned from the company's directorship before the cheque issuance and had no involvement in day-to-day business operations. He contended that being a director alone does not establish liability under Section 141 of the Act, citing legal precedents. The respondent, however, maintained that the petitioner was aware of the company's liability and issued the cheque with an illegal motive before resigning, alleging connivance with his parents, who were also directors.Upon examination, the court found that the petitioner was a director until 07.04.2015, the cheque was issued during his directorship, and his resignation's validity was not conclusively proven. However, the complaint lacked specific averments showing the petitioner's role in the company's conduct at the time of the offense, essential under Section 141. The court emphasized that mere directorship does not automatically establish liability under the Act, aligning with previous judicial interpretations.Consequently, the court quashed the proceedings against the petitioner in the case, directing the trial court to expedite the trial within four months. The judgment highlighted the necessity of specific averments to implicate a director under Section 141 and emphasized the importance of conclusive proof of liability in such cases.In conclusion, the court allowed the Criminal Original Petition, acknowledging the legal aid counsel's effective defense and emphasizing the need for adherence to legal requirements in cases involving directorial liability under the Negotiable Instruments Act.