2017 (2) TMI 925 - HC - Indian Laws

Court quashes summons under Section 138 NI Act as resigned directors found not liable.

The court quashed the order summoning the petitioners for the offense under Section 138 of the Negotiable Instruments Act. The petitioners, who had ... Offence under the Negotiable Instruments Act for cheque dishonour (Section 138) - vicarious liability of company directors - resignation and non-liability post-resignation - quashing of summonsOffence under the Negotiable Instruments Act for cheque dishonour (Section 138) - resignation and non-liability post-resignation - vicarious liability of company directors - quashing of summons - Whether the order summoning the petitioners for an offence under Section 138 read with Section 142 of the Negotiable Instruments Act should be quashed in view of their resignation prior to the dishonour of the cheque and the cause of action. - HELD THAT: - The court found that both petitioners had ceased to be directors of the accused company on the dates recorded in Form-32 filed with the Registrar of Companies, a fact which was not disputed. The cheque in question was dishonoured after those resignation dates and the cause of action (non-payment within 15 days of legal notice) arose when the petitioners were no longer directors. The petitioners were not charged with any other offences arising from earlier proceedings and there was no material to show they were responsible for the company's day-to-day affairs at the relevant time. In these circumstances, vicarious liability could not be fastened on the petitioners for the dishonour of the cheque, and continuance of criminal proceedings against them under Section 138 read with Section 142 NI Act was unwarranted. The court therefore exercised its power to quash the summoning order insofar as it related to the petitioners. [Paras 6, 7]Order dated 7th October, 2015 summoning the petitioners for offence under Section 138 read with Section 142 NI Act is quashed; petitions disposed accordingly.Final Conclusion: The petitions are allowed and the summons issued to the petitioners for the offence punishable under Section 138 read with Section 142 of the Negotiable Instruments Act are quashed; the proceedings against them on that count stand closed. Issues:Complaint filed under Section 138 of the Negotiable Instruments Act, challenge to order summoning petitioners, petitioners' claim of non-involvement as directors, reliance on resignation dates, absence of liability at the time of dishonour.Analysis:The complaint was filed under Section 138 of the Negotiable Instruments Act by the respondent against the accused company and several individuals. The accused company had issued post-dated cheques as part of a settlement agreement, one of which was dishonored due to insufficient funds. Legal notice was issued, but no payment was made, leading to the complaint. The petitioners, who were non-executive independent directors of the accused company, challenged the order summoning them, claiming they were not directors at the time of the settlement, cheque issuance, or dishonour. They argued that they were not responsible for the company's day-to-day affairs and were not named as accused in other complaints.The petitioners contended that they had resigned from their director positions before the events in question, supported by evidence of filing Form-32 with the Registrar of Companies. The court noted that the petitioners were only summoned for offenses under Section 138 of the NI Act, not for other charges or previous dishonored cheques. As the petitioners were no longer directors at the time of the dishonour and had provided evidence of resignation, vicarious liability could not be imposed on them for the dishonour of the specific cheque in question.The respondent did not file a reply and relied on a previous submission. The court acknowledged the resignation dates of the petitioners and the lack of liability at the time of the dishonour. Considering the evidence presented and the specific charges the petitioners were summoned for, the court quashed the order summoning the petitioners for the offense under Section 138 of the Negotiable Instruments Act. The petitions and applications were disposed of accordingly, relieving the petitioners of vicarious liability in this case.