Court upholds process against directors under Negotiable Instruments Act, emphasizing vicarious liability. Invalid resignations under Companies Act.

The court rejected the criminal applications challenging the issuance of process against the applicants under Section 138 r/w 141 of the Negotiable Instruments Act, 1881. It held that the complaint disclosed a prima facie case against the applicants as directors, emphasizing that vicarious liability must be strictly construed. The court found that the resignation of the directors was not valid as per Section 168 of the Companies Act, as proper approval and documentation were lacking. The applications were deemed devoid of merit, and the rule was discharged.

---

---

Issues Involved:
1. Issuance of process against applicants under Section 138 r/w 141 of the Negotiable Instruments Act, 1881.
2. Vicarious liability of directors for the offence under Section 138 r/w 141.
3. Validity and acceptance of resignation of directors under Section 168 of the Companies Act, 1956.
4. Whether the complaint discloses an offence or is frivolous, vexatious, or oppressive.

Issue-Wise Detailed Analysis:

1. Issuance of Process Against Applicants:
The applicants challenged the order of the learned Metropolitan Magistrate issuing process against them for an offence punishable under Section 138 r/w 141 of the Negotiable Instruments Act, 1881. The applicants argued that the allegations in the complaint, even if taken at face value, do not disclose an offence. The learned Metropolitan Magistrate was said to have erred by not appreciating the legal position regarding the vicarious liability of directors in a company prosecuted under Section 138 r/w 141 of the said Act.

2. Vicarious Liability of Directors:
The applicants contended that the learned Magistrate failed to recognize that only those directors who were in charge of and responsible for the conduct of the business of the company at the time the offence was committed could be held liable. They emphasized that holding a designation or office in a company does not automatically make one liable under Section 141. The applicants cited the Supreme Court judgment in DCM Financial Services Limited Versus J.N. Sareen and Another (2008) 8 SCC 1, arguing that vicarious liability must be strictly construed.

3. Validity and Acceptance of Resignation:
The applicants claimed they had resigned from their positions as directors before the issuance of the cheques in question. They submitted documents, including Form No. DIR-11, indicating their resignation on January 21, 2017. However, the respondents argued that the resignation must be approved by the board of directors and forwarded to the Registrar of Companies in Form No. DIR-32 as per Section 168 of the Companies Act. The court noted that the applicants failed to provide evidence of board approval or Form No. DIR-32, which would confirm the acceptance of their resignation.

4. Complaint Discloses an Offence:
The court examined whether the complaint disclosed an offence or was frivolous, vexatious, or oppressive. It referred to the Supreme Court judgment in Sau. Kamal Shivaji Pokarnekar Versus State of Maharashtra and others AIR 2019 SC 847, which stated that quashing criminal proceedings is warranted only if the complaint does not disclose an offence or is frivolous. The court found that the complaint contained specific averments that the applicants, as directors, were in charge of and responsible for the day-to-day affairs of the company. The court held that the allegations in the complaint disclosed the ingredients of the offence under Section 138 r/w 141, and therefore, the issuance of process by the Magistrate required no interference.

Conclusion:
The court rejected the criminal applications, holding that the documents provided by the applicants did not meet the requirements of Section 168 of the Companies Act for resignation. The court emphasized that the complaint disclosed a prima facie case against the applicants, and the correctness of the allegations should be determined at trial. The applications were devoid of merit, and the rule was discharged.

---