2020 (9) TMI 932 - HC - Indian Laws

Director's resignation before dishonored cheques absolves liability under Section 138

Alibaba Nabibasha Versus Small Farmers Agri-Busines Consortium & Ors.

The court held that the petitioner, who had resigned from the directorship of respondent No.2 before the issuance of the dishonored cheques, could not be ... Dishonor of Cheque - issuance of summons - primary ground of challenge as contended by the learned counsel for the petitioner is that the petitioner was not the Director when the underlying contract was executed between the respondent No.1 and respondent No.2, nor when the cheques were issued and when they were presented, inasmuch as the petitioner had resigned from the respondent No.2 much before, on October 27, 2010. HELD THAT:- This Court is conscious of the settled position of law that the High Court while entertaining a petition of this nature shall not consider the defence of the accused or conduct a roving inquiry in respect to the merits of the accusation/s but if the documents filed by the accused / petitioner are beyond suspicion or doubt and upon consideration, demolish the very foundation of the the accusation/s levelled against the accused then in such a matter it is incumbent for the Court to look into the said document/s which are germane even at the initial stage and grant relief to the person concerned under Section 482 CrPC in order to prevent injustice or abuse of process of law. In my opinion the present petition would fall within the aforesaid parameters. The proceedings initiated by the respondent No.1 against the petitioner under Section 138 of the NI Act, pending before the learned Metropolitan Magistrate, Saket Courts, and the resultant proceedings including summons issued thereon are quashed - Petition allowed. Issues Involved:1. Whether the petitioner was liable under Section 138 of the Negotiable Instruments Act, 1881, given his resignation from the directorship of the respondent No.2.2. The validity of the summons issued by the Metropolitan Magistrate based on the complaint filed by respondent No.1.3. The application of legal precedents and statutory requirements in determining the liability of a director under Section 138 of the NI Act.Detailed Analysis:1. Liability under Section 138 of the NI Act:The petitioner contended that he ceased to be a director of respondent No.2 from October 27, 2010, as evidenced by Form 32 filed with the Registrar of Companies. The cheques in question were issued on December 31, 2018, and were dishonored subsequently. Since the petitioner was not a director at the time of the issuance and dishonor of the cheques, he argued that he could not be held liable under Section 138 of the NI Act. The court noted that the petitioner’s resignation was not disputed by respondent No.1, which suggested that he was not responsible for the company’s actions at the relevant time.2. Validity of Summons Issued:The petitioner argued that the Metropolitan Magistrate issued the summons mechanically without applying judicial mind and without considering the latest Company Master Data, which did not list him as a director. The court observed that had the Magistrate examined the latest data and Form 32, it would have been clear that the petitioner was not in charge of the company’s affairs when the cheques were issued and dishonored. Therefore, the issuance of summons was deemed unjustified.3. Application of Legal Precedents:The petitioner relied on several judgments, including Harshendra Kumar D. v. Rebatilata Koley and Others, Anita Malhotra v. Apparel Export Promotion Council, and others, which established that mere repetition of the phraseology of Section 141 of the NI Act without specific facts showing how a director was responsible for the company’s affairs is insufficient to hold them liable. The court agreed with this position, stating that the respondent No.1 failed to demonstrate how the petitioner was responsible for the company’s actions after his resignation. The court emphasized that criminal liability must be determined based on the accused’s role at the time the offense was committed, and in this case, the petitioner had resigned well before the cheques were issued.Conclusion:The court concluded that the petitioner could not be held liable under Section 138 of the NI Act as he had resigned from the directorship of respondent No.2 before the cheques were issued. The summons issued by the Metropolitan Magistrate were quashed, and the complaint cases filed by respondent No.1 were dismissed. The court reiterated the importance of applying judicial mind and considering relevant documents before issuing summons in such cases to prevent injustice and abuse of the legal process.