2024 (3) TMI 971 - HC - Indian Laws

Former directors cannot be held liable under Section 138/141 for cheques issued after their resignation

The Delhi HC allowed the petition filed by former directors challenging proceedings under Section 138/141 of the Negotiable Instruments Act. The ... Dishonour of Cheque - vicarious liability of director - petitioner argues that he had resigned and had ceased to be a Director of the accused company w.e.f. 10.08.2017 and thereafter, he had no concern with the day-to-day affairs and decisions of the company qua its business transactions - HELD THAT:- In the present case, one handwritten line has been added in the complaint i.e. “accused no. 2 to 4 are responsible of day to day affairs of accused no. 1”, and even the complete language of Section 141 of NI Act has not been reproduced, let alone any specific detail about any role played by either of the petitioner in issuance or dishonour of cheque in question or as to how were they-in-charge of or responsible for the day-to-day affairs of the accused company when the cheque in question had been issued or dishonoured. Even before the learned Trial Court, the complainant had submitted the copies of Articles of Association and Memorandum of Association of the accused company, in which the details of Directors, as they were at the time of formation of company in the year 2015, were mentioned, and the updated data of the company available in the records of Registrar of Companies or Ministry of Corporate Affairs website was not placed before the learned Trial Court. The petitioners had resigned much prior to the issuance of cheque and the complainant has not disputed the factum of their resignations. The Director who had signed the cheque in question i.e. Nikhil Mehta (accused no. 3) continues to be the Director of the accused company till date, whereas the records show that the present petitioners had resigned in the year 2017 itself. Thus, the petitioners cannot be made liable under Section 138/141 of NI Act, in such facts and circumstances. Petition allowed. Issues Involved:1. Quashing of criminal complaint case u/s 138 of NI Act.2. Validity of summoning orders against petitioners.3. Liability of petitioners post-resignation from directorship.Summary:1. Quashing of Criminal Complaint Case u/s 138 of NI Act:The petitioners sought quashing of the criminal complaint case no. 1498/2019 titled 'Ankit Sood Vs. Yumm Bites Foods and Hospitality Pvt. Ltd. & Ors.' pending before the Metropolitan Magistrate, District Court Rohini, New Delhi. The complaint was filed u/s 138 of the Negotiable Instruments Act, 1881, alleging that the accused company had defaulted in payments for goods supplied, and a cheque issued by the accused company was dishonored due to 'funds insufficient.'2. Validity of Summoning Orders Against Petitioners:The learned Magistrate had summoned the accused persons, including the petitioners, who were directors of the accused company. The petitioners argued that they had resigned from their directorship prior to the issuance and dishonor of the cheque in question. They presented resignation letters, Form No. DIR-12, and Board Resolutions to support their claims. The complainant did not dispute these documents but argued that the petitioners were responsible for the company's affairs during the transaction period.3. Liability of Petitioners Post-Resignation from Directorship:The Court examined the material on record, including the resignation letters and Form No. DIR-12, which showed that the petitioners had resigned more than a year before the cheque was issued and dishonored. The Court referred to the Supreme Court judgments in Rajesh Viren Shah v. Redington (India) Limited and Ashoke Mal Bafna v. Upper India Steel Manufacturing and Engineering Co. Ltd., which held that directors who had resigned before the issuance of a cheque could not be held liable u/s 138 and 141 of the NI Act.The Court also noted that the cheque was signed by another director, Nikhil Mehta, who admitted his signatures before the Trial Court. The complaint contained only a vague statement that the petitioners were responsible for the company's day-to-day affairs, without specifying their roles in the issuance or dishonor of the cheque.Conclusion:The Court concluded that the petitioners had resigned well before the issuance of the cheque and could not be held liable for its dishonor. The proceedings against the petitioners in Complaint Case No. 1498/2019 were quashed and set aside. The judgment was ordered to be uploaded on the website forthwith.