Former directors who resigned before cheque dishonour cannot face prosecution under Section 141 NI Act

The HC allowed a criminal petition filed by former directors of a company facing prosecution under Section 138 of the NI Act for cheque dishonour. The court held that directors who resigned before the dishonoured cheque was issued cannot be held vicariously liable under Section 141 of the NI Act. The petitioners resigned as directors on 22.09.2017 and 11.06.2018 respectively, while the dishonoured cheque was dated 22.10.2018. Since they were not directors when the offence was committed, continuing the criminal proceedings would constitute abuse of process. The court exercised powers under Section 482 CrPC to quash proceedings against the former directors.

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Issues Involved:

1. Whether the petitioners, who resigned as directors before the issuance of the dishonored cheque, can be held liable under Section 138 of the Negotiable Instruments Act, 1881.
2. The applicability of vicarious liability under Section 141 of the Negotiable Instruments Act to the petitioners.
3. The validity of the complaint's averments regarding the petitioners' roles in the company at the time of the alleged offence.
4. The exercise of inherent powers under Section 482 of the Code of Criminal Procedure to quash the criminal proceedings against the petitioners.

Issue-wise Detailed Analysis:

1. Liability of Petitioners under Section 138 of the NI Act:

The petitioners sought quashing of the criminal proceeding on the grounds that they had resigned as directors of the accused company before the issuance of the cheque that was dishonored. The cheque in question was issued on 22.10.2018, while the petitioners had resigned on 22.09.2017 and 11.06.2018, respectively. The court examined the documents evidencing their resignations, which were duly accepted by the Board of Directors and reported to the Registrar of Companies. It was held that since the petitioners were not directors at the time of the cheque's issuance, they could not be held liable under Section 138 of the NI Act.

2. Vicarious Liability under Section 141 of the NI Act:

Section 141 of the NI Act imposes vicarious liability on individuals who were in charge of and responsible for the conduct of the company's business at the time the offence was committed. The court noted that the petitioners were not in charge of the company when the cheque was issued and dishonored. The court referred to precedents, including the Supreme Court's decision in *National Small Industries Corporation Limited vs. Harmeet Singh Paintal*, which clarified that liability cannot be imposed on directors who have resigned before the offence was committed.

3. Averments in the Complaint:

The complaint contained a general averment that the petitioners, as directors, were responsible for the company's affairs. However, the court found that the complaint lacked specific details about the petitioners' roles and responsibilities at the time of the alleged offence. The court emphasized that mere bald statements without specific averments regarding the petitioners' involvement in the company's operations at the relevant time are insufficient to sustain a charge under Section 141.

4. Exercise of Inherent Powers under Section 482 CrPC:

The court exercised its inherent powers under Section 482 of the Code of Criminal Procedure to quash the proceedings against the petitioners. It was observed that the continuation of the proceedings would result in an abuse of the process of the court, as the petitioners were not directors at the time of the cheque's issuance. The court highlighted that the inherent powers should be used to prevent injustice and protect individuals from unwarranted prosecution.

In conclusion, the court quashed the criminal proceedings against the petitioners, acknowledging that they had resigned as directors before the issuance of the cheque and were not responsible for the company's affairs at the time of the alleged offence. The proceedings against the other accused were allowed to continue.

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