Director who resigned before cheque dishonour cannot be held liable under Section 141 of Negotiable Instruments Act

Delhi HC quashed proceedings against a director under Section 138 read with Section 141 of the Negotiable Instruments Act. The petitioner had resigned as director before the cheque dishonour occurred. The court held that vicarious liability under Section 141 requires the accused to be in charge of company business at the time of dishonour, not merely during earlier transactions. Since the petitioner was not a director when the cheque was dishonoured, issued, or when demand notice was served, no liability could be established despite earlier involvement in the underlying agreement.

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Issues Involved:
1. Whether the petitioner can be held liable under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, given his resignation from the accused company prior to the cheque dishonour.
2. Interpretation and application of Section 141 of the NI Act concerning vicarious liability of directors and other officers of a company.

Detailed Analysis:

Issue 1: Liability of the Petitioner under Section 138 read with Section 141 of the NI Act

The petitioner challenges the proceedings under Section 138 of the NI Act, asserting that he resigned from the accused company, M/s Fresco Foods Pvt. Ltd., on 05.12.2009, well before the cheque in question was dishonoured on 04.10.2016. The petitioner relied on Form-32 filed with the Registrar of Companies to substantiate his claim of resignation. The petitioner contends that since he was not a director at the time of the cheque's dishonour, he cannot be held liable under the provisions of the NI Act. The respondent, however, argues that the petitioner was a director at the time the agreement was executed and was responsible for the company's business, making him liable under Section 138 read with Section 141 of the NI Act.

Issue 2: Interpretation of Section 141 of the NI Act

Section 141 of the NI Act creates vicarious liability for offences committed by a company under Section 138. The section stipulates that every person who, at the time the offence was committed, was in charge of and responsible for the conduct of the company's business, shall be deemed guilty. The judgment references several precedents, including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and K.K. Ahuja v. V. K. Vora, emphasizing that mere association with the company as a director does not suffice to attract liability. It must be demonstrated that the accused was actively in charge of and responsible for the company's business at the relevant time.

The court reiterated that liability under Section 141 arises from one's role in the company's affairs, not merely from holding a position. The judgment also cited the case of Ashok Shewakramani and Others v. State of Andhra Pradesh, underscoring that the terms "in charge of" and "responsible to the company for the conduct of the business" must be read conjunctively, requiring evidence of active involvement in the company's business.

Conclusion:

The court concluded that the petitioner, having resigned in 2009, was not in charge of or responsible for the company's conduct at the time of the cheque's issuance, dishonour, or subsequent failure to pay. The petitioner's role as a witness to the agreement in 2009 does not establish liability under Section 138 read with Section 141 of the NI Act. Consequently, the proceedings against the petitioner in Complaint Case No. 476576/2016 were quashed, as the petitioner was not involved in the company's affairs at any relevant stage of the alleged offence.

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