2026 (2) TMI 118 - HC - Indian Laws

Director liability under negotiable instruments Act: one director summoned for active involvement; another discharged after proved resignation.

Liability under the Negotiable Instruments Act was assessed by reference to company records and conduct. One director was held properly summoned because ... Liability of directors in offences committed by a company - Section 138 of the Negotiable Instruments Act - Summoning order and discharge of accused - Section 168 Companies Act, 2013 - resignation of director - Section 251 Cr.P.C. - application to drop proceedings - inherent jurisdiction to quash proceedings - Sleeping director - HELD THAT:- The most significant document is Form-32 of the Company, which shows that she was a Director in the Company. Not only this, she was a signatory to the cheques and also was a co-signatory to the Balance Sheets, which were being submitted on behalf of the Company. For her to claim that she was not involved in the affairs of the Company, is not supported by the documents on record. Pertinently, she has claimed herself to be the Sleeping Director, which is not borne from the record. The Summoning Order against Ms. Sandhya Gupta, is justified as the documents clearly reflect that she was involved in the day-to-day affairs of the Company. It is her defence that she was not actively involved, which she may prove during the trial. At this stage, the Summoning Order cannot be faulted and she has been rightly summoned as an Accused. In the present Case, the Form-32 clearly records that Mr. Abhishek Gupta had resigned from the Company on 01.10.2013, which is fully corroborated by the Minutes of the Meeting of the Board of Directors. There is cogent independent evidence on record, reflecting the resignation of Mr. Abhishek Gupta before the cause of action arose in the aforesaid Complaints under Section 138 NI Act. In no way, can he be said to be involved in the affairs of the Company, after his resignation. Therefore, entitled to be discharged and the Summoning Order dated 03.05.2017 vis-à-vis Mr. Abhishek Gupta, is hereby quashed. Issues: (i) Whether the summoning order vis-à-vis Ms. Sandhya Gupta (alleged sleeping director/authorised signatory) is sustainable and she is liable to be prosecuted under Section 138 of the Negotiable Instruments Act; (ii) Whether Mr. Abhishek Gupta, who claims to have resigned prior to issuance of the cheques, is entitled to discharge and setting aside of the summoning order dated 03.05.2017.Issue (i): Whether the summoning order against Ms. Sandhya Gupta should be quashed on the ground that she was a sleeping director and not involved in day-to-day affairs.Analysis: The Court examined documentary material on record including Form-32 entries, cheque signatory details and co-signature on balance sheets. The documents indicate that Ms. Sandhya Gupta was a director, an authorised signatory to the impugned cheque and co-signatory to company financials, which prima facie link her to company affairs and to the transaction giving rise to the complaint under Section 138 NI Act. The Court found that these materials justify her being proceeded against at trial and that her defence of being a sleeping director is a matter to be decided at trial.Conclusion: The summoning order as regards Ms. Sandhya Gupta is upheld and the decision is against the Appellant (not in favour of the Appellant).Issue (ii): Whether Mr. Abhishek Gupta, who asserts resignation effective 01.10.2013, is entitled to discharge from proceedings relating to cheques issued in 2014.Analysis: The Court considered Form-32 and the board minutes accepting the resignation. Reference was made to the statutory scheme governing resignation of directors (Section 168 Companies Act, 2013) and to the timing of the resignation relative to the cause of action. The resignation recorded in Form-32 and corroborated by board minutes was found to pre-date the issuance of the cheques and the dishonour, providing cogent independent evidence that Mr. Abhishek Gupta was not a director at the relevant time.Conclusion: Mr. Abhishek Gupta is discharged from the complaints under Section 138 NI Act and the summoning order dated 03.05.2017 is set aside in his respect; this conclusion is in favour of the Appellant.Final Conclusion: The Court upholds the summons issued to Ms. Sandhya Gupta but sets aside the summoning order and discharges Mr. Abhishek Gupta; the petitions are disposed of accordingly.Ratio Decidendi: Where a director's resignation is supported by contemporaneous company records (Form-32 and board minutes) and predates the cause of action, the director is not liable for offences arising thereafter; conversely, documentary evidence showing a director as an authorised signatory and participant in company affairs suffices to sustain a summoning order for trial under Section 138 NI Act.