Cheque dishonour liability under the Negotiable Instruments Act upheld for a director on record, but not after proven resignation.

In a prosecution under Section 138 read with Section 141 of the Negotiable Instruments Act, company records showing Sandhya Gupta as a director, cheque signatory and co-signatory to the balance sheets were sufficient at the summoning stage to sustain proceedings against her; her claim of being only a sleeping director was a matter for trial. By contrast, Abhishek Gupta's resignation was corroborated by Form-32 and board minutes, and as the cheques were issued after that resignation, he could not be fastened with liability for the later transaction.

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Issues: (i) Whether the summoning order and continuation of proceedings under Section 138 of the Negotiable Instruments Act could be sustained against Sandhya Gupta on the allegation that she was in charge of and responsible for the day-to-day affairs of the company; (ii) Whether Abhishek Gupta had resigned from the company before the cause of action arose and was therefore entitled to discharge from the complaint proceedings.

Issue (i): Whether the summoning order and continuation of proceedings under Section 138 of the Negotiable Instruments Act could be sustained against Sandhya Gupta on the allegation that she was in charge of and responsible for the day-to-day affairs of the company.

Analysis: The material on record, including Form-32 and the company documents, showed Sandhya Gupta as a director and also as a signatory to the cheques and co-signatory to the balance sheets. On that basis, the allegation that she was merely a sleeping director was not borne out from the record at this stage. The defence that she was not actively involved in the business raised a matter for trial and could not displace the summoning order in proceedings under Section 482 of the Code of Criminal Procedure, 1973.

Conclusion: The summoning order was upheld against Sandhya Gupta and the proceedings against her were maintained.

Issue (ii): Whether Abhishek Gupta had resigned from the company before the cause of action arose and was therefore entitled to discharge from the complaint proceedings.

Analysis: The Form-32 and the minutes of the board meeting consistently reflected that Abhishek Gupta had resigned from the company on 01.10.2013. The cheques in question were issued later and the alleged dishonour arose thereafter. On the evidence available, his resignation stood corroborated and there was no basis to treat him as concerned with the affairs of the company after resignation.

Conclusion: Abhishek Gupta was entitled to discharge and the summoning order was quashed insofar as he was concerned.

Final Conclusion: The challenge succeeded only in part, with the proceedings continuing against Sandhya Gupta while Abhishek Gupta was relieved from the complaint case.

Ratio Decidendi: In a prosecution under Section 138 read with Section 141 of the Negotiable Instruments Act, a director shown by company records to be a signatory/co-signatory and part of the company's functioning may be proceeded against at the summoning stage, while a director whose prior resignation is duly corroborated by record cannot be fastened with liability for subsequent transactions.

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