Relevant period for deciding vicarious liability of Director of a Company under Section 141 NI Act, includes the period of disputed transaction, and issuance/presentation of cheque: Bombay HC

The Bombay High Court has held that relevant period for deciding the vicarious liability of the Director for the act committed by the Company is not only when the cheque was dishonoured, but also when the disputed transaction was entered into, and from time to time thereafter like at the time of issuance of the cheque in question, presentation of said cheque in Bank etc.

Justice Dr. Shalini Phansalkar Joshi made this observation in Mrs. Lata Pramod Dave vs. M/s. Mode Export Private Limited, wherein the petitioner had approached the High Court to quash the process under Section 138 Negotiable Instrument Act issued against her on the ground that, on the date when the cheque in question was presented to the Bank and came to be dishonoured, she was no more the Director of the Company as she has already resigned from the Company. According to Petitioner, she has tendered her resignation on 1st January 2013 and it was received by the Company on the same date.

The resignation date seriously disputed

The Court observed that though petitioner’s resignation letter apparently bears the date 1st January 2013 and it is also alleged to be received by the Company on 1st January 2013, the other documents produced on record, prima facie, go to prove that it was not tendered  actually on that day but subsequent thereto. Just in order to escape from the clutches of Section 141 of Negotiable Instruments Act, it is shown ante-dated. It is pertinent to note that, if Petitioner had really tendered her resignation on 1st January 2013 itself, on the receipt of the statutory demand notice dated 4th April 2013 issued by Respondent No.1, she would have immediately replied to it bringing on record the fact that she has already resigned from the Company and hence no more liable for prosecution, the Court said.

Relevant period for deciding vicarious liability of Director

The Court observed that relevant period for deciding the liability of the Director for the act committed by the Company is not only when the cheque was dishonoured, but also when the disputed transaction was entered into, and from time to time thereafter like at the time of issuance of the cheque in question, presentation of said cheque in Bank etc.

The Court further explained “The offence under Section 138 of Negotiable Instruments Act may get completed only on expiration of fifteen days from the receipt of the statutory demand notice. However, it consists of various acts and constituents that give rise to the commission of offence. Some of those acts are the disputed transaction, the issuance of the cheque, the dishonour of the cheque by the Bank and, lastly, the issuance of notice. The dates of all these acts are relevant, as these acts cannot be separated from one another. They together constitute the offence under Section 138 of Negotiable Instruments Act. It is the combination of all these acts, which gives rise to the commission of the offence under the said Section. Therefore, if the relevant date for attracting vicarious liability of the Director under Section 141 of the Negotiable Instruments Act is, “at the time the offence was committed”, then, as the offence of Section 138 of Negotiable Instruments Act comprises of all these essential acts, majority of these acts in the present case, like the transaction in question and issuance of cheques took place when the Petitioner was very much Director of the Company. Hence, she cannot escape of the liability from this angle also. In this view of the matter, it cannot be said that the Petitioner was not the Director when the offence was committed. Once this is so, she cannot avoid facing prosecution only on the ground of her having ceased to be the Director, when the last few acts of presentation of the cheque to the Bank and its dishonour took place.”

Read the Judgment here.