Directors' Resignations Does Not Automatically Absolve Them Of Legal Responsibility For Dishonour Of Cheque Signed By Them: Jharkhand High Court
In a recent judgment, the Jharkhand High Court ruled against quashing criminal proceedings in a cheque dishonour case, emphasizing that directors' resignations from a company do not automatically absolve them of legal responsibilities particularly when the cheque was signed by them.Justice Sanjay Kumar Dwivedi observed, "Looking into sub-section 2 of Section 141 of N.I. Act prima facie it...
In a recent judgment, the Jharkhand High Court ruled against quashing criminal proceedings in a cheque dishonour case, emphasizing that directors' resignations from a company do not automatically absolve them of legal responsibilities particularly when the cheque was signed by them.
Justice Sanjay Kumar Dwivedi observed, "Looking into sub-section 2 of Section 141 of N.I. Act prima facie it appears that when the signature itself of these petitioners in the cheque they are deemed to be guilty of that offence and that can be only appreciated in trial. Further the petitioners have not disputed their signatures and the argument advanced by the learned senior counsel for the petitioners are required to be proved by leading evidence."
The Court placed reliance on the case of Suhas Bhand vs. State of Maharashtra & Anr. 2008 SCC Online 1610, whereby one of the legal principles with regard to the resignation of the director was, "(ii) If his resignation is not accepted or admitted by the complainant upon production of the certified copy of Form No. 32, the accused would have to prove the truth of the contents of the said certified copy i.e. the factum of his resignation. Such accused cannot be discharged simplicitor upon production of a certified copy of Form No. 32."
Citing the above legal principle, the Court asserted that the person who signed the cheque is clearly responsible under Section 141(2) of the N.I. Act.
The case revolved around two criminal miscellaneous petitions filed for quashing criminal proceedings against the accused directors of Rudra Steel Private Limited. The complainant alleged that the accused, including Pramod Shankar Dayal and Krishna Singh, had issued a cheque for Rs. 11,90,000, which bounced due to insufficient funds. The complainant further claimed that despite a legal notice, the accused failed to respond, leading to the filing of the complaint.
Advocate AK Kashyap, the senior counsel representing the petitioners in both cases, emphasized that the petitioner, Pramod Shankar Dayal, had officially resigned from his position as Director at M/s Rudra Steel Private Limited, effective October 26, 2003, and this resignation had been duly accepted and recorded in Form-32 by the Registrar of Companies.
Referring to Form-32, the counsel asserted that the petitioner was wrongly implicated, as he had ceased to be a Director from October 26, 2003. He argued that there was no evidence to suggest that the petitioner was in charge of the company at the time when the alleged offense occurred. Moreover, he pointed out that Section 141 of the Negotiable Instruments Act required a specific statement about the responsibility of the petitioners, which was lacking in this case.
Furthermore, the counsel raised the issue of a one-day delay in filing the complaint. He argued that the complaint had been submitted on February 24, 2011, whereas it should have been filed on February 23, 2011, considering the date of the legal notice issued on January 10, 2011. He also noted that the complaint did not specify the date on which the petitioners had received the notice.
In support of his arguments, Advocate Kashyap cited the cases of Gunmala Sales Private Limited Vs. Anu Mehta and others (2015) 1 SCC 103 and Anita Malhotra Vs. Apparel Export Promotion Council and Another (2012) 1 SCC 520, and pointed out that based on the examination of Form-32 and the resignation, the petitioners had been exonerated when facing a similar situation. He prayed that the entire criminal proceeding in the current case be quashed on the grounds presented.
Looking into the complaint petition the Court observed that the company had been accused and one of requirements under the Negotiable Instrument Act in the light of Section 141 was complied with. The concerned cheque to the tune of Rs. 11,90,000/- clearly suggested that cheque was issued by the signatures of both the petitioners namely, Pramod Shankar Dayal and Krishna Singh.
The primary argument centered around Form-32, particularly in relation to petitioner Pramod Shankar Dayal. However, the Court pointed out that there was no Form-32 for petitioner Krishna Singh in Cr.M.P. No. 1573 of 2014.
[NOTE: Form 32 is filed with the Registrar of Companies and it indicates the status of the Directors. Thus, when a Director resigns, and his resignation is accepted by the Company, the Company becomes obliged to file a Form 32 with the ROC indicating change in status of the Directors.]
The court emphasized, “The companies are being governed by their Board of Directors. The directors of the company would retire by rotation and may or may not be re-appointed by the Board under the relevant provisions of the Companies Act. The directors can also resign from the company. There may be change in the management of the company and that change is not private affairs of the company.”
“In view of that the once the directors who have resigned years before the cheque came to be dishnoured, are not liable to be prosecuted and he cannot be said to be in charge of and responsible to the company for the conduct of the business of the company only on the ground that at one point of time he played the role of a director,” the court added.
The Court observed that the resignation of the petitioners had been contested by the complainant through the submission of a counter-affidavit. It highlighted that the cheque had been dishonored on 14.12.2010, whereas the resignation of Pramod Shankar Dayal had been dated 26.10.2003. The Court pointed out that in the Form-32 document, the appointment date was stated as 26.10.2003, contradicting the fact that the petitioners had issued the cheque well before their alleged resignation.
Consequently, the Court determined that this discrepancy constituted a disputed matter of fact rather than a clear and unequivocal admission of resignation. Therefore, it emphasized the necessity of presenting evidence during the trial to substantiate the claim of resignation.
Furthermore, the Court observed that when a legal notice was issued, the petitioners did not respond by stating that they were no longer directors of the company. The Court emphasized that the signatures on the cheque were indeed those of the petitioners.
The court, after considering the presented evidence and the fact that the petitioner, Pramod Shankar Dayal, resigned after the cheque was presented, determined that this case did not warrant quashing the proceedings under Section 482 of Cr.P.C.
Furthermore, the Court observed that the petitioner Krishna Singh had not filed the necessary Form 32 under the Companies Act; instead, he relied on his resignation letter dated 04.10.2006, and since both petitioners were signatories of the cheque and their situations were identical, the court concluded that the criminal proceedings against them would not be halted.
The trial was allowed to proceed as per the ruling under Section 482 of Cr.P.C., ensuring fairness in the legal process.
Counsel/s For the Petitioner : Mr. A.K. Kashyap, Sr. Advocate Mr. Praveen Shankar Dayal, Advocate
Counsel/s For the State : Mrs. Priya Shrestha, Spl. P.P.
Counsel/s For the O.P. No.2 : Mr. Rajeev Kr. Sinha, Advocate
LL Citation: 2023 LiveLaw (Jha) 68
Case Title: Pramod Shankar Dayal vs. The State of Jharkhand
Case No.: Cr.M.P. No. 926 of 2014