N.I. Act | Directors Not Liable For Dishnor Of Cheque Issued By Company After Their Resignation : Supreme Court

The Supreme Court on Wednesday (February 14) observed that the Director of the company wouldn't be held liable for the dishonor of a cheque issued by the company pursuant to the retirement of the Director unless some credible evidence is brought on record proving the guilt of the director.

Reversing the findings of the High Court which refused to quash the criminal proceedings against the accused Director, the Bench Comprising Justices B.R. Gavai and Sanjay Karol observed that the director could be held liable for the dishonor of the cheque after his retirement only when it is proved that any act of a company is proved to have been done with the connivance or consent or may be attributable to a director.

“The position of law as to the liability that can be fastened upon a Director for non-realization of a cheque is no longer res integra. Before adverting to the judicial position, we must also take note of the statutory provision - Section 141 of the N.I. Act, which states that every person who at the time of the offence was responsible for the affairs/conduct of the business of the company, shall be held liable and proceeded against under Section 138 of the N.I. Act, with exception thereto being that such an act, if done without his knowledge or after him having taken all necessary precautions, would not be held liable. However, if it is proved that any act of a company is proved to have been done with the connivance or consent or may be attributable to (i) a director; (ii) a manager; (iii) a secretary; or (iv) any other officer – they shall be deemed to be guilty of that offence and shall be proceeded against accordingly.”, the judgment authored by Justice Sanjay Karol observed.

The complaint was lodged against the accused directors under the Negotiable Instruments Act. The accused director preferred a quashing of the complaint petition before the High Court but was turned down by the High Court.

It is against the decision of the High Court rejecting the quashing petition that the accused director preferred the criminal appeal before the Supreme Court.

The moot question that appeared before the Supreme Court was whether the director of a company who has resigned from such position can be held liable for certain negotiable instruments, failing the realization.

Answering the aforesaid question negatively, the court after perusing the material pieces of evidence placed on record observed that the directors couldn't be held liable by taking note of the fact that the resignations to have taken place on 9th December 2013 and 12th March 2014 but the cheques in question have been issued on 22nd March 2014.

“The record reveals the resignations to have taken place on 9th December 2013 and 12th March 2014. Equally, we find the cheques regarding which the dispute has travelled up the courts to have been issued on 22nd March 2014. The latter is clearly, after the appellant(s) have severed their ties with the Respondent Company and, therefore, can in no way be responsible for the conduct of business at the relevant time. Therefore, we have no hesitation in holding that they ought to be then entitled to be discharged from prosecution.”

“Ex facie, we find that the complainant has not placed any materials on record indicating complicity of the present appellant(s) in the alleged crime. Particularly, when the appellant(s) had no role in the issuance of the instrument, which is evident from Form 32 (Exh.P.59) issued much prior to the date on which the cheque was drawn and presented for realization.”, the court added.

The court took note of proviso 1 to Section 141 of the Negotiable Instruments Act, 1881 to arrive at the aforesaid findings which states that every person who at the time of the offence was responsible for the affairs/conduct of the business of the company, shall be held liable and proceeded against under Section 138 of the N.I. Act, with exception thereto being that such an act, if done without his knowledge or after him having taken all necessary precautions, would not be held liable.

Director Shouldn't Be Called to Face Trial Unless Some Credible Evidence Is Brought On Record

Further, while relying on the case of S.M.S Pharmaceuticals, the court noted that the Director not have been concerned with the issuance of cheques should not be called to face the trial until and unless some credible evidence has been brought on record against the Director alleging his role in issuance of the cheque.

“We also notice this Court to have observed, in regards to the exercise of the inherent powers under Section 482, CrPC, in cases involving negotiable instruments that interference would not be called for, in the absence of some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of process of Court.”

Given the aforesaid observations, the court allowed the criminal appeal of the accused director and quashed the pending criminal proceedings against the accused director.

For Petitioner(s) Mr. Sumeer Sodhi, AOR, Senior Adv Mr. Chander Uday Singh, Adv. Mr. Siddharth Mehta, Adv. Mr. Sidharth Puttur, Adv. Ms. Shreya Singh, Adv. Mr. K. Parameshwar, AOR Ms. Arti Gupta, Adv. Ms. Kanti, Adv. Mr. Chinmay Kalgaonkar, Adv.

Case Details: RAJESH VIREN SHAH VERSUS REDINGTON (INDIA) LIMITED | Crl.A. No. 000888 / 2024

Citation : 2024 LiveLaw (SC) 119

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