When an individual ceases to be Director of a company, he cannot be held accountable for cheques issued and dishonored after his exit
Justice V. Kameshwar Rao of the Delhi High Court observed that a person who has already resigned as the Director of a Company, cannot be held vicariously liable for the conduct of the daily workings of the Company under Section 141 of Negotiable Instruments Act, 1881 (NIA, 1881).The petitioner, Alibaba Nabibasha filed a petition to seek quashing of the five complaint cases which were initiated...
Justice V. Kameshwar Rao of the Delhi High Court observed that a person who has already resigned as the Director of a Company, cannot be held vicariously liable for the conduct of the daily workings of the Company under Section 141 of Negotiable Instruments Act, 1881 (NIA, 1881).
The petitioner, Alibaba Nabibasha filed a petition to seek quashing of the five complaint cases which were initiated by Small-Farmer Agribusiness Consortium (Respondent No. 1). The said complaint cases were primarily based up on the return of five cheques which were issued on behalf of the Respondent No. 2 for a total amount of Rs. 45 Lakhs. Respondent No. 1 had initiated the proceedings against the petitioner before the learned Metropolitan Magistrate (MM) Saket Courts, under Section 138 of the NIA, 1881 on the ground that the Petitioner was the Director of the Respondent No. 2.
The petitioner submitted that he had ceased to be a Director of the Respondent No.2 w.e.f 27 October 2010 and the cheques in question were issued in 2018 by the Respondent No.2 in favour of Respondent No.1 for an amount of Rs. 45 lakhs which got dishonored due to insufficient funds in January 2019.
The Petitioner defended that he had resigned as a Director at least 8 years prior to the issuance of the cheques in question and that his resignation was also notified to the Registrar of Companies/ Ministry of Company Affairs by the Respondent No. 2 in January 2011. It was asserted by the petitioner that both the events which led to filing of complaints i.e. the agreement and the issuance of the cheques of the said event took place after October 27, 2010 when the petitioner had ceased to be a Director of the Company.
It was further submitted that the essential conditions to maintain a complaint under Section 138 of the NIA, 1881 were absent and hence the petitioner was not responsible for the affairs of Respondent No. 2.
The Delhi High Court after examining the facts observed, "this factum surely suggests that the petitioner having resigned on October 27, 2010 from the respondent No.2 was not the Director when the agreement dated March 03, 2011 was executed. Even the cheque dated December 31, 2018 was also issued much after petitioner's resignation as the Director of the respondent No.2."
The court was also of the opinion that where the said accused has resigned from the Company and Form 32 has also been submitted with the Registrar of Companies then in such cases if the cheques are subsequently issued and dishonored, it cannot be said that such an accused is in- charge of and responsible for the conduct of the day-to-day affairs of the Company, as contemplated in Section 141 of NIA, 1881 for being proceeded against.
Lastly, the Court allowed the present petition and quashed the complaints and proceedings including summons before the Metropolitan Magistrate, Saket Courts.